Arena Pharmaceuticals, Inc.
ARENA PHARMACEUTICALS INC (Form: 8-K, Received: 03/29/2011 06:55:19)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of The

Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): March 28, 2011

 

 

Arena Pharmaceuticals, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   000-31161   23-2908305

(State or other jurisdiction

of incorporation)

 

(Commission

File Number)

 

(I.R.S. Employer

Identification No.)

6166 Nancy Ridge Drive, San Diego, California 92121

(Address of principal executive offices) (Zip Code)

858.453.7200

(Registrant’s telephone number, including area code)

N/A

(Former name or former address, if changed since last report.)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 


In this report, “Arena Pharmaceuticals,” “Arena,” “we,” “us” and “our” refer to Arena Pharmaceuticals, Inc., unless the context otherwise provides.

 

Item 1.01 Entry into a Material Definitive Agreement.

Securities Purchase Agreement

On March 28, 2011, we entered into a securities purchase agreement, or Securities Purchase Agreement, with Deerfield Private Design Fund, L.P., Deerfield Private Design International, L.P., Deerfield Partners, L.P., Deerfield International Limited, Deerfield Special Situations Fund, L.P., and Deerfield Special Situations Fund International Limited, or, collectively, Deerfield, pursuant to which Deerfield agreed to purchase 12,150,000 shares of our common stock for a purchase price of $1.46 per share and 12,150 shares of our Series C Convertible Preferred Stock, or Series C Preferred Stock, for a purchase price of $1,460.00 per share, for an aggregate purchase price of approximately $35.5 million. A copy of the Securities Purchase Agreement is attached as Exhibit 99.1.

The rights, preferences and privileges of the Series C Preferred Stock are set forth in a Certificate of Designations of Series C Convertible Preferred Stock, or Certificate of Designations, that we expect to file with the Secretary of State of the State of Delaware on or before March 31, 2011, a form of which is attached as Exhibit 4.5. Each share of Series C Preferred Stock is convertible into 1,000 shares of our common stock at any time at the option of the holder, provided that the holder will be prohibited from converting Series C Preferred Stock into shares of our common stock if, as a result of such conversion, the holder, together with its affiliates, would own more than 9.98% of the total number of shares of our common stock then issued and outstanding. In the event of our liquidation, dissolution, or winding up, holders of our Series C Preferred Stock will receive a payment equal to $0.0001 per share of Series C Preferred Stock before any proceeds are distributed to the holders of our common stock. Shares of Series C Preferred Stock will generally have no voting rights, except as required by law and except that the consent of holders of a majority of the outstanding Series C Preferred Stock will be required to amend the terms of the Series C Preferred Stock.

Offering

The offering described above is being made pursuant to a shelf registration statement we filed with the Securities and Exchange Commission, or SEC, on May 3, 2010, which became effective on May 10, 2010 (File No. 333-166481). The closing of the offering is expected to take place on or before March 31, 2011. A prospectus supplement relating to the offering has been filed with the SEC. A copy of the opinion of our General Counsel relating to the legality of the issuance and sale of the securities in the offering is attached as Exhibit 5.1.

On March 29, 2011, we also issued a press release announcing the pricing of the offering. A copy of the press release is attached as Exhibit 99.5.

Facility Agreement Amendment

We previously entered into a Facility Agreement with Deerfield on June 17, 2009, pursuant to which Deerfield provided us with a $100 million secured loan. Concurrent with the execution of the Securities Purchase Agreement, we entered into a second amendment to the Facility Agreement, or the Second Amendment, pursuant to which approximately half of the gross proceeds of the offering described above will be used to prepay a portion of the principal amount that otherwise would have been required to be repaid in June 2013. The Second Amendment also amends the Facility Agreement to eliminate (i) Deerfield’s right to provide us with an additional loan in a principal amount of up to $20 million and to receive additional warrants to purchase up to 5,600,000 shares of our common stock at an exercise price of $5.42 per share, (ii) our obligation to repay portions of the loan in connection with certain equity issuances, and (iii) our obligation to make mandatory prepayments of the loan in the event we issue equity securities at a price of less than $2.00 per share. A copy of the Second Amendment is attached as Exhibit 99.2.


Exchange Agreement and Warrants

In connection with the Facility Agreement, in July 2009, we issued Deerfield warrants to purchase an aggregate of 28,000,000 shares of our common stock at an exercise price of $5.42 per share, or the Original Warrants, and in June 2010 we agreed to exchange Original Warrants to purchase an aggregate of 16,200,000 shares of our common stock for new warrants, or the Existing Warrants, to purchase a like number of shares of our common stock at an exercise price of $3.45 per share. On March 28, 2011, we entered into an Exchange Agreement with Deerfield, pursuant to which we agreed to exchange 14,368,590 of the Existing Warrants for new warrants, or the New Warrants, to purchase a like number of shares of our common stock at an exercise price of $1.68 per share. The New Warrants will be exercisable beginning on the date that is six months after their issuance and will remain exercisable until June 17, 2015. Other than the provisions described above, the New Warrants contain substantially the same terms as the Existing Warrants. A copy of the Exchange Agreement is attached as Exhibit 99.3. A copy of the form of New Warrant is attached as Exhibit 99.4.

 

Item 3.02 Unregistered Sales of Equity Securities.

As described in Item 1.01 above, we entered into an Exchange Agreement pursuant to which we agreed to issue the New Warrants. We relied on the exemption from registration contained in Section 3(a)(9) of the Securities Act for the issuance of the New Warrants in exchange for the Existing Warrants.


Item 9.01 Financial Statements and Exhibits.

(d) Exhibits

 

Exhibit No.

  

Description

  4.5    Form of Certificate of Designations of Series C Convertible Preferred Stock of Arena.
  5.1    Opinion of Arena’s General Counsel.
23.1    Consent of Arena’s General Counsel (included in Exhibit 5.1).
99.1    Securities Purchase Agreement, dated March 28, 2011, between Arena and Deerfield Private Design Fund, L.P., Deerfield Private Design International, L.P., Deerfield Partners, L.P., Deerfield International Limited, Deerfield Special Situations Fund, L.P., and Deerfield Special Situations Fund International Limited.
99.2    Second Amendment to Facility Agreement, dated March 28, 2011, between Arena and Deerfield Private Design Fund, L.P., Deerfield Private Design International, L.P., Deerfield Partners, L.P., Deerfield International Limited, Deerfield Special Situations Fund, L.P., and Deerfield Special Situations Fund International Limited.
99.3    Exchange Agreement, dated March 28, 2011, between Arena and Deerfield Private Design Fund, L.P., Deerfield Private Design International, L.P., Deerfield Partners, L.P., Deerfield International Limited, Deerfield Special Situations Fund, L.P., and Deerfield Special Situations Fund International Limited.
99.4    Form of Warrant to Purchase Common Stock of Arena.
99.5    Press Release Announcing Offering.


SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

Date: March 29, 2011   Arena Pharmaceuticals, Inc.
  By:  

      /s/ Steven W. Spector

          Steven W. Spector
          Senior Vice President, General Counsel and Secretary


EXHIBIT INDEX

 

Exhibit No.

  

Description

  4.5    Form of Certificate of Designations of Series C Convertible Preferred Stock of Arena.
  5.1    Opinion of Arena’s General Counsel.
23.1    Consent of Arena’s General Counsel (included in Exhibit 5.1).
99.1    Securities Purchase Agreement, dated March 28, 2011, between Arena and Deerfield Private Design Fund, L.P., Deerfield Private Design International, L.P., Deerfield Partners, L.P., Deerfield International Limited, Deerfield Special Situations Fund, L.P., and Deerfield Special Situations Fund International Limited.
99.2    Second Amendment to Facility Agreement, dated March 28, 2011, between Arena and Deerfield Private Design Fund, L.P., Deerfield Private Design International, L.P., Deerfield Partners, L.P., Deerfield International Limited, Deerfield Special Situations Fund, L.P., and Deerfield Special Situations Fund International Limited.
99.3    Exchange Agreement, dated March 28, 2011, between Arena and Deerfield Private Design Fund, L.P., Deerfield Private Design International, L.P., Deerfield Partners, L.P., Deerfield International Limited, Deerfield Special Situations Fund, L.P., and Deerfield Special Situations Fund International Limited.
99.4    Form of Warrant to Purchase Common Stock of Arena.
99.5    Press Release Announcing Offering.

Exhibit 4.5

ARENA PHARMACEUTICALS, INC.

CERTIFICATE OF DESIGNATION OF PREFERENCES,

RIGHTS AND LIMITATIONS

OF

SERIES C CONVERTIBLE PREFERRED STOCK

PURSUANT TO SECTION 151 OF THE

DELAWARE GENERAL CORPORATION LAW

ARENA PHARMACEUTICALS, INC. , a Delaware corporation (the “ Corporation ”), in accordance with the provisions of Section 103 of the Delaware General Corporation Law (the “DGCL”) does hereby certify that, in accordance with Sections 141(c) and 151 of the DGCL, the following resolution was duly adopted by the Board of Directors of the Corporation as of March 28, 2011:

RESOLVED , that the Board of Directors of the Corporation pursuant to authority expressly vesting in it by the provisions of the Certificate of Incorporation of the Corporation, hereby authorizes the issuance of a series of Preferred Stock designated as the Series C Convertible Preferred Stock, par value $0.0001 per share, of the Corporation and hereby fixes the designation, number of shares, powers, preferences, rights, qualifications, limitations and restrictions thereof (in addition to any provisions set forth in the Certificate of Incorporation of the Corporation which are applicable to the Preferred Stock of all classes and series) as follows:

SERIES C CONVERTIBLE PREFERRED STOCK

Section 1 . Definitions . For the purposes hereof, the following terms shall have the following meanings:

Affiliate ” means any person or entity that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a person or entity, as such terms are used in and construed under Rule 144 under the Securities Act. With respect to a Holder, any investment fund or managed account that is managed on a discretionary basis by the same investment manager as such Holder will be deemed to be an Affiliate of such Holder.

Alternate Consideration ” shall have the meaning set forth in Section 7(b).

Beneficial Ownership Limitation ” shall have the meaning set forth in Section 6(c).

Business Day ” means any day except Saturday, Sunday, any day which shall be a federal legal holiday in the United States or any day on which banking institutions in the


State of New York are authorized or required by law or other governmental action to close.

Buy-In ” shall have the meaning set forth in Section 6(d)(iii).

Closing Sale Price ” means, for any security as of any date, the last closing trade price for such security prior to 4:00 p.m., New York City time, on the principal securities exchange or trading market where such security is listed or traded, as reported by Bloomberg, L.P. (or an equivalent, reliable reporting service mutually acceptable to and hereafter designated by Holders of a majority of the then-outstanding Series C Preferred Stock and the Corporation), or if the foregoing do not apply, the last trade price of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, L.P., or, if no last trade price is reported for such security by Bloomberg, L.P., the average of the bid prices of any market makers for such security as reported on the OTC Pink Market by OTC Markets Group, Inc. If the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Sale Price of such security on such date shall be the fair market value as determined in good faith by the Board of Directors of the Company. All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during the applicable calculation period.

Commission ” means the Securities and Exchange Commission.

Common Stock ” means the Corporation’s common stock, par value $0.0001 per share, and stock of any other class of securities into which such securities may hereafter be reclassified or changed into.

Common Stock Equivalents ” means any securities of the Corporation or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.

Conversion Date ” shall have the meaning set forth in Section 6(a).

Conversion Price ” shall mean $1.46, as adjusted pursuant to paragraph 7 hereof.

Conversion Ratio ” shall have the meaning set forth in Section 6(b).

Conversion Shares ” means, collectively, the shares of Common Stock issuable upon conversion of the shares of Series C Preferred Stock in accordance with the terms hereof.

DGCL ” shall mean the Delaware General Corporation Law.

Distributions ” shall have the meaning set forth in Section 5(a).

 

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DWAC Delivery ” shall have the meaning set forth in Section 6(a).

Exchange Act ” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

Fundamental Transaction ” shall have the meaning set forth in Section 7(b).

Holder ” means any holder of Series C Preferred Stock.

Issuance Date ” means the date of the “Closing” as defined in that certain Securities Purchase Agreement, dated March 28, 2011, by and among the Corporation and the “Investors” named therein (the “ Securities Purchase Agreement ).

Investors ” shall have the meaning given to such term in the Securities Purchase Agreement.

Junior Securities ” shall have the meaning set forth in Section 5(a).

Notice of Conversion ” shall have the meaning set forth in Section 6(a).

Parity Securities ” shall have the meaning set forth in Section 5(a).

Person ” means any individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

Securities Act ” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

Senior Securities ” shall have the meaning set forth in Section 5(a).

Series C Preferred Stock Register ” shall have the meaning set forth in Section 2(b).

Share Delivery Date ” shall have the meaning set forth in Section 6(d).

Stated Value ” shall mean $1,460.00.

Trading Day ” means a day on which the Common Sock is traded for any period on the principal securities exchange or other securities market on which the Common Stock is then being traded.

Section 2 . Designation, Amount and Par Value; Assignment . a) The series of preferred stock designated by this Certificate shall be designated as the Corporation’s Series C

 

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Convertible Preferred Stock (the “ Series C Preferred Stock ”) and the number of shares so designated shall be 12,150 (which shall not be subject to increase without the written consent of the Holders of a majority of the issued and outstanding Series C Preferred Stock). Each share of Series C Preferred Stock shall have a par value of $0.0001 per share.

b) The Corporation shall register shares of the Series C Preferred Stock, upon records to be maintained by the Corporation for that purpose (the “ Series C Preferred Stock Register ”), in the name of the Holders thereof from time to time. The Corporation may deem and treat the registered Holder of shares of Series C Preferred Stock as the absolute owner thereof for the purpose of any conversion thereof and for all other purposes. The Corporation shall register the transfer of any shares of Series C Preferred Stock in the Series C Preferred Stock Register, upon surrender of the certificates evidencing such shares to be transferred, duly endorsed by the Holder thereof, to the Corporation at its address specified herein. Upon any such registration or transfer, a new certificate evidencing the shares of Series C Preferred Stock so transferred shall be issued to the transferee and a new certificate evidencing the remaining portion of the shares not so transferred, if any, shall be issued to the transferring Holder, in each case, within three Business Days. The provisions of this Certificate are intended to be for the benefit of all Holders from time to time and shall be enforceable by any such Holder.

Section 3 . Dividends . Holders shall not be entitled to receive any dividends in respect of the Series C Preferred Stock, unless and until specifically declared by the Board of Directors of the Corporation to be payable to the Holders of the Series C Preferred Stock.

Section 4 . Voting Rights . Except as otherwise provided herein or as otherwise required by the DGCL, the Series C Preferred Stock shall have no voting rights. However, as long as any shares of Series C Preferred Stock are outstanding, the Corporation shall not, without the affirmative vote of the Holders of a majority of the then outstanding shares of the Series C Preferred Stock, (a) alter or change adversely the powers, preferences or rights given to the Series C Preferred Stock or alter or amend this Certificate of Designation, (b) increase the number of authorized shares of Series C Preferred Stock, or (c) enter into any agreement with respect to any of the foregoing.

Section 5 . Rank; Liquidation .

a) The Series C Preferred Stock shall rank (i) senior to all of the Common Stock; (ii) senior to any class or series of capital stock of the Corporation hereafter created specifically ranking by its terms junior to any Series C Preferred Stock (“ Junior Securities ”); (iii) on parity with any class or series of capital stock of the Corporation hereafter created specifically ranking by its terms on parity with the Series C Preferred Stock (“ Parity Securities ”); and (iv) junior to any class or series of capital stock of the Corporation hereafter created specifically ranking by its terms senior to any Series C Preferred Stock (“ Senior Securities ”), in each case, as to distributions of assets upon liquidation, dissolution or winding up of the Corporation, whether voluntarily or involuntarily (all such distributions being referred to collectively as Distributions ”).

 

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b) Subject to the prior and superior rights of the holders of any Senior Securities of the Corporation, upon liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, each holder of shares of Series C Preferred Stock shall be entitled to receive, in preference to any distributions of any of the assets or surplus funds of the Corporation to the holders of the Common Stock and Junior Securities and pari passu with any distribution to the holders of Parity Securities, an amount equal to $.0001 per share of Series C Preferred Stock, plus an additional amount equal to any dividends declared but unpaid on such shares, before any payments shall be made or any assets distributed to holders of any class of Common Stock or Junior Securities. If, upon any such liquidation, dissolution or winding up of the Corporation, the assets of the Corporation shall be insufficient to pay the holders of shares of the Series C Preferred Stock the amount required under the preceding sentence, then all remaining assets of the Corporation shall be distributed ratably to holders of the shares of the Series C Preferred Stock and Parity Securities.

Section 6 . Conversion .

a) Conversions at Option of Holder . Each share of Series C Preferred Stock shall be convertible, at any time and from time to time from and after the Issuance Date, at the option of the Holder thereof, into a number of shares of Common Stock equal to the Conversion Ratio. Holders shall effect conversions by providing the Corporation with the form of conversion notice attached hereto as Annex A (a “ Notice of Conversion ”), duly completed and executed. Other than a conversion following a Fundamental Transaction or following a notice provided for under Section 7(d)(ii) hereof, the Notice of Conversion must specify at least a number of shares of Series C Preferred Stock to be converted equal to the lesser of (x) 100 shares (such number subject to appropriate adjustment following the occurrence of an event specified in Section 7(a) hereof) and (y) the number of shares of Series C Preferred Stock then held by the Holder. Provided the Corporation’s transfer agent is participating in the Depository Trust Company (“ DTC ”) Fast Automated Securities Transfer program, the Notice of Conversion may specify, at the Holder’s election, whether the applicable Conversion Shares shall be credited to the account of the Holder’s prime broker with DTC through its Deposit Withdrawal Agent Commission system (a “ DWAC Delivery ”). The “ Conversion Date ”, or the date on which a conversion shall be deemed effective, shall be defined as the Trading Day that the Notice of Conversion, completed and executed, is sent by facsimile to, and received during regular business hours by, the Corporation; provided that the original certificate(s) representing such shares of Series C Preferred Stock being converted, duly endorsed, and the accompanying Notice of Conversion, are received by the Corporation within two (2) Trading Days thereafter. In all other cases, the Conversion Date shall be defined as the Trading Day on which the original shares of Series C Preferred Stock being converted, duly endorsed, and the accompanying Notice of Conversion, are received by the Corporation. The calculations set forth in the Notice of Conversion shall control in the absence of manifest or mathematical error.

 

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b) Conversion Ratio . The “Conversion Ratio” for each share of Series C Preferred Stock shall be equal to the Stated Value divided by the Conversion Price.

c) Beneficial Ownership Limitation . Notwithstanding anything herein to the contrary, the Corporation shall not effect any conversion of the Series C Preferred Stock, and a Holder shall not have the right to convert any portion of the Series C Preferred Stock, to the extent that, after giving effect to an attempted conversion set forth on an applicable Notice of Conversion, such Holder (together with such Holder’s Affiliates, and any other Person whose beneficial ownership of Common Stock would be aggregated with the Holder’s for purposes of Section 13(d) of the Exchange Act and the applicable regulations of the Commission, including any “group” of which the Holder is a member) would beneficially own a number of shares of Common Stock in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by such Holder and its Affiliates shall include the number of shares of Common Stock issuable upon conversion of the Series C Preferred Stock subject to the Notice of Conversion with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (A) conversion of the remaining, unconverted Series C Preferred Stock beneficially owned by such Holder or any of its Affiliates, and (B) exercise or conversion of the unexercised or unconverted portion of any other securities of the Corporation (including any warrants) beneficially owned by such Holder or any of its Affiliates that are subject to a limitation on conversion or exercise similar to the limitation contained herein. Except as set forth in the preceding sentence, for purposes of this Section 6(c), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the applicable regulations of the Commission. In addition, for purposes hereof, “group” has the meaning set forth in Section 13(d) of the Exchange Act and the applicable regulations of the Commission. For purposes of this Section 6(c), it is understood that the number of shares of Common Stock beneficially owned by each Investor shall be aggregated with each other Investor for purposes of Section 13(d) of the Exchange Act. For purposes of this Section 6(c), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (A) the Corporation’s most recent periodic or annual filing with the Commission, as the case may be, (B) a more recent public announcement by the Corporation that is filed with the Commission or (C) a more recent notice by the Corporation or the Corporation’s transfer agent to the Holder setting forth the number of shares of Common Stock then outstanding. Upon the written request of a Holder (which may be by via email), the Corporation shall, within three (3) Trading Days thereof, confirm in writing to such Holder (which may be via email) the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to any actual conversion or exercise of securities of the Corporation, including shares of Series C Preferred Stock, by such Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was last publicly reported or confirmed to the Holder. The “ Beneficial Ownership Limitation ” shall be 9.98% of the number of shares of the Common Stock outstanding immediately

 

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after giving effect to the issuance of shares of Common Stock pursuant to such Notice of Conversion (to the extent permitted pursuant to this Section 6(c)).

d) Mechanics of Conversion

i. Delivery of Certificate or Electronic Issuance Upon Conversion . Not later than three Trading Days after the applicable Conversion Date, or if the Holder requests the issuance of physical certificate(s), two Trading Days after receipt by the Corporation of the original certificate(s) representing such shares of Series C Preferred Stock being converted, duly endorsed, and the accompanying Notice of Conversion (the “ Share Delivery Date ”), the Corporation shall (a) deliver, or cause to be delivered, to the converting Holder a physical certificate or certificates representing the number of Conversion Shares being acquired upon the conversion of shares of Series C Preferred Stock or (b) in the case of a DWAC Delivery, electronically transfer such Conversion Shares by crediting the account of the Holder’s prime broker with DTC through its DWAC system. If in the case of any Notice of Conversion such certificate or certificates are not delivered to or as directed by or, in the case of a DWAC Delivery, such shares are not electronically delivered to or as directed by, the applicable Holder by the Share Delivery Date, the applicable Holder shall be entitled to elect to rescind such Conversion Notice by written notice to the Corporation at any time on or before its receipt of such certificate or certificates for Conversion Shares or electronic receipt of such shares, as applicable, in which event the Corporation shall promptly return to such Holder any original Series C Preferred Stock certificate delivered to the Corporation and such Holder shall promptly return to the Corporation any Common Stock certificates or otherwise direct the return of any shares of Common Stock delivered to the Holder through the DWAC system, representing the shares of Series C Preferred Stock unsuccessfully tendered for conversion to the Corporation.

ii. Obligation Absolute . Subject to Section 6(c) hereof and subject to Holder’s right to rescind a Conversion Notice pursuant to Section 6(d)(i) above, the Corporation’s obligation to issue and deliver the Conversion Shares upon conversion of Series C Preferred Stock in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by a 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 such Holder or any other Person of any obligation to the Corporation or any violation or alleged violation of law by such Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Corporation to such Holder in connection with the issuance of such Conversion Shares. Subject to Section 6(c) hereof and subject to Holder’s right to rescind a Conversion Notice pursuant to Section 6(d)(i) above, in the event a Holder shall elect to convert any or all of its Series C Preferred

 

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Stock, the Corporation may not refuse conversion based on any claim that such Holder or any one associated or affiliated with such Holder has been engaged in any violation of law, agreement or for any other reason, unless an injunction from a court, on notice to Holder, restraining and/or enjoining conversion of all or part of the Series C Preferred Stock of such Holder shall have been sought and obtained, and the Corporation posts a surety bond for the benefit of such Holder in the amount of 150% of the value of the Conversion Shares into which would be converted the Series C Preferred Stock which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall be payable to such Holder to the extent it obtains judgment. In the absence of such injunction, the Corporation shall, subject to Section 6(c) hereof and subject to Holder’s right to rescind a Conversion Notice pursuant to Section 6(d)(i) above, issue Conversion Shares upon a properly noticed conversion. Nothing herein shall limit a Holder’s right to pursue actual damages for the Corporation’s failure to deliver Conversion Shares within the period specified herein and such Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit a Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law.

iii. Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Conversion . If the Corporation fails to deliver to a Holder the applicable certificate or certificates or to effect a DWAC Delivery, as applicable, by the Share Delivery Date pursuant to Section 6(d)(i) (other than a failure caused by incorrect or incomplete information provided by Holder to the Corporation), and if after such Share Delivery Date such Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise), or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by such Holder of the Conversion Shares which such Holder was entitled to receive upon the conversion relating to such Share Delivery Date (a “ Buy-In ”), then the Corporation shall (A) pay in cash to such Holder (in addition to any other remedies available to or elected by such Holder) the amount by which (x) such Holder’s total purchase price (including any brokerage commissions) for the shares of Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that such Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of such Holder, either reissue (if surrendered) the shares of Series C Preferred Stock equal to the number of shares of Series C Preferred Stock submitted for conversion or deliver to such Holder the number of shares of Common Stock that would have been issued if the Corporation had timely complied with its delivery requirements under Section 6(d)(i). For example, if a Holder purchases shares of Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to

 

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an attempted conversion of shares of Series C Preferred Stock with respect to which the actual sale price (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence, the Corporation shall be required to pay such Holder $1,000. The Holder shall provide the Corporation written notice, within three (3) Trading Days after the occurrence of a Buy-In, indicating the amounts payable to such Holder in respect of such Buy-In together with applicable confirmations and other evidence reasonably requested by the Corporation. 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 Corporation’s failure to timely deliver certificates representing shares of Common Stock upon conversion of the shares of Series C Preferred Stock as required pursuant to the terms hereof; provided, however, that the Holder shall not be entitled to both (i) require the reissuance of the shares of Series C Preferred Stock submitted for conversion for which such conversion was not timely honored and (ii) receive the number of shares of Common Stock that would have been issued if the Corporation had timely complied with its delivery requirements under Section 6(d)(i).

iv. Reservation of Shares Issuable Upon Conversion . The Corporation covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of the Series C Preferred Stock, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holders of the Series C Preferred Stock, not less than such aggregate number of shares of the Common Stock as shall be issuable (taking into account the adjustments of Section 7) upon the conversion of all outstanding shares of Series C Preferred Stock. The Corporation covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable.

v. Fractional Shares . No fractional shares or scrip representing fractional shares of Common Stock shall be issued upon the conversion of the Series C Preferred Stock. As to any fraction of a share which a Holder would otherwise be entitled to receive upon such conversion, the Corporation shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion Price or round up to the next whole share.

vi. Transfer Taxes . The issuance of certificates for shares of the Common Stock upon conversion of the Series C Preferred Stock shall be made without charge to any Holder for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificates, provided that the Corporation shall not be required to pay any tax that may be payable in respect of

 

9


any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the registered Holder(s) of such shares of Series C Preferred Stock and the Corporation shall not be required to issue or deliver such certificates unless or until the Person or Persons requesting the issuance thereof shall have paid to the Corporation the amount of such tax or shall have established to the satisfaction of the Corporation that such tax has been paid.

b) Status as Stockholder . Upon each Conversion Date, (i) the shares of Series C Preferred Stock being converted shall be deemed converted into shares of Common Stock and (ii) the Holder’s rights as a holder of such converted shares of Series C Preferred Stock shall cease and terminate, excepting only the right to receive certificates for such shares of Common Stock and to any remedies provided herein or otherwise available at law or in equity to such Holder because of a failure by the Corporation to comply with the terms of this Certificate of Designation. In all cases, the holder shall retain all of its rights and remedies for the Corporation’s failure to convert Series C Preferred Stock.

Section 7 . Certain Adjustments .

a) Stock Dividends and Stock Splits . If the Corporation, at any time while this Series C Preferred Stock is outstanding: (A) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Corporation upon conversion of this Series C Preferred Stock) with respect to the then outstanding shares of Common Stock; (B) subdivides outstanding shares of Common Stock into a larger number of shares; or (C) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Corporation) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event (excluding any treasury shares of the Corporation). Any adjustment made pursuant to this Section 7(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision or combination.

b) Fundamental Transaction . If, at any time while this Series C Preferred Stock is outstanding, (A) the Corporation effects any merger or consolidation of the Corporation with or into another Person (other than a merger in which the Corporation is the surviving or continuing entity and its Common Stock is not exchanged for or converted into other securities, cash or property), (B) the Corporation effects any sale of all or substantially all of its assets in one transaction or a series of related transactions, (C) any tender offer or exchange offer (whether by the Corporation or another Person) is completed pursuant to which all of the Common Stock is exchanged for or converted into other securities, cash or property, or (D) the Corporation effects any reclassification of

 

10


the Common Stock or any compulsory share exchange pursuant (other than as a result of a dividend, subdivision or combination covered by Section 7(a) above) to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a “ Fundamental Transaction ”), then, upon any subsequent conversion of this Series C Preferred Stock the Holders shall have the right to receive, in lieu of the right to receive Conversion Shares, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction, the same kind and amount 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 one share of Common Stock (the “ Alternate Consideration ”). For purposes of any such conversion, the determination of the Conversion Ratio shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Corporation shall adjust the Conversion Ratio in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holders shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Series C Preferred Stock following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Corporation or surviving entity in such Fundamental Transaction shall file a new Certificate of Designation with the same terms and conditions and issue to the Holders new preferred stock consistent with the foregoing provisions and evidencing the Holders’ right to convert such preferred stock into Alternate Consideration. The terms of any agreement to which the Corporation is a party and pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this Section 7(b) and insuring that this Series C Preferred Stock (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction. The Corporation shall cause to be delivered to each Holder, at its last address as it shall appear upon the stock books of the Corporation, written notice of any Fundamental Transaction at least 10 calendar days prior to the date on which such Fundamental Transaction is expected to become effective or close.

c) Calculations . All calculations under this Section 7 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 7, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding any treasury shares of the Corporation) issued and outstanding.

d) Notice to the Holders .

i. Adjustment to Conversion Price . Whenever the Conversion Price is adjusted pursuant to any provision of this Section 7, the Corporation shall

 

11


promptly deliver to each Holder a notice setting forth the Conversion Ratio after such adjustment and setting forth a brief statement of the facts requiring such adjustment.

ii. Other Notices . If (A) the Corporation shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Corporation shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Corporation shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Corporation shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Corporation is a party, any sale or transfer of all or substantially all of the assets of the Corporation, of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property or (E) the Corporation shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Corporation, then, in each case, the Corporation shall cause to be filed at each office or agency maintained for the purpose of conversion of this Series C Preferred Stock, and shall cause to be delivered to each Holder at its last address as it shall appear upon the stock books of the Corporation, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice.

Section 8 . Miscellaneous .

a) Notices . Any and all notices or other communications or deliveries to be provided by the Holders hereunder including, without limitation, any Notice of Conversion, shall be in writing and delivered personally, by facsimile, or sent by a nationally recognized overnight courier service, addressed to the Corporation, at 6166 Nancy Ridge Drive, San Diego, California 92121, facsimile number (858) 677-0065 , or such other facsimile number or address as the Corporation may specify for such purposes by notice to the Holders delivered in accordance with this Section. Any and all notices or other communications or deliveries to be provided by the Corporation hereunder shall be in writing and delivered personally, by facsimile, or sent by a nationally recognized

 

12


overnight courier service addressed to each Holder at the facsimile number or address of such Holder appearing on the books of the Corporation, or if no such facsimile number or address appears on the books of the Corporation, at the principal place of business of such Holder. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section prior to 5:30 p.m. (New York City time) on any date, (ii) the date immediately following the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section between 5:30 p.m. and 11:59 p.m. (New York City time) on any date, (iii) the second Business Day following the date of mailing, if sent by nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given.

b) [Reserved.]

c) Lost or Mutilated Series C Preferred Stock Certificate . If a Holder’s Series C Preferred Stock certificate shall be mutilated, lost, stolen or destroyed, the Corporation shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated certificate, or in lieu of or in substitution for a lost, stolen or destroyed certificate, a new certificate for the shares of Series C Preferred Stock so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such certificate, and of the ownership thereof, reasonably satisfactory to the Corporation and, in each case, customary and reasonable indemnity, if requested. Applicants for a new certificate under such circumstances shall also comply with such other reasonable regulations and procedures and pay such other reasonable third-party costs as the Corporation may prescribe.

d) Waiver . Any waiver by the Corporation or a Holder of a breach of any provision of this Certificate of Designation shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Certificate of Designation or a waiver by any other Holders. The failure of the Corporation or a Holder to insist upon strict adherence to any term of this Certificate of Designation on one or more occasions shall not be considered a waiver or deprive that party (or any other Holder) of the right thereafter to insist upon strict adherence to that term or any other term of this Certificate of Designation. Any waiver by the Corporation or a Holder must be in writing. Notwithstanding any provision in this Certificate of Designation to the contrary, any provision contained herein and any right of the holders of Series C Preferred Stock granted hereunder may be waived as to all shares of Series C Preferred Stock (and the Holders thereof) upon the written consent of the Holders of not less than a majority of the shares of Series C Preferred Stock then outstanding, unless a higher percentage is required by the DGCL, in which case the written consent of the holders of not less than such higher percentage shall be required.

e) Severability . If any provision of this Certificate of Designation is invalid, illegal or unenforceable, the balance of this Certificate of Designation shall remain in

 

13


effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances. If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law.

f) Next Business Day . Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.

g) Headings . The headings contained herein are for convenience only, do not constitute a part of this Certificate of Designation and shall not be deemed to limit or affect any of the provisions hereof.

h) Status of Converted Series C Preferred Stock . If any shares of Series C Preferred Stock shall be converted or reacquired by the Corporation, such shares shall resume the status of authorized but unissued shares of preferred stock and shall no longer be designated as Series C Preferred Stock.

*********************

 

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RESOLVED, FURTHER , that the Chairman, the president or any vice-president, and the secretary or any assistant secretary, of the Corporation be and they hereby are authorized and directed to prepare and file a Certificate of Designation of Preferences, Rights and Limitations in accordance with the foregoing resolution and the provisions of Delaware law.

IN WITNESS WHEREOF , the undersigned has executed this Certificate of Designations this      day of March 2011.

 

 

Name:

Title:

 

15


ANNEX A

NOTICE OF CONVERSION

(TO BE EXECUTED BY THE REGISTERED HOLDER IN ORDER TO CONVERT SHARES OF SERIES C PREFERRED STOCK)

The undersigned Holder hereby irrevocably elects to convert the number of shares of Series C Convertible Preferred Stock indicated below, represented by stock certificate No(s).                      (the “Preferred Stock Certificates ”), into shares of common stock, par value $0.0001 per share (the “ Common Stock ”), of Arena Pharmaceuticals, Inc., a Delaware corporation (the “ Corporation ”), as of the date written below. If securities are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. Capitalized terms utilized but not defined herein shall have the meaning ascribed to such terms in that certain Certificate of Designation of Preferences, Rights and Limitations of Series C Convertible Preferred Stock (the “ Certificate of Designation ”) filed by the Corporation on March 30, 2011.

The number of shares of Common Stock beneficially owned by the undersigned Holder (together with such Holder’s Affiliates, and any other Person whose beneficial ownership of Common Stock would be aggregated with the Holder’s for purposes of Section 13(d) of the Exchange Act and the applicable regulations of the Commission, including any “group” of which the Holder is a member), including the number of shares of Common Stock issuable upon conversion of the Series C Preferred Stock subject to this Notice of Conversion, but excluding the number of shares of Common Stock which are issuable upon (A) conversion of the remaining, unconverted Series C Preferred Stock beneficially owned by such Holder or any of its Affiliates, and (B) exercise or conversion of the unexercised or unconverted portion of any other securities of the Corporation (including any warrants) beneficially owned by such Holder or any of its Affiliates that are subject to a limitation on conversion or exercise similar to the limitation contained in Section 6(c) of the Certificate of Designation, is                                  . For purposes hereof, beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the applicable regulations of the Commission. In addition, for purposes hereof, “group” has the meaning set forth in Section 13(d) of the Exchange Act and the applicable regulations of the Commission.

Conversion calculations:

 

Date to Effect Conversion:                                                                                                                                                                                  

Number of shares of Series C Preferred Stock owned prior to Conversion:                                                                                          

Number of shares of Series C Preferred Stock to be Converted:                                                                                                             

Number of shares of Common Stock to be Issued:                                                                                                                                 

 

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Address for delivery of physical certificates:                                           

or

for DWAC Delivery:

DWAC Instructions:

Broker no:                     

Account no:                     

 

[HOLDER]
By:  

 

  Name:
  Title:

 

17

Exhibit 5.1

March 28, 2011

Arena Pharmaceuticals, Inc.

6166 Nancy Ridge Drive

San Diego, CA 92121

Ladies and Gentlemen:

You have requested my opinion with respect to certain matters in connection with the offering by ARENA PHARMACEUTICALS, INC., a Delaware corporation (the “Company”), of 12,150,000 shares of the Company’s common stock, par value $0.0001 (the “Common Shares”) and 12,150 shares of the Company’s Series C Convertible Preferred Stock, par value $0.0001 per share (the “Preferred Shares” and, together with the Common Shares, the “Shares”) pursuant to a Registration Statement on Form S-3 (Registration Statement No. 333-166481) (the “Registration Statement”), filed with the Securities and Exchange Commission (the “Commission”) under the Securities Act of 1933, as amended (the “Act”), the prospectus dated May 10, 2010 (the “Base Prospectus”), and the prospectus supplement relating to the Shares filed with the Commission pursuant to Rule 424(b) of the Rules and Regulations of the Act (the “Prospectus Supplement”). (The Base Prospectus and Prospectus Supplement are collectively referred to as the “Prospectus.”) All of the Shares are to be sold by the Company as described in the Registration Statement and Prospectus.

In connection with this opinion, I have examined and relied upon the Registration Statement, the Prospectus, the Company’s Fifth Amended and Restated Certificate of Incorporation, as amended, its Amended and Restated Bylaws, and the originals or copies certified to my satisfaction of such records, documents, certificates, memoranda and other instruments as in my judgment are necessary or appropriate to enable me to render the opinion expressed below. I have assumed the genuineness and authenticity of all documents submitted to me as originals, and the conformity to originals of all documents submitted to me as copies thereof and the due execution and delivery of all documents where due execution and delivery are a prerequisite to the effectiveness thereof.

On the basis of the foregoing, and in reliance thereon, I am of the opinion that: (i) the Common Shares and the Preferred Shares, when sold in accordance with the Registration Statement and Prospectus, will be validly issued, fully paid and nonassessable and (ii) the common stock issuable upon the conversion of the Preferred Shares, when issued upon the conversion of the Preferred Shares in accordance with the terms thereof, will be validly issued, fully paid and nonassessable.

I consent to the reference to me under the caption “Legal Matters” in the Prospectus and to the filing of this opinion as an exhibit to the Registration Statement.

Very truly yours,

 

/s/  Steven W. Spector
      Steven W. Spector

Exhibit 99.1

SECURITIES PURCHASE AGREEMENT

This SECURITIES PURCHASE AGREEMENT (this “ Agreement ”), dated as of March 28, 2011, is by and among Arena Pharmaceuticals, Inc. (the “ Company ”) and Deerfield Private Design Fund, L.P., Deerfield Private Design International, L.P., Deerfield Partners, L.P., Deerfield International Limited, Deerfield Special Situations Fund, L.P. and Deerfield Special Situations Fund International Limited (collectively the “ Investors ”).

RECITALS

WHEREAS, the Company has filed with the Securities and Exchange Commission (the “Commission”) the Registration Statement (as defined below) relating to the offer and sale from time to time of the Company’s securities, including shares of its common stock, par value $0.0001 per share (the “Common Stock”) and shares of its preferred stock, par value $0.0001 per share (“Preferred Stock”);

WHEREAS, the Board of Directors of the Company has authorized the creation of a new series of Preferred Stock denominated as Series C Convertible Preferred Stock (“Series C Preferred Stock”);

WHEREAS, the Company is offering for sale shares of Common Stock and Series C Preferred Stock (the “Offered Shares”) pursuant to the Registration Statement;

WHEREAS, the Investors desire to purchase from the Company Offered Shares on the terms and conditions set forth herein;

WHEREAS, on the date hereof, the Company and the Investors have entered into an Exchange Agreement (the “ Exchange Agreement ”) pursuant to which the Company has agreed to issue new warrants in exchange for existing warrants held by the Investors;

WHEREAS, on the date hereof, the Company and the Investors have entered into a Second Amendment to the Facility Agreement, dated as of June 17, 2009, as amended on August 5, 2010 (the “ Facility Agreement Amendment ”).

NOW, THEREFORE, in consideration of the foregoing recitals (which are deemed to be a part of this Agreement), mutual covenants, representations, warranties and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1. Definitions . As used herein, the following terms have the meanings indicated:

Business Day ” means any day other than Saturday, Sunday or a day on which banks in the City of New York are authorized or required to be closed.


Certificate of Designations ” means the Certificate of Designation of Preferences, Rights and Limitations of the Series C Convertible Preferred Stock, in the form attached hereto as Exhibit A.

knowledge ” means with respect to any statement made to the Company’s knowledge, that statement is based upon the actual knowledge of Jack Lief, the Company’s President and Chief Executive Officer and Steven W. Spector, the Company’s Senior Vice President , General Counsel and Secretary.

Loss ” shall have the meaning set forth in Section 5 hereof.

Person ” shall mean any individual, partnership, limited liability company, joint venture, firm, corporation, association, trust or other enterprise or any government or political subdivision or any agency, department or instrumentality thereof.

Prospectus ” shall have the meaning set forth in Section 4(b)(7) hereof.

Prospectus Supplement ” shall mean the prospectus supplement filed regarding the Investor Shares with the Commission pursuant to Rule 424(b) promulgated under the Securities Act (“ Rule 424(b) ”) and deemed to be part of the Registration Statement at the time of effectiveness.

Registration Statement ” shall mean the registration statement on Form S-3 (File No. 333-166481), including a prospectus, and including all amendments and supplements thereto (including the Prospectus Supplement), relating to the offer and sale of certain of the Company’s Common Stock and Preferred Stock, including the Investor Shares (as defined below). References herein to the term “Registration Statement” as of any date shall mean such effective registration statement, as amended or supplemented to such date, including all information and documents incorporated by reference therein as of such date.

SEC ” shall mean the Securities and Exchange Commission.

Securities Act ” shall mean the Securities Act of 1933, as amended.

2. Purchase of Common Stock and Series C Preferred Stock . Subject and pursuant to the terms and conditions set forth in this Agreement, the Company agrees that it will issue and sell to the Investors, and the Investors agree that they will purchase from the Company, the number of shares of Common Stock and Series C Preferred Stock set forth on Schedule 1 attached hereto (the “ Investor Shares ”). The aggregate purchase price for the Investor Shares (the “ Aggregate Purchase Price ”) and the purchase price for each share of Common Stock and Series C Preferred Stock is set forth on Schedule 1 hereto. The closing of the purchase and sale of the Investor Shares will take place on or before the third (3rd) Business Day following the date of this Agreement, or such other date or time as the parties may agree upon in writing (the “ Closing ”).

3. Deliveries at Closing .

(a) Deliveries by the Investor . At the Closing, each Investor shall

 

2


(1) deliver to the Company the Aggregate Purchase Price set forth next to their name on Schedule 1 hereto by wire transfer of immediately available funds to a bank account designated in writing by the Company to the Investors, which funds will be delivered to the Company in consideration of the Investor Shares issued at the Closing; provided, however, the Investors shall have the right to apply $17,739,000 of the Aggregate Purchase Price to satisfy the Company’s obligations under Section 1 of the Facility Agreement Amendment;

(2) deliver to the Company an executed Acknowledgment and Waiver in the form annexed hereto as Exhibit B; and

(3) perform all of their respective obligations under the Exchange Agreement.

(b) Deliveries by the Company . At the Closing, the Company shall

(1) cause its transfer agent to electronically transmit the shares of Common Stock purchased by each Investor by crediting the account of each Investor’s prime broker with DTC through its Deposit Withdrawal Agent Commission (“ DWAC ”) system;

(2) deliver to each Investor stock certificates in the form attached hereto as Exhibit C registered in the name of such Investor evidencing the number of shares of Series C Preferred Stock purchased by each Investor;

(3) deliver evidence satisfactory to the Investors, that the Certificate of Designations has been filed with the Secretary of State of Delaware and has become effective on or prior to the Closing; and

(4) perform all of its obligations under the Exchange Agreement.

4. Representations, Warranties, Covenants and Agreements .

(a) Investor Representations, Warranties and Covenants . Each Investor represents, warrants, covenants and agrees as follows as of the date hereof and as of the Closing:

(1) Investor has received and reviewed copies of the Registration Statement and the Prospectus, including all documents and information incorporated by reference therein and amendments thereto, and understands that no Person has been authorized to give any information or to make any representations that were not contained in the Registration Statement and the Prospectus, and Investor has not relied on any such other information or representations in making a decision to purchase the Investor Shares. Investor hereby consents to receiving delivery of the Registration Statement and the Prospectus, including all documents and information incorporated by reference therein and amendments thereto, by electronic mail. Investor understands that an investment in the Company involves a high degree of risk for the reasons, among others, set forth under the caption “Risk Factors” in the Prospectus.

(2) Investor acknowledges that it has sole responsibility for its own due diligence investigation and its own investment decision, and that in connection with its investigation of the accuracy of the information contained or incorporated by reference in the

 

3


Registration Statement and the Prospectus and its investment decision, Investor has not relied on any representation or information, as the case may be, not set forth in this Agreement, the Registration Statement or the Prospectus, or any Person affiliated with the Company or on the fact that any other Person has decided to purchase the Offered Shares.

(3) The execution and delivery of this Agreement by Investor and the performance of this Agreement and the consummation by Investor of the transactions contemplated hereby have been duly authorized by all necessary corporate or partnership action of Investor, as applicable, and this Agreement, when duly executed and delivered by Investor, will constitute a valid and legally binding instrument, enforceable in accordance with its terms against Investor, except as enforcement hereof may be limited by the effect of any applicable bankruptcy, insolvency, reorganization or similar laws or court decisions affecting enforcement of creditors’ rights generally and except as enforcement hereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law).

(4) Except for rights to purchase the Investor Shares pursuant to this Agreement, and warrants to acquire shares of Common Stock issued by the Company pursuant to that certain Facility Agreement, dated as of June 17, 2009, as amended on August 5, 2010 (or warrants subsequently issued in exchange for such warrants), Investor does not own any equity securities of the Company, any options or warrants to acquire such securities, any securities exercisable for, convertible into or exchangeable for such securities, or own or possess any other right (contractual or otherwise) to purchase or acquire such securities.

(b) Company Representations, Warranties and Covenants . The Company hereby represents, warrants, covenants and agrees as follows as of the date hereof and as of the Closing:

(1) The Company has been duly incorporated and has a valid existence and the authorization to transact business as a corporation under the laws of the State of Delaware, with corporate power and authority to own its properties and conduct its business as described in the Prospectus, and has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties or conducts any business so as to require such qualification, except for such jurisdictions wherein the failure to be so qualified and in good standing would not individually or in the aggregate have a material adverse effect on the business, results of operations or financial condition of the Company and its subsidiaries taken as a whole (a “ Material Adverse Effect ”).

(2) Each subsidiary of the Company has been duly organized or incorporated and is validly existing under the laws of its jurisdiction of incorporation or organization, with power and authority to own its properties and conduct its business as described in the Prospectus, and has been duly qualified for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties or conducts any business so as to require such qualification, except for such jurisdictions wherein the failure to be so qualified and in good standing would not individually or in the aggregate have a Material Adverse Effect. Except as disclosed by the Company’s periodic reports filed with the SEC and except as required pursuant to this Agreement, there are no outstanding (i) securities of the Company or any of the subsidiaries of the Company which are convertible into

 

4


or exchangeable for shares of capital stock or voting securities of any subsidiary of the Company or (ii) options or other rights to acquire from the Company or any subsidiary of the Company, or other obligation of the Company or any subsidiary of the Company to issue, any capital stock, voting securities or securities convertible into or exchangeable for capital stock or voting securities of any subsidiary of the Company (collectively, the “ Subsidiary Securities ”). There are no outstanding obligations of the Company or any subsidiary of the Company to repurchase, redeem or otherwise acquire any outstanding Subsidiary Securities.

(3) The execution, delivery and performance of this Agreement by the Company and the consummation of the transactions contemplated hereby are within the corporate powers of the Company and have been duly authorized by all necessary corporate action on the part of the Company and this Agreement, when duly executed and delivered by the parties hereto, will constitute a valid and legally binding instrument of the Company enforceable in accordance with its terms, except as enforcement hereof may be limited by the effect of any applicable bankruptcy, insolvency, reorganization or similar laws or court decisions affecting enforcement of creditors’ rights generally and except as enforcement hereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law).

(4) The Investor Shares have been duly authorized by the Company, and when issued and delivered by the Company against payment therefor as contemplated by this Agreement, the Investor Shares will be validly issued, fully paid and nonassessable, and will conform to the description of the Common Stock and the Series C Preferred Stock contained in the Prospectus.

(5) The Company has reserved from its duly authorized capital stock a number of shares of Common Stock sufficient for issuance of all shares of Common Stock issuable upon the conversion of all shares of Series C Preferred Stock (the “ Conversion Shares ”).

(6) The execution and delivery of this Agreement do not, and the compliance by the Company with the terms hereof will not, (i) violate the Certificate of Incorporation (as amended to date) of the Company or the By-Laws (as amended to date) of the Company, (ii) result in a breach or violation of any of the terms or provisions of, or constitute a material default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of their properties or assets are subject, or (iii) result in a violation of, or failure to be in compliance with, any applicable statute or any order, judgment, decree, rule or regulation of any court or governmental, regulatory or self-regulatory agency or body having jurisdiction over the Company or any of its subsidiaries or any of their properties or assets, except where such breach, violation, default or the failure to be in compliance would not individually or in the aggregate have a Material Adverse Effect or adversely affect the ability of the Company to issue and sell the Investor Shares; and no consent, approval, authorization, order, registration, filing or qualification of or with any such court or governmental, regulatory or self-regulatory agency or body is required for the valid authorization, execution, delivery and performance by the Company of this Agreement or the issuance of the Investor Shares, except for the filing of a Form 8-K, the filing of the Prospectus Supplement, the filing of the Certificate of Designations (which is required to be filed and

 

5


effective prior to the Closing in accordance with Section 3(b)(3) hereof), the filing of a Notification of Listing of Additional Shares with The NASDAQ Stock Market LLC, and for such consents, approvals, authorizations, registrations, filings or qualifications as may be required under state securities or “blue sky” laws.

(7) The Company meets the requirements for use of Form S-3 under the Securities Act. The Registration Statement, which covers the Investor Shares, including a form of prospectus and such amendments or supplements to such Registration Statement as may have been required prior to the date of this Agreement, has been prepared by the Company under the provisions of the Securities Act, has been filed with the Commission, has become effective and filed with the Commission and incorporates by reference documents which the Company has filed in accordance with the provisions of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”). The Company has prepared a Prospectus Supplement to the prospectus included in the Registration Statement referred to above, setting forth the terms of the offering and sale of the Investor Shares and additional information concerning the Company and its business and will promptly file the Prospectus Supplement with the Commission pursuant to Rule 424(b). No stop order suspending the effectiveness of the Registration Statement or any post-effective amendment thereto, or any part thereof, has been issued and served on the Company, and no proceedings for that purpose are pending or, to the knowledge of the Company, threatened by the Commission. The form of prospectus included in the Registration Statement as of the date hereof, as amended or supplemented from time to time (including the Prospectus Supplement), is referred to herein as the “ Prospectus .” Any reference herein to the Registration Statement, the Prospectus or any amendment or supplement thereto shall be deemed to refer to and include the documents incorporated (or deemed to be incorporated) by reference therein, and any reference herein to the terms “amend,” “amendment” or “supplement” with respect to the Registration Statement or Prospectus shall be deemed to refer to and include the filing after the execution hereof of any document with the Commission deemed to be incorporated by reference therein. As of the close of business on March 28, 2011, at least a number of shares of Common Stock and Series C Preferred Stock equal to the number of Investor Shares and Conversion Shares were available for issuance pursuant to the Registration Statement, which permits the issuance of the Investor Shares and the Conversion Shares in the manner contemplated by this Agreement.

Each part of the Registration Statement, when such part became or becomes effective, and the Prospectus and any amendment or supplement thereto, on the date of filing thereof with the Commission and at the date hereof and the date of the Closing, did or will in all material respects comply with all applicable provisions of the Securities Act and the Exchange Act. Each part of the Registration Statement, when such part became or becomes effective, did not or will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading. The Prospectus and any amendment or supplement thereto, on the date of filing thereof with the Commission, did not or will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. The foregoing representations and warranties in this Section 4(b)(6) do not apply to any statements or omissions made in reliance on and in conformity with information relating to the Investors furnished in writing to the Company by the Investors specifically for inclusion in the Registration Statement or Prospectus or any

 

6


amendment or supplement thereto.

(8) The consolidated financial statements and financial schedules of the Company included or incorporated by reference in the Registration Statement and the Prospectus have been prepared in conformity with generally accepted accounting principles (except, with respect to the unaudited consolidated financial statements, for the footnotes and subject to customary audit adjustments) applied on a consistent basis, are consistent in all material respects with the books and records of the Company, and accurately present in all material respects the consolidated financial position, results of operations and cash flow of the Company and its subsidiaries as of and for the periods covered thereby.

(9) Neither the Company nor any of its subsidiaries has sustained since the respective dates of the latest audited financial statements included in the Registration Statement and Prospectus any material loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as disclosed in or contemplated by the Registration Statement and Prospectus; and, since the respective dates as of which information is given in the Registration Statement and Prospectus, there has not been any material change in the capital stock or long-term debt of the Company or any of its subsidiaries.

(10) Other than as disclosed in the Prospectus, there are no legal, governmental or regulatory proceedings pending to which the Company or any of its subsidiaries is a party or of which any material property of the Company or any of its subsidiaries is the subject which, taking into account the likelihood of the outcome, the damages or other relief sought and other relevant factors, would individually or in the aggregate reasonably be expected to have a Material Adverse Effect or adversely affect the ability of the Company to issue and sell the Investor Shares, and no such proceedings are threatened in writing to the Company or, to the Company’s knowledge, have been contemplated by governmental or regulatory authorities or threatened by others.

(11) The Company and each of its subsidiaries have title to all the real property, and owns all other properties and assets, reflected as owned in the financial statements included in the Registration Statement and the Prospectus, subject to no lien, mortgage, pledge, charge or encumbrance of any kind except those, if any, reflected in such financial statements or disclosed in the Company’s SEC filings or exhibits thereto, in favor of the Investors in connection with the Facility Agreement and all amendments thereto, or which are not material to the Company and its subsidiaries taken as a whole. The Company and each of its subsidiaries hold their respective leased real and personal properties under valid and binding leases, except where the failure to do so would not reasonably be expected to individually or in the aggregate have a Material Adverse Effect.

(12) The Company has filed all necessary federal and state income and franchise tax returns and has paid all taxes shown as due thereon or has filed all necessary extensions, and there is no tax deficiency that has been, or to the knowledge of the Company could reasonably be expected to be, asserted against the Company or any of its properties or assets that would in the aggregate or individually reasonably be expected to have a Material Adverse Affect.

 

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(13) There are no holders of securities of the Company having preemptive rights to purchase Common Stock. There are no holders or beneficial owners of securities of the Company having rights to registration thereof whose securities have not been previously registered or who have not waived such rights with respect to the registration of the Company’s securities on the Registration Statement, except where the failure to obtain such waiver would not individually or in the aggregate reasonably be expected to have a Material Adverse Effect.

(14) The Company is not, and does not intend to conduct its business in a manner in which it would become, an “investment company” as defined in Section 3(a) of the Investment Company Act of 1940, as amended.

5. Indemnification .

(a) Subject to the limitations and other provisions of this Section 5 , the Company covenants and agrees to indemnify, defend and hold harmless the Investors and their respective directors, officers, partners, managers, employees and agents (each, an “ Investor Party ”) from and against any and all Losses arising from claims by third parties resulting from, incurred in connection with or arising out of (but only to the extent of) (a) any breach of any representation, warranty or covenant of the Company contained herein or in the Exchange Agreement, or (b) the failure of the Company to perform any of the Company’s agreements, covenants or obligations contained herein or in the Exchange Agreement (other than if any such claim was a result of a breach by the Investor under this Agreement or in the Exchange Agreement). Subject to the limitations and other provisions of this Section 5 , the Investor covenants and agrees to indemnify, defend and hold harmless the Company from and against (but only to the extent of) any and all Losses arising from claims by third parties resulting from, incurred in connection with or arising out of (but only to the extent of) (a) any breach of any representation or warranty of the Investor contained herein or in the Exchange Agreement, or (b) the failure of the Investor to perform any of the agreements, covenants or obligations of the Investor contained herein or in the Exchange Agreement. The term “ Loss ” or any similar term shall mean any and all damages, deficiencies, costs, claims, fines, judgments, amounts paid in settlement, expenses of investigation, interest, penalties, taxes, assessments, out-of-pocket expenses (including reasonable attorneys’ and auditors’ fees and disbursements, witness fees and court costs) but specifically excluding consequential, special, punitive, multiple and other similar damages. The party or parties being indemnified are referred to herein as the “ Indemnitee ” and the indemnifying party is referred to herein as the “ Indemnitor .”

(b) Indemnification Procedure .

(1) Any party who receives notice of a potential claim that may, in the judgment of such party, result in a Loss shall use all reasonable efforts to provide the parties hereto notice thereof within fifteen (15) days of the filing or other written assertion of any such claim against the Indemnitee, provided that failure or delay or alleged delay in providing such notice shall not adversely affect such party’s right to indemnification hereunder, unless and then only to the extent that such failure or delay or alleged delay has resulted in actual prejudice to the Indemnitor, including, without limitation, by the expiration of a statute of limitations. In the event that any party shall incur or suffer any Losses in respect of which indemnification may be

 

8


sought by such party hereunder, the Indemnitee shall assert a claim for indemnification by written notice (a “ Notice ”) to the Indemnitor stating the nature and basis of such claim.

(2) If indemnification is sought, the Indemnitor shall, if necessary, retain counsel reasonably satisfactory to the Indemnitee, it being agreed that Cooley LLP is satisfactory, and have the option (i) to conduct any proceedings or negotiations in connection therewith, (ii) to take all other steps to settle or defend any such claim (provided that the Indemnitor shall not settle any such claim without the consent of the Indemnitee which consent shall not be unreasonably withheld or delayed) and (iii) to employ counsel to contest any such claim or liability in the name of the Indemnitee or otherwise. In any event, the Indemnitee shall be entitled to participate at its own expense and by its own counsel in any proceedings relating to any third party claim. The Indemnitor shall, within fifteen (15) Business Days of receipt of the Notice, notify the Indemnitee of its intention to assume the defense of such claim. If (i) the Indemnitor shall decline to assume the defense of any such claim, (ii) the Indemnitor shall fail to notify the Indemnitee within fifteen (15) Business Days after receipt of the Notice of the Indemnitor’s election to defend such claim or (iii) in the reasonable opinion of counsel for the Indemnitee, the representation by the same counsel of the Indemnitor and the Indemnitee would be inappropriate due to actual or potential material differing interests between such Indemnitee and any other party represented by such counsel in such proceeding, then in each such case the Indemnitor shall not have the right to direct the defense of such action on behalf of the Indemnitee and the Indemnitee shall, at the sole expense of the Indemnitor, defend against such claim; provided , that the Indemnitee may not settle such claim without the consent of the Indemnitor (which consent will not be unreasonably withheld or delayed). The Indemnitor shall pay for only one separate legal counsel for the Indemnitees, and such legal counsel shall be selected by the Investors. The reasonable expenses of all proceedings, contests or lawsuits in respect of such claims shall be borne and paid by the Indemnitor if the Indemnitee is entitled to indemnification hereunder and the Indemnitor shall pay the Indemnitee, in immediately available funds, the amount of any Losses, within a reasonable time of the incurrence of such Losses. Regardless of which party shall assume the defense or negotiation of the settlement of the claim, the parties agree to cooperate fully with one another in connection therewith. Anything in this Section 5 to the contrary notwithstanding, the Indemnitor shall not, without the Indemnitee’s prior written consent, settle or compromise any claim or consent to entry of any judgment in respect thereof which imposes any future obligation on the Indemnitee or which does not include, as an unconditional term thereof, the giving by the claimant or plaintiff to the Indemnitee, a release from all liability in respect of such claim.

6. Conditions .

(a) The obligation of each Investor to purchase and acquire the Investor Shares hereunder shall be subject to the conditions that:

(1) All representations and warranties of the Company herein and in the Exchange Agreement shall be true and correct in all material respects as of and on each of the date of this Agreement and the date of the Closing;

 

9


(2) The Company shall have performed all of its obligations hereunder; including but not limited to delivery of the shares of Common Stock included in the Investor Shares through DWAC and certificates for the Series C Preferred Stock;

(3) The Prospectus Supplement shall have been filed with the Commission pursuant to Rule 424(b) within the applicable time period prescribed for such filing, no stop order suspending the effectiveness of the Registration Statement or any part thereof shall have been issued and no proceeding for that purpose shall have been initiated or threatened by the Commission, and the Investor shall have received the Prospectus in accordance with the federal securities laws; and

(4) The Company shall have performed all of its obligations under the Exchange Agreement.

(b) The obligation of the Company to sell the Investor Shares hereunder shall be subject to the conditions that:

(1) All representations and warranties and other statements of the Investors herein and in the Exchange Agreement shall be true and correct in all material respects as of and on each of the date of this Agreement and the date of the Closing;

(2) The Investors shall have performed all of their obligations hereunder, including but not limited to payment of the Aggregate Purchase Price as provided herein; and

(3) The Investors shall have performed all of their obligations under the Exchange Agreement.

7. Miscellaneous .

(a) Binding Agreement; Assignment . This Agreement shall be binding upon, and shall inure solely to the benefit of, each of the parties hereto, and each of their respective heirs, executors, administrators, successors and permitted assigns, and no other person shall acquire or have any right under or by virtue of this Agreement. The Company may not assign any of its rights or obligations hereunder to any other person or entity without the prior written consent of the Investors.

(b) Entire Agreement . This Agreement, including the Schedules hereto, and the Facility Agreement Amendment constitute the entire understanding between the parties hereto with respect to the subject matter hereof and may be amended only by written execution by both parties. Upon execution by the Company and the Investors, this Agreement shall be binding on each of the parties hereto.

(c) Consent To Jurisdiction . THIS AGREEMENT SHALL BE ENFORCED, GOVERNED AND CONSTRUED IN ALL RESPECTS IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ITS CONFLICTS OF LAWS PRINCIPLES OTHER THAN SECTIONS 5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAW OF SUCH STATE. FURTHERMORE, THE INVESTOR

 

10


HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE FEDERAL OR STATE COURTS LOCATED IN THE STATE OF NEW YORK IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH OF THE COMPANY AND THE INVESTORS (AND, TO THE EXTENT PERMITTED BY LAW, ON BEHALF OF ITS AND THEIR EQUITY HOLDERS AND CREDITORS) HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM BASED UPON, ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY.

(d) Notices . Any notice, request or other communication to be given or made under this Agreement shall be in writing. Such notice, request or other communication shall be deemed to have been duly given or made when it shall be delivered by hand, overnight mail, international courier (confirmed by facsimile), or facsimile (with a hard copy delivered within two (2) Business Days) to the Party to which it is required or permitted to be given or made at such Party’s address specified below or at such other address as such Party shall have designated by notice to the other Parties.

For the Borrower:

Arena Pharmaceuticals, Inc.

6166 Nancy Ridge Drive

San Diego, CA 92121

Attention:  Chief Financial Officer and General Counsel

Facsimile:   (858) 677-0065

with a courtesy copy to:

Cooley LLP

4401 Eastgate Mall

San Diego, CA 92121

Facsimile:  (858) 550-6420

Attention:  Steven Przesmicki

For the Lenders c/o:

Deerfield Private Design Fund, L.P.

780 Third Avenue, 37 th Floor

New York, New York 10017

Attention: James E. Flynn

Facsimile:  (212) 573-8111

with a courtesy copy to:

Katten Muchin Rosenman LLP

575 Madison Avenue

New York, New York 10022-2585

 

11


Facsimile:  (212) 894-5877

Attention:  Mark I. Fisher

                  Elliot Press

or to such other Person at such other place as the parties shall designate to one another in writing.

(e) Counterparts . This Agreement maybe executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one in the same agreement.

(f) Telecopy Execution and Delivery . A facsimile, telecopy, PDF or other reproduction of this Agreement may be executed by one or more parties hereto, and an executed copy of this Agreement may be delivered by one or more parties by facsimile, e-mail or similar electronic transmission device pursuant to which the signature of or on behalf of such party can be seen, and such execution and delivery shall be considered valid, binding and effective for all purposes. At the request of any party, all parties agree to execute an original of this Agreement as well as any facsimile, telecopy or reproduction thereof. The parties hereto hereby agree that neither shall raise the execution of facsimile, telecopy, PDF or other reproduction of this Agreement, or the fact that any signature or document was transmitted or communicated by facsimile, e-mail or similar electronic transmission device, as a defense to the formation of this Agreement.

[Signature pages follow]

 

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

 

COMPANY:
ARENA PHARMACEUTICALS, INC.
By:  

/s/ Steven W. Spector

Name:   Steven W. Spector
Title:   Senior Vice President, General Counsel
  and Secretary
INVESTORS:
DEERFIELD PRIVATE DESIGN FUND, L.P.
By:   Deerfield Capital, L.P., its General Partner
By:   J.E. Flynn Capital LLC, its General Partner
By:  

/s/ David Clark

Name:   David Clark
Title:   Authorized Signatory
DEERFIELD PRIVATE DESIGN
INTERNATIONAL, L.P.
By:   Deerfield Capital, L.P., its General Partner
By:   J.E. Flynn Capital LLC, its General Partner
By:  

/s/ David Clark

Name:   David Clark
Title:   Authorized Signatory

[Signature Page to Securities Purchase Agreement]

 


DEERFIELD PARTNERS, L.P.
By:   Deerfield Capital, L.P., its General Partner
By:   J.E. Flynn Capital LLC, its General Partner
By:  

/s/ David Clark

Name:   David Clark
Title:   Authorized Signatory
DEERFIELD INTERNATIONAL LIMITED
By:  

/s/ David Clark

Name:   David Clark
Title:   Authorized Signatory
DEERFIELD SPECIAL SITUATIONS FUND, L.P.
By:   Deerfield Capital, L.P., its General Partner
By:   J.E. Flynn Capital LLC, its General Partner
By:  

/s/ David Clark

Name:   David Clark
Title:   Authorized Signatory
DEERFIELD SPECIAL SITUATIONS FUND
INTERNATIONAL LIMITED
By:  

/s/ David Clark

Name:   David Clark
Title:   Authorized Signatory

[Signature Page to Securities Purchase Agreement]

 


Schedule 1

 

Purchase Price Per Share of Common Stock:

   $ 1.46   

Purchase Price Per Share of Series C Preferred Stock

   $ 1,460   

 

Name of Investor

   Aggregate
Purchase Price
     Number
of Shares of
Common Stock
to be
Purchased
by
Investor
     Number
of Shares of
Series C
Preferred Stock
to be
Purchased
by
Investor*
 

Deerfield Private Design Fund, L.P.

   $ 5,978,752.56         2,047,518         2,047.518   

Deerfield Private Design International, L.P.

   $ 9,631,567.44         3,298,482         3,298.482   

Deerfield Partners, L.P.

   $ 7,024,644              2,405,700         2,405.7       

Deerfield International Limited

   $ 10,714,356              3,669,300         3,669.3       

Deerfield Special Situations Fund, L.P.

   $ 749,295.36         256,608         256.608   

Deerfield Special Situations Fund International Limited

   $ 1,379,384.64         472,392         472.392   
                          

Total:

   $ 35,478,000              12,150,000         12,150       

 

* Each share of Series C Preferred Stock is convertible into 1,000 shares of Common Stock.

 

Exhibit 99.2

SECOND AMENDMENT TO FACILITY AGREEMENT

SECOND AMENDMENT dated as of March 28, 2011 (this “ Amendment ”) to the FACILITY AGREEMENT (the “ Agreement ”), dated as of June 17, 2009, as amended on August 5, 2010, between Arena Pharmaceuticals, Inc., a Delaware corporation (the “ Borrower ”), and those lenders set forth on the signature page hereof (individually, a “ Lender ” and together, the “Lenders” and, collectively with the Borrower, the “ Parties ”).

WITNESSETH:

WHEREAS, on July 6, 2009, the Borrower borrowed from the Lenders $100,000,000 pursuant to the Agreement;

WHEREAS, on the date hereof the Borrower and the Lenders have entered into a Securities Purchase Agreement (the “ SPA ”), pursuant to which the Lenders have agreed to purchase from the Borrower, and the Borrower has agreed to issue and sell to the Lenders, shares of the Borrower’s Common Stock and Preferred Stock;

WHEREAS, the Borrower desires to prepay the Loan (as defined in the Agreement) in the aggregate amount of $17,739,000;

NOW, THEREFORE, in consideration of the mutual agreements set forth herein, the Lenders and the Borrower agree as follows:

1. Concurrently with the Closing (as defined in the SPA) the Borrower shall prepay the Loan in the amount of $17,739,000. Section 2.12(d) of the Agreement shall not apply to such prepayment. Sections 2.12(a) and (c) of the Agreement shall not apply to the sale of Common Stock or Preferred Stock pursuant to the SPA.

2. Section 1.1 of the Agreement is amended:

(a) to delete the definitions “Call Loan”, “Call Notes”, “Note Call” and “Prepayment Financing”;

(b) to delete the reference to the “Note Call”, “Call Loan” and “Call Notes” in the definition of “Loan” and “Notes”, as applicable;

(c) to add a definition entitled “SPA” to read as follows:

SPA ” means that certain Securities Purchase Agreement, dated as of March 28, 2011, by and between Borrower and the Lenders.”; and

(d) to revise clause (g) of the definition of Exempted Issuance to read as follows:

“(g) the Net Proceeds of which are applied within one (1) Business Day to repay all of the Loan.”

 

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3. Sections 2.12(a), 2.12(b), 2.12(c), 2.14 and 2.15(b) of the Agreement are hereby deleted and of no further force or effect.

4. Section 5.2 of the Agreement is amended to add thereto a subsection (e) to read as follows:

“(e) The Borrower shall not, during the 60 day period following the closing of the SPA, sell any Common Stock, Convertible Securities or options, other than in an Exempted Issuance.”

5. Except as amended by this Amendment, the Agreement remains in full force and effect.

 

2


IN WITNESS WHEREOF, the undersigned Lenders and the Borrower have caused this Amendment to be duly executed as of the date first written above.

 

BORROWER:     LENDERS:
ARENA PHARMACEUTICALS, INC.     DEERFIELD PRIVATE DESIGN FUND, L.P.
By:  

/s/ Steven W. Spector

    By:   Deerfield Capital, L.P., its General Partner
Name:   Steven W. Spector      
Title:   Senior Vice President, General Counsel     By:   J.E. Flynn Capital LLC, its General Partner
  and Secretary      
      By:  

/s/ David J. Clark

      Name:   David J. Clark
      Its:   Authorized Signatory
      DEERFIELD PRIVATE DESIGN INTERNATIONAL, L.P.
      By:   Deerfield Capital, L.P., its General Partner
      By:   J.E. Flynn Capital LLC, its General Partner
      By:  

/s/ David J. Clark

      Name:   David J. Clark
      Its:   Authorized Signatory
      DEERFIELD PARTNERS, L.P.
      By:   Deerfield Capital, L.P., its General Partner
      By:   J.E. Flynn Capital LLC, its General Partner
      By:  

/s/ David J. Clark

      Name:   David J. Clark
      Its:   Authorized Signatory
      DEERFIELD INTERNATIONAL LIMITED
      By:  

/s/ David J. Clark

      Name:   David J. Clark
      Its:   Authorized Signatory
      DEERFIELD SPECIAL SITUATIONS FUND, L.P.
      By:   Deerfield Capital, L.P., its General Partner
      By:   J.E. Flynn Capital LLC, its General Partner

 

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      By:  

/s/ David J. Clark

      Name:   David J. Clark
      Its:   Authorized Signatory
      DEERFIELD SPECIAL SITUATIONS FUND INTERNATIONAL LIMITED
      By:  

/s/ David J. Clark

      Name:   David J. Clark
      Its:   Authorized Signatory

 

4

Exhibit 99.3

EXCHANGE AGREEMENT

EXCHANGE AGREEMENT (this “ Agreement ”), dated as of March 28, 2011, between Arena Pharmaceuticals, Inc., a Delaware corporation (the “ Company ”) and Deerfield Private Design Fund, L.P., Deerfield Private Design International, L.P., Deerfield Partners, L.P., Deerfield International Limited, Deerfield Special Situations Fund, L.P. and Deerfield Special Situations Fund International Limited (collectively the “ Investors ”). Capitalized terms used but not defined herein shall have the meanings given to them in the Securities Purchase Agreement (as defined below).

W I T N E S S E T H

WHEREAS, the Company previously issued to the Investors warrants to purchase an aggregate of 16,200,000 shares of Common Stock (the “ Prior Warrants ”) in connection with that certain Purchase and Exchange Agreement, dated June 2, 2010, between the Parties;

WHEREAS, on the date hereof, the Company and the Investors are entering into a Securities Purchase Agreement (the “ Securities Purchase Agreement ”) pursuant to which the Company has agreed to issue to the Investors, and the Investors have agreed to purchase from the Company, shares of Common Stock and Preferred Stock of the Company; and

WHEREAS, the Investors’ obligations to purchase the securities pursuant to the Securities Purchase Agreement are conditioned on the Company exchanging a portion of the Prior Warrants held by each Investor for new warrants (the “ New Warrants ”) pursuant to this Agreement.

NOW, THEREFORE, in consideration of the mutual agreements set forth herein, the Investors and the Company agree as follows:

ARTICLE I

ISSUANCE OF NEW WARRANTS

Section 1.1 Delivery of Prior Warrants . On or prior to the “Closing” under the Securities Purchase Agreement (the “ Closing ”), each Investor shall deliver to the Company for cancellation a portion of the Prior Warrants held by such Investor covering a number of shares of Common Stock equal to the number of shares of Common Stock covered by the New Warrants to be issued to such Investor as set forth opposite such Investor’s name on Schedule 1 attached hereto (such portion, the “ Canceled Prior Warrants ”) and in connection therewith each such Investor shall deliver to the Company on or prior to the Closing the certificates representing all of the Prior Warrants held by such Investor. At the Closing, the certificates representing all of the Prior Warrants shall be void and of no further force or effect.

Section 1.2 Issuance of New Warrants . At the Closing, the Company shall issue to each Investor a New Warrant to purchase the same number of shares of Common Stock that such Investor was entitled to purchase under the Canceled Prior Warrants. The New Warrants shall have an initial exercise price of $1.68 per share of Common Stock, shall provide for a term expiring on June 17, 2015, shall not be exercisable prior to the six month anniversary of the


Closing and shall otherwise be in the form annexed hereto as Exhibit A. At the Closing, the Company shall deliver to each Investor a new certificate, identical in form to the Prior Warrants, representing the number of remaining Prior Warrants set forth opposite such Investor’s name under “Remaining Prior Warrants” on Schedule 1 attached hereto.

Section 1.3 The Company and the Investors agree that the exchange of the Canceled Prior Warrants for the New Warrants made pursuant to this Agreement represents an isolated transaction that is not part of a plan to periodically increase any Investor’s proportionate interest in the assets or earnings and profits of the Company. Therefore, the Company shall not report dividend income for federal, and any applicable state and local, income tax purposes to the Investors except to the extent that cash, stock or property dividends are paid on the shares of Common Stock or Preferred Stock owned by the Investors. Notwithstanding the foregoing, neither the Investors nor the Company shall be required to take any action pursuant to this Section 1.3 if doing so would be reasonably likely, based upon the advice of the Company’s tax advisers after consulting with the Investors and their tax advisers, to be unfounded, unlawful or potentially subject the Investors or the Company to a material penalty.

Section 1.4 The parties agree and acknowledge that, for purposes of determining the respective ongoing obligations from and after the Closing of the parties under the Registration Rights Agreement, dated June 2, 2010, the term “Warrants” under said Registration Rights Agreement shall be deemed to include the New Warrants. The Company also agrees, as soon as practicable after the Closing, to prepare and file with the SEC a supplement (the “ Supplement ”) to the Registration Statement (as defined below) , as necessary to reflect the issuance of the New Warrants and the registration of the shares of Common Stock issuable upon exercise of the New Warrants. For purposes herein, the term “Registration Statement” means the registration statement on Form S-3 (File No. 33-167498), including a Prospectus, relating to, among other things, the resale by the Investors of shares of Common Stock issuable on exercise of the Prior Warrants.

ARTICLE II

REPRESENTATIONS AND WARRANTIES

Section 2.1 Representations and Warranties of the Company . The date on which the Closing occurs shall be referred to herein as the “Closing Date”. The Company represents and warrants as of the date hereof and as of the Closing Date as follows:

(a) The Company is a corporation duly organized and validly existing under the laws of the State of Delaware.

(b) The Company is conducting its business in compliance with its Certificate of Incorporation (as amended to date) and its Bylaws (as amended to date) (collectively, the “ Organizational Documents ”). The Organizational Documents of the Company (including all amendments thereto) as currently in effect have been made available to the Investors and remain in full force and effect with no defaults outstanding thereunder.

 

2


(c) The Company has full power and authority to enter into this Agreement and to issue the New Warrants in accordance with the terms hereof. The execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby, including, without limitation, the issuance of the New Warrants have been duly authorized by the Company’s Board of Directors or a duly authorized committee thereof and no further consent or authorization is required by the Company, its Board of Directors or its stockholders. This Agreement has been and, on the Closing Date, the New Warrants shall be, duly executed and delivered by the Company, and constitute the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of applicable creditors’ rights and remedies.

(d) All authorizations, consents, approvals, registrations, exemptions and licenses that are necessary for the issuance of the New Warrants hereunder, the execution and delivery of this Agreement and the performance by the Company of its obligations hereunder, have been obtained and are in full force and effect, except for registrations and filings in connection with the issuance of the New Warrants and shares of Common Stock issuable upon exercise of the New Warrants, and filings necessary to comply with laws, rules, regulations and orders required in the ordinary course of business.

(e) Neither the entering into of this Agreement nor the compliance with any of the terms hereof conflicts with, violates or results in a breach of any of the terms of, or constitutes a default or event of default (however described) or requires any consent under, to the extent applicable, (i) any agreement to which the Company is a party or by which it is bound, (ii) any of the terms of the Organizational Documents or (iii) any judgment, decree, resolution, award or order or any statute, rule or regulation applicable to the Company or its assets, except where such conflicts, violations, breaches or defaults, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect.

(f) To the Company’s knowledge, there exist no facts or circumstances (including without limitation any required approvals) that reasonably could be expected to prohibit the preparation and filing of the Supplement in order to make the Registration Statement available for the resale of the shares of Common Stock issuable upon exercise of the New Warrants by the Investors.

Section 2.2 Company Acknowledgment . The Company acknowledges that it has made the representations and warranties referred to in Section 2.1 with the intention of persuading the Investors to enter into this Agreement and that the Investors have entered into this Agreement on the basis of, and in full reliance on, each of such representations and warranties.

Section 2.3 Representations and Warranties of the Investors . Each of the Investors represents and warrants to the Company as of the date hereof and as of the Closing Date, and agrees that:

 

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(a) The entire legal and beneficial interests of the New Warrants, and the shares of Common Stock issuable pursuant to the New Warrants, whether upon exercise or otherwise (the “ Warrant Shares ”), are being acquired for, and will be held for, its account only.

(b) The New Warrants and the Warrant Shares have not been registered for issuance under the Securities Act. Each of the Purchasers understands that the New Warrants and the Warrant Shares are not registered for issuance under the Securities Act or qualified under applicable state securities laws on the ground that the issuance thereof will be exempt from the registration and qualifications requirements thereof.

(c) It has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its investment and has the ability to bear the economic risks of its investment in the New Warrants and the Warrant Shares.

(d) The New Warrants and the Warrant Shares must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption for such registration is available or, in the case of the Warrant Shares, they are sold pursuant to the Registration Statement.

(e) Neither the New Warrants or the Warrant Shares may be sold pursuant to Rule 144 adopted under the Securities Act unless certain conditions are met, including, among other things, the existence of a public market for the shares, the availability of certain current public information about the Company and the resale following the required holding period under Rule 144.

(f) It will not make any disposition of all or any part of the New Warrants or the Warrant Shares until:

(i) There is then in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with said registration statement (it being acknowledged that, upon filing of the Supplement in accordance with Section 1.4, the Warrant Shares may be disposed of pursuant to the Registration Statement); or

(ii) Such Investor shall have notified the Company of the proposed disposition and, in the case of a sale or transfer in a so called “4(1) and a half” transaction, shall have furnished counsel for the Company with an opinion of counsel, substantially in the form annexed as Exhibit C to the New Warrant. The Company agrees that it will not require an opinion of counsel with respect to transactions under Rule 144 of the Securities Act.

(g) Such Investor is a limited partnership or corporation duly organized and validly existing under the laws of the jurisdiction of its formation.

(h) This Agreement has been duly authorized, executed and delivered by such Investor and constitutes the valid and legally binding obligation of such Investor, enforceable in accordance with its terms, except as such enforceability may be limited by

 

4


(i) applicable insolvency, bankruptcy, reorganization, moratorium or other similar laws affecting creditors’ rights generally, and (ii) applicable equitable principles (whether considered in a proceeding at law or in equity).

(i) It has not and will not have assigned, encumbered, hypothecated or transferred, or purported to assign, encumber, hypothecate or transfer, to any other person or entity in any manner, any rights under or to the Canceled Prior Warrants.

Section 2.4 Investor Acknowledgement . Each of the Investors acknowledges that it has made the representations and warranties referred to in Section 2.3 with the intention of persuading the Company to enter into this Agreement and that the Company has entered into this Agreement on the basis of, and in full reliance on, each of such representations and warranties. Each of the Investors also acknowledges that the representations and warranties made by the Company in Section 2.1, to the extent that they pertain to the New Warrants, are made solely to the extent, and will only survive for so long as, any of the Investors remains a party to the Registration Rights Agreement or a holder of the New Warrants.

ARTICLE III

MISCELLANEOUS

Section 3.1 Notices . Any notice, request or other communication to be given or made under this Agreement shall be in writing. Such notice, request or other communication shall be deemed to have been duly given or made when it shall be delivered by hand, international courier (confirmed by facsimile), or facsimile (with a hard copy delivered within two (2) Business Days) to the party to which it is required or permitted to be given or made at such party’s address specified below or at such other address as such party shall have designated by notice to the other parties.

For the Company:

Arena Pharmaceuticals, Inc.

6166 Nancy Ridge Drive

San Diego, CA 92121

Attention: Chief Financial Officer and General Counsel

Facsimile: (858) 677-0065

with a courtesy copy (not constituting notice) to:

Cooley LLP

4401 Eastgate Mall

San Diego, CA 92121

Attention: Steven M. Przesmicki

Facsimile: (858) 550-6420

For the Investors c/o:

 

5


Deerfield Private Design Fund, L.P.

780 Third Avenue, 37 th Floor

New York, New York 10017

Attention: James E. Flynn

Facsimile: (212) 573-8111

with a courtesy copy (not constituting notice) to:

Katten Muchin Rosenman LLP

575 Madison Avenue

New York, New York 10022-2585

Facsimile: (212) 894-5827

Attention: Mark I. Fisher

         Elliot Press

Section 3.2 Waiver of Notice. Whenever any notice is required to be given to the Investors or the Company under this Agreement, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice.

Section 3.3 Applicable Law and Consent to Non-Exclusive New York Jurisdiction . This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to the conflicts of laws principles thereof other than Sections 5-1401 and 5-1402 of the General Obligations Law of such State.

(a) Each party hereby irrevocably submits to the jurisdiction of the state and federal courts sitting in The City of New York, borough of Manhattan or the County of San Diego for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or other proceeding, any claim that it is not personally subject to the jurisdiction of any such court, or that such court, action or other proceeding is improper. Final non-appeal able judgment against any party in any such action, suit or other proceeding shall be conclusive and may be enforced in any other jurisdiction by suit on the judgment. Nothing contained in this Agreement shall affect the right of any party to commence legal proceedings in any court having jurisdiction, or concurrently in more than one jurisdiction, or to serve process, pleadings and other legal papers upon the other party(ies) in any manner authorized by the laws of any such jurisdiction. Each party irrevocably waives, to the fullest extent permitted by applicable law, any objection which it may now or hereafter have to the laying of venue of any such action, suit or other proceeding brought in the courts in the State of New York, in the County of San Diego or in the United States District Court for the Southern District of New York, and any claim that any such action, suit or other proceeding brought in any such court has been brought in an inconvenient forum.

(b) EACH PARTY HEREBY WAIVES ANY AND ALL RIGHTS TO DEMAND A TRIAL BY JURY IN ANY ACTION, SUIT OR OTHER PROCEEDING

 

6


ARISING OUT OF ANY TRANSACTION DOCUMENT OR THE TRANSACTIONS CONTEMPLATED BY ANY TRANSACTION DOCUMENT.

(c) To the extent that the parties may, in any suit, action or other proceeding brought in any court arising out of or in connection with this Agreement, be entitled to the benefit of any provision of law requiring the Company or the Investors, as applicable, in such suit, action or other proceeding to post security for the costs of the Company or the Investors, as applicable, or to post a bond or to take similar action, the parties hereby irrevocably waive such benefit, in each case to the fullest extent now or hereafter permitted under any applicable laws.

Section 3.4 Successors and Assigns. This Agreement shall bind and inure to the respective successors and assigns of the parties. The Company may not assign or otherwise transfer all or any part of its rights under this Agreement without the prior written consent of the Investors. Any attempted assignment or participation in violation of this Section 3.4 shall be void and of no further effect.

Section 3.5 Entire Agreement . This Agreement contains the entire understanding of the parties with respect to the matters covered thereby and supersedes any and all other written and oral communications, negotiations, commitments and writings with respect thereto. This Agreement may be amended, and any provision may be waived, by a writing signed by the Company and the Investors.

Section 3.6 Severability . If any provision contained in this Agreement shall be invalid, illegal or unenforceable in any respect under any law, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. The parties shall endeavor in good faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provision.

Section 3.7 Counterparts . This Agreement may be executed in several counterparts, and by each party on separate counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same agreement. Facsimile signatures or the exchange of .pdf copies of signatures shall be treated as original signatures.

Section 3.8 Survival . This Agreement and all agreements, representations and warranties made in this Agreement, and in any document, certificate or statement delivered pursuant thereto or in connection therewith shall be considered to have been relied upon by the parties and shall survive the execution and delivery of this Agreement regardless of any investigation made by any party or on its behalf, and shall continue in force until the termination or exercise in full of the New Warrants.

Section 3.9 Waiver . Neither the failure of, nor any delay on the part of, any party in exercising any right, power or privilege hereunder, or under any agreement, document or instrument mentioned herein, shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege hereunder, or under any agreement, document or instrument mentioned herein, preclude other or further exercise thereof or the exercise of any

 

7


other right, power or privilege; nor shall any waiver of any right, power, privilege or default hereunder, or under any agreement, document or instrument mentioned herein, constitute a waiver of any other right, power, privilege or default or constitute a waiver of any default of the same or of any other term or provision. No course of dealing and no delay in exercising, or omission to exercise, any right, power or remedy accruing to the Investors upon any default under this Agreement or any other agreement shall impair any such right, power or remedy or be construed to be a waiver thereof or an acquiescence therein; nor shall the action of the Purchasers in respect of any such default, or any acquiescence by it therein, affect or impair any right, power or remedy of the Investors in respect of any other default. All rights and remedies herein provided are cumulative and not exclusive of any rights or remedies otherwise provided by law.

Section 3.10 Further Assurances . From time to time, each party hereto shall perform any and all acts and execute and deliver to the other party such additional documents as may be necessary or as requested by the other party to carry out the purposes of this Agreement or to preserve and protect such other party’s rights as contemplated therein.

[SIGNATURE PAGE FOLLOWS]

 

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IN WITNESS WHEREOF, the parties, acting through their duly authorized representatives, have caused this Agreement to be signed in their respective names as of the date first above written.

 

ARENA PHARMACEUTICALS, INC.      
By:  

/s/ Steven W. Spector

     
Name:   Steven W. Spector      
Its:   Senior Vice President, General Counsel      
  and Secretary      
DEERFIELD PRIVATE DESIGN FUND, L.P.     DEERFIELD INTERNATIONAL LIMITED
By:   Deerfield Capital, L.P., its General Partner      
By:   J.E. Flynn Capital LLC, its General Partner      
By:  

/s/ David J. Clark

    By:  

/s/ David J. Clark

Name:   David J. Clark     Name:   David J. Clark
Its:   Authorized Signatory     Its:   Authorized Signatory

DEERFIELD PRIVATE DESIGN

INTERNATIONAL, L.P.

    DEERFIELD SPECIAL SITUATIONS FUND, L.P.
By:   Deerfield Capital, L.P., its General Partner     By:   Deerfield Capital, L.P., its General Partner
By:   J.E. Flynn Capital LLC, its General Partner     By:   J.E. Flynn Capital LLC, its General Partner
By:  

/s/ David J. Clark

    By:  

/s/ David J. Clark

Name:   David J. Clark     Name:   David J. Clark
Its:   Authorized Signatory     Its:   Authorized Signatory
DEERFIELD PARTNERS, L.P.     DEERFIELD SPECIAL SITUATIONS FUND INTERNATIONAL LIMITED
By:   Deerfield Capital, L.P., its General Partner      
By:   J.E. Flynn Capital LLC, its General Partner      
By:  

/s/ David J. Clark

    By:  

/s/ David J. Clark

Name:   David J. Clark     Name:   David J. Clark
Its:   Authorized Signatory     Its:   Authorized Signatory


EXHIBIT A

FORM OF NEW WARRANT


SCHEDULE 1

 

    

New

Warrants

    

Remaining

Prior

Warrants

 

Deerfield Partners, L.P.

     2,844,981         362,619   

Deerfield International Limited

     4,339,314         553,086   

Deerfield Private Design Fund, L.P.

     2,421,394         308,630   

Deerfield Private Design International, L.P.

     3,900,785         497,191   

Deerfield Special Situations Fund, L.P.

     303,465         38,679   

Deerfield Special Situations Fund International Limited

     558,651         71,205   
                 

Total

     14,368,590         1,831,410   

Exhibit 99.4

THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF OR OTHERWISE ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF OR EXERCISED UNLESS (I) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (II) AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS IS AVAILABLE IN CONNECTION WITH SUCH OFFER, SALE OR TRANSFER.

AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. HOLDERS MUST RELY ON THEIR OWN ANALYSIS OF THE INVESTMENT AND ASSESSMENT OF THE RISKS INVOLVED.

 

Warrant to Purchase

shares  

   Warrant Number

Warrant to Purchase Common Stock

of

ARENA PHARMACEUTICALS, INC.

THIS CERTIFIES that                      (including any permitted transferee or assignee of this Warrant under the terms hereof, “Holder”) has the right to purchase from ARENA PHARMACEUTICALS, INC., a Delaware corporation, (the “Company”),              (              ) fully paid and nonassessable shares of the Company’s common stock, $0.0001 par value per share (“Common Stock”), subject to adjustment as provided herein (such shares of Common Stock, together with the stock and other securities and property at the time receivable upon the exercise of this Warrant, the “Warrant Shares”), at a price equal to the Exercise Price as defined in Section 3 below, at any time during the Term (as defined below).

Holder agrees with the Company that this Warrant to Purchase Common Stock of the Company (this “Warrant” or this “Agreement”) is issued, and all rights hereunder shall be held, subject to all of the conditions, limitations and provisions set forth herein.

1. Date of Issuance and Term .

This Warrant shall be deemed to be issued on              , 2011 (“Date of Issuance”). The term of this Warrant begins on the date that is six months after the Date of Issuance and ends at 5:00 p.m., New York City time, on June 17, 2015 (the “Term”). For clarity, this Warrant may only be exercised during the Term. This Warrant was issued in conjunction with that certain Exchange Agreement (the “2011 Exchange Agreement”), dated March 28, 2011, by and between the Company and Deerfield Private Design Fund, L.P., Deerfield Private Design International, L.P., Deerfield Partners, L.P., Deerfield International Limited, Deerfield Special Situations Fund, L.P. and Deerfield Special Situations Fund International Limited (collectively, the “Initial Investors”). This Warrant replaces a portion of that certain “New Warrant” (as defined in the 2010 Exchange Agreement) having a Date of Issuance of June 7, 2010 and issued to Holder in conjunction with that certain Purchase and Exchange Agreement (the “2010 Exchange Agreement”), dated June 2, 2010, and Registration Rights Agreement (the “Registration Rights Agreement”), dated June 2, 2010, each by and between the Company and the Initial Investors.

Notwithstanding anything herein to the contrary, the Company shall not issue to the Holder, and the Holder shall not acquire, shares of Common Stock upon exercise of this Warrant, or otherwise pursuant to the terms of this Warrant, to the extent that, upon such issuance or acquisition, the number of shares of Common Stock then beneficially owned by the Holder and its Affiliates and any other persons or entities whose beneficial ownership of Common Stock would be aggregated with the Holder’s for purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the applicable regulations of the Securities and Exchange Commission (the

 

1.


“SEC”) (including shares held by any “group” of which the Holder is a member, but excluding shares beneficially owned by virtue of the ownership of convertible securities or rights to acquire securities that have limitations on the right to convert, exercise or purchase similar to the limitation set forth herein) would exceed 9.98% of the total number of shares of Common Stock then issued and outstanding (the “9.98% Cap”), provided, however, that the 9.98% Cap shall not apply with respect to the issuance of shares of Common Stock pursuant to a Cashless Major Exercise (as defined below) in connection with a Major Transaction (as defined below) covered by the provisions of Section 5(c)(i)(A) below in which the Company is not the surviving entity (a “Qualified Change of Control Transaction”) to the extent that the number of shares beneficially owned by the Holder and its Affiliates in the Successor Entity immediately following consummation of such Qualified Change of Control Transaction does not exceed 9.98% of any class of equity securities of the Successor Entity. For purposes hereof, “group” has the meaning set forth in Section 13(d) of the Exchange Act and the applicable regulations of the SEC, and the percentage held by the Holder shall be determined in a manner consistent with the provisions of Section 13(d) of the Exchange Act and the applicable regulations of the SEC. Upon the written request of the Holder, the Company shall, within three (3) Trading Days, confirm in writing to the Holder (which writing may be via email) the number of shares of Common Stock then outstanding. For purposes of this paragraph, it is understood that the number of shares of Common Stock beneficially owned by each Initial Investor shall be aggregated with each other Initial Investor for purposes of Section 13(d) of the Exchange Act.

“Affiliate” means any person or entity that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a person or entity, as such terms are used in and construed under Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”). Without limiting the generality of the foregoing, with respect to a Holder of Warrants, any investment fund or managed account that is managed on a discretionary basis by the same investment manager as such Holder will be deemed to be an Affiliate of such Holder.

2. Exercise .

(a) Manner of Exercise . During the Term, this Warrant may be Exercised as to all or any lesser number of whole Warrant Shares upon surrender of this Warrant, with the Exercise Form attached hereto as Exhibit A (the “Exercise Form”) duly completed and executed, together with the full Exercise Price (as defined below) for each Warrant Share as to which this Warrant is Exercised, at the office of the Company, Arena Pharmaceuticals, Inc., 6166 Nancy Ridge Drive, San Diego, California 92121; Phone: (858) 453-7200, Fax: (858) 677-0065, or at such other office or agency as the Company may designate in writing, by overnight mail, with an advance copy of the Exercise Form sent to the Company and its transfer agent (“Transfer Agent”) by facsimile (such surrender and payment of the Exercise Price hereinafter called the “Exercise” of this Warrant).

(b) Date of Exercise . The “Date of Exercise” of the Warrant shall be defined as the Trading Day that the Exercise Form attached hereto as Exhibit A , completed and executed, is sent by facsimile to, and received during regular business hours by, the Company, provided that (i) the original Warrant and Exercise Form are received by the Company within two (2) Trading Days and (ii) in the event of a Cash Exercise, the Exercise Price is satisfied on the next Trading Day. In all other cases, the Date of Exercise shall be defined as the Trading Day on which the original Warrant and Exercise Form are received by the Company and, in the event of a Cash Exercise, the Exercise Price is satisfied. Upon the Date of Exercise, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been Exercised, irrespective of the date such Warrant Shares are credited to the Holder’s Depository Trust Company (“DTC”) account or the date of delivery of the certificates evidencing such Warrant Shares, as the case may be; provided, however, that in the event of a Cashless Major Exercise in respect of a Qualified Change of Control Transaction, the Holder shall be deemed to have become the holder of record of the shares issuable upon such exercise immediately prior to the consummation of such Qualified Change of Control Transaction.

(c) Delivery of Common Stock Upon Exercise . Within three (3) Trading Days after any Date of Exercise (or if the Holder requests the issuance of physical certificate(s) rather than through DTC credit, within two (2) Trading Days after receipt by the Company of the original Warrant), or in the case of a Cashless Major Exercise (as defined in Section 5(c) below), within the period provided in Section 5(c)(iv), as applicable (the “Delivery Period”), the Company shall issue and deliver (or cause its Transfer Agent to issue and deliver) in accordance with the terms hereof to or upon the order of the Holder that number of Exercise Shares or Cashless Major Shares (as defined

 

2.


below), as applicable, for the portion of this Warrant Exercised, as shall be determined in accordance herewith. Upon the Exercise of this Warrant or any part hereof, the Company shall, at its own cost and expense, take all commercially reasonable actions, including obtaining and delivering an opinion of counsel, to assure that the Transfer Agent shall issue stock certificates in the name of Holder (or its nominee) or such other persons as designated by Holder and in such denominations, each as specified in the Exercise Form, representing the number of Warrant Shares issuable upon such Exercise (“Exercise Shares”). Notwithstanding the foregoing, the Company shall not be required to pay any tax or other charge imposed in connection with any transfer involved in the issuance of any certificate for Exercise Shares in any name other than that of the original registered holder of this Warrant, and in such case the Company shall not be required to issue or deliver any stock certificate until such tax or other charge has been paid or it has been established to the Company’s satisfaction that no tax or other charge is due.

(d) Delivery Failure . In addition to any other remedies which may be available to the Holder, in the event that the Company fails for any reason to effect delivery of the Exercise Shares by the end of the Delivery Period (a “Delivery Failure”), the Holder will be entitled to revoke all or part of the relevant Exercise Form by delivery of a notice to such effect to the Company not later than three (3) Trading Days after the end of the Delivery Period, whereupon the Company and the Holder shall each be restored to their respective positions immediately prior to the delivery of such notice, including without limitation the return of the Warrant to the Holder and the return of certificates representing Exercise Shares to the Company.

(e) Legends .

(i) Restrictive Legend . The Holder understands that this Warrant shall bear a restrictive legend in substantially the form set forth on the first page of this Warrant (and a stop-transfer order may be placed against transfer of such securities). The Holder further understands that until such time as the Exercise Shares have been registered under the Securities Act as contemplated by the Registration Rights Agreement, or otherwise may be sold pursuant to Rule 144 under the Securities Act or an exemption from registration under the Securities Act without any restriction as to the number of securities as of a particular date that can then be immediately sold, the Exercise Shares shall bear a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of the certificates for such securities):

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER SAID ACT, OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SAID ACT INCLUDING, WITHOUT LIMITATION, PURSUANT TO RULES 144 OR 144A UNDER SAID ACT OR PURSUANT TO A PRIVATE SALE EFFECTED UNDER APPLICABLE FORMAL OR INFORMAL SEC INTERPRETATION OR GUIDANCE, SUCH AS A SO-CALLED “4(1) AND A HALF” SALE”, SUBJECT TO DELIVERY OF AN OPINION, AS PROVIDED IN THE WARRANT, DATED AS OF              , 20      , ISSUED BY THE COMPANY.

“THE SALE, TRANSFER OR ASSIGNMENT OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN REGISTRATION RIGHTS AGREEMENT DATED AS OF JUNE 2, 2010, AS AMENDED FROM TIME TO TIME, AMONG THE COMPANY AND CERTAIN HOLDERS OF ITS OUTSTANDING SECURITIES. COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE COMPANY.”

(ii) Removal of Restrictive Legends . The certificates evidencing the Exercise Shares shall not contain any legend restricting the transfer thereof (including the legend set forth above in subsection 2(e)(i)): (A) while a registration statement (including a Registration Statement, as defined in the Registration Rights Agreement) covering the resale of such security is effective under the Securities Act, or (B) following any sale of such Exercise Shares pursuant to Rule 144, or (C) if such Exercise Shares are eligible for sale under Rule 144(b)(1), or (D) if such legend is not

 

3.


required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the SEC) (collectively, the “Unrestricted Conditions”). If the Unrestricted Conditions are satisfied, the Company shall cause its counsel to issue a legal opinion to the Transfer Agent promptly after the Unrestricted Conditions are satisfied, if required and to the extent permitted by the Transfer Agent, to effect the issuance of the Exercise Shares without a restrictive legend or removal of the legend hereunder. The Company agrees that, following the Effective Date, at such time as the Unrestricted Conditions are met or such legend is otherwise no longer required under this Section 2(e), it will, no later than five (5) Trading Days following the delivery (the “Unlegended Shares Delivery Deadline”) by the Holder to the Company of a certificate representing Exercise Shares containing a restrictive legend (such fifth Trading Day, the “Legend Removal Date”), deliver or cause to be delivered to such Holder a certificate (or electronic transfer) representing such shares that is free from all restrictive and other legends. For purposes hereof, “Effective Date” shall mean the date that the Registration Statement that the Company is required to file pursuant to the Registration Rights Agreement has been declared effective by the SEC.

(iii) Sale of Unlegended Shares . Holder agrees that the removal of the restrictive legend from any certificates representing securities as set forth in Section 2(e) above is predicated upon the Company’s reliance that the Holder will sell, transfer, assign, pledge, hypothecate or otherwise dispose of this Warrant or any Exercise Shares pursuant to either the registration requirements of the Securities Act, including any applicable prospectus delivery requirements, or an exemption therefrom, and that if such securities are sold pursuant to a Registration Statement, they will be sold in compliance with the plan of distribution set forth therein.

(f) Cancellation of Warrant . This Warrant shall be canceled upon (i) expiration at the end of the Term, (ii) the full Exercise of this Warrant (including any Cashless Major Exercise) or (iii) full redemption of this Warrant (including any Early Termination Upon Major Transaction). If this Warrant is not Exercised in full, Holder shall be entitled to receive a new Warrant (containing terms identical to this Warrant) representing any unexercised portion of this Warrant. In the event of a Major Transaction (as defined below) in which all shares of Common Stock are canceled and/or converted or exchanged into the right to receive cash and/or securities of Another Entity (as defined below), then, any portion of this Warrant that is neither (a) redeemed pursuant to an Early Termination Upon Major Transaction, (b) assumed pursuant to Section 5(c)(ii) below or (c) Exercised (including any Cashless Major Exercise) pursuant to the terms of this Warrant prior to the closing of such Major Transaction, shall (A) automatically and immediately be deemed to have been exercised pursuant to a Cashless Exercise, immediately prior to the consummation of such Major Transaction if the aggregate consideration to be received with respect to the Warrant Shares in such Major Transaction is greater than the aggregate Exercise Price for such shares, or (B) be canceled and terminated without further action by the Holder or the Company upon consummation of such Major Transaction if the aggregate consideration to be received with respect to the Warrant Shares in the Major Transaction is less than the aggregate Exercise Price for such shares.

(g) Delivery of Electronic Shares . In lieu of delivering physical certificates representing the Exercise Shares or shares of Common Stock submitted for legend removal, provided the Transfer Agent is participating in the DTC Fast Automated Securities Transfer (“FAST”) program, upon written request of the Holder, the Company shall use commercially reasonable efforts to cause its Transfer Agent to electronically transmit such securities by crediting the account of the Holder’s prime broker with DTC through its Deposit Withdrawal Agent Commission (DWAC) system. The time periods for delivery and penalties described herein shall apply to the electronic transmittals described herein. Any delivery not effected by electronic transmission shall be effected by delivery of physical certificates.

(h) Buy-In . In addition to any other rights available to the Holder, if the Company fails to cause its Transfer Agent to transmit to the Holder a certificate or certificates, or electronic shares through DWAC, representing Exercise Shares on or before the end of the applicable Delivery Period (other than a failure caused by incorrect or incomplete information provided by Holder to the Company hereunder), and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise), or the Holder’s brokerage firm otherwise purchases shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Exercise Shares that the Company was required to deliver to the Holder in connection with such Exercise (a “Buy-In”), then the Company shall (1) pay in cash to the Holder the amount by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount (the “Sales Price”) obtained by multiplying (A) the number of Exercise Shares that the Company was required to deliver to the Holder in connection

 

4.


with the Exercise at issue times (B) the price at which the sell order giving rise to such purchase obligation was executed, and (2) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Exercise Shares for which such Exercise was not timely honored or deliver to the Holder the Exercise Shares that would have been issued had the Company timely complied with its Exercise and delivery obligations hereunder. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted Exercise to cover the sale of Common Stock with an aggregate Sales Price of $10,000, under clause (1) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice, within three (3) Trading Days after the occurrence of a Buy-In, indicating the amounts payable to the Holder in respect of such Buy-In, together with applicable confirmations and other evidence reasonably requested by the Company. 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 Exercise Shares upon Exercise of the Warrant as required pursuant to the terms hereof; provided, however, that the Holder shall not be entitled to both (i) reinstate the portion of the Warrant and equivalent number of Exercise Shares for which such Exercise was not timely honored and (ii) receive such Exercise Shares.

3. Payment of Warrant Exercise Price for Cash Exercise or Cashless Exercise; Cashless Major Exercise .

(a) Exercise Price . The Exercise Price (“Exercise Price”) shall initially equal $1.68 per share, as adjusted pursuant to the terms hereof, including but not limited to Section 5(a) and Section 5(b) below.

Payment of the Exercise Price shall be made as follows:

(i) Cash Exercise : The Holder may exercise this Warrant in cash, cashier’s check, wire transfer, or through a reduction of an amount of principal outstanding under any Notes (as defined in that certain Facility Agreement, by and between the Company and the Initial Investors, dated as of June 17, 2009, as amended (the “Facility Agreement”)) in accordance with Section 2.11 of the Facility Agreement, then held by the Holder, equal to the applicable Exercise Price (a “Cash Exercise”).

(ii) Cashless Exercise : The Holder, at its option, may exercise this Warrant in a cashless exercise transaction pursuant to this subsection (ii) (a “Cashless Exercise”). In order to effect a Cashless Exercise, the Holder shall surrender this Warrant at the principal office of the Company together with an Exercise Form, completed and executed, indicating Holders election to effect a Cashless Exercise, in which event the Company shall issue Holder a number of shares of Common Stock computed using the following formula:

X = Y (A-B)/A

 

where: X = the number of shares of Common Stock to be issued to Holder.

 

   Y = the number of shares of Common Stock for which this Warrant is being Exercised.

 

   A = the Market Price of one (1) share of Common Stock (for purposes of this Section 3(a)(ii), where “Market Price,” means the Volume Weighted Average Price (as defined herein) of one (1) share of the Company’s Common Stock during the ten (10) consecutive Trading Day period immediately preceding the Date of Exercise.

 

   B = the Exercise Price.

 

  

As used herein, the “Volume Weighted Average Price” for any security as of any date means the volume weighted average sale price on The NASDAQ Global Market (“NASDAQ”) as reported by, or based upon data reported by, Bloomberg Financial Markets or an equivalent, reliable reporting service mutually acceptable to and hereafter designated by holders of a majority in interest of the Warrants and the Company (“Bloomberg”) or, if NASDAQ is not the principal trading market for such security, the volume weighted average sale price of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or, if no volume weighted average sale price is

 

5.


 

reported for such security, then the last closing trade price of such security as reported by Bloomberg, or, if no last closing trade price is reported for such security by Bloomberg, the average of the bid prices of any market makers for such security that are listed in the over the counter market by the Financial Industry Regulatory Authority, Inc. or in the “pink sheets” by the Pink OTC Market, Inc. If the Volume Weighted Average Price cannot be calculated for such security on such date in the manner provided above, the volume weighted average price shall be the fair market value as determined in good faith by the Company’s Board of Directors. “Trading Day” shall mean any day on which the Common Sock is traded for any period on NASDAQ, or on the principal securities exchange or other securities market on which the Common Stock is then being traded.

For purposes of Rule 144 and sub-section (d)(3)(ii) thereof, it is intended, understood and acknowledged that the Common Stock issued upon Exercise of this Warrant in a Cashless Exercise transaction shall be deemed to have been acquired at the time this Warrant was issued. Moreover, it is intended, understood and acknowledged that the holding period for the Common Stock issued upon Exercise of this Warrant in a Cashless Exercise transaction shall be deemed to have commenced on the date this Warrant was issued.

(b) Cashless Major Exercise: To the extent the Holder shall exercise this Warrant or any portion thereof as a Cashless Major Exercise pursuant to Section 5(c)(i) below, the Holder shall surrender this Warrant, prior to the end of the Early Termination Period, at the principal office of the Company together with the Exercise Form, completed and executed, indicating that the Holder is exercising this Warrant (or such portion thereof) pursuant to a Cashless Major Exercise, in which event the Company shall issue, when and as required pursuant to Section 5(c)(iv) below, a number of shares of Common Stock (the “Cashless Major Shares”) equal to (i) the Black-Scholes Value (as defined in Section 5(c)(iii) below) of the remaining unexercised portion of this Warrant (or such applicable portion being exercised) divided by (ii) the greater of (A) 95% of the closing price of the Common Stock on the principal securities exchange or other securities market on which the Common Stock is then traded determined as of the Trading Day immediately preceding the date on which the applicable Major Transaction is consummated or (B) $1.60.

(c) [RESERVED]

(d) Dispute Resolution . In the case of a dispute as to the determination of the closing price or the Volume Weighted Average Price of the Company’s Common Stock or the arithmetic calculation of the Exercise Price, Market Price or any Major Transaction Warrant Early Termination Price, the Company shall submit the disputed determinations or arithmetic calculations via facsimile within four (4) business days of receipt, or deemed receipt, of the Exercise Notice or Major Transaction Early Termination Notice, or other event giving rise to such dispute, as the case may be, to the Holder. If the Holder and the Company are unable to agree upon such determination or calculation within two (2) business days of such disputed determination or arithmetic calculation being submitted to the Holder, then the Company shall, within two (2) business days submit via facsimile (i) the disputed determination of the closing price or the Volume Weighted Average Price of the Company’s Common Stock to an independent, reputable investment bank selected by the Company and approved by the Holder, which approval shall not be unreasonably withheld or delayed or (ii) the disputed arithmetic calculation of the Exercise Price, Market Price or any Major Transaction Warrant Early Termination Price to the Company’s independent, outside accountant, or another accounting firm of national standing selected by the Company. The Company shall cause the investment bank or the accountant, as the case may be, to perform the determinations or calculations and notify the Company and the Holder of the results no later than the later of (i) five (5) business days from the time it receives the disputed determinations or calculations or (ii) five (5) business days from the selection of the investment bank and accounting firm, as applicable. Such investment bank’s or accountant’s determination or calculation, as the case may be, shall be binding upon all parties absent demonstrable error.

4. Transfer and Registration .

(a) Transfer Rights . Subject to the provisions of Section 8 of this Warrant, this Warrant may be transferred on the books of the Company, in whole or in part, in person or by attorney, upon surrender of this Warrant properly completed and endorsed. This Warrant shall be canceled upon such surrender and, as soon as practicable thereafter, the person to whom such transfer is made shall be entitled to receive a new Warrant or Warrants as to the portion of this Warrant transferred, and Holder shall be entitled to receive a new Warrant as to any portion hereof retained.

 

6.


(b) Registrable Securities . The Common Stock issuable upon the Exercise of this Warrant are expected to be registered under the Securities Act as contemplated by the Registration Rights Agreement.

5. Adjustments Upon Certain Events .

(a) Participation . The Holder, as the holder of this Warrant, shall be entitled to receive such dividends paid and distributions of any kind made to the holders of Common Stock of the Company to the same extent as if the Holder had Exercised this Warrant (without regard to any limitations on exercise herein or elsewhere and without regard to whether or not a sufficient number of shares are authorized and reserved to effect any such exercise and issuance) and had held such shares of Common Stock on the record date for such dividends and distributions. Payments under the preceding sentence shall be made concurrently with the dividend or distribution to the holders of Common Stock.

(b) Recapitalization or Reclassification; Consolidation, Merger or Sale . If the Company shall at any time effect a stock split, payment of stock dividend, recapitalization, reclassification or other similar transaction of such character that the shares of Common Stock shall be changed into or become exchangeable for a larger or smaller number of shares, then upon the effective date thereof, the number of shares of Common Stock which Holder shall be entitled to purchase upon Exercise of this Warrant shall be increased or decreased, as the case may be, in direct proportion to the increase or decrease in the number of shares of Common Stock by reason of such stock split, payment of stock dividend, recapitalization, reclassification or similar transaction, and the Exercise Price shall be, in the case of an increase in the number of shares, proportionally decreased and, in the case of decrease in the number of shares, proportionally increased. In addition, if any recapitalization, reclassification or reorganization of the share capital of the Company, or any consolidation or merger of the Company with another corporation, or the sale of all or substantially all of its shares and/or assets or other transaction (including, without limitation, a sale of substantially all of its assets followed by a liquidation) shall be effected in such a way that holders of shares of Common Stock shall be entitled to receive shares, securities or other assets or property (a “Change”), then, lawful and adequate provisions shall be made by the Company whereby the Holder shall thereafter have the right to purchase and receive (in lieu of the shares of Common Stock immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby) such shares, securities or other assets or property as may be issued or payable with respect to or in exchange for the number of outstanding shares of Common Stock which such Holder would have been entitled to receive had such Holder exercised this Warrant immediately prior to the consummation of such Change. The provisions of this Section 5(b) shall similarly apply to successive Changes. The Company shall give Holder the same notice it provides to holders of Common Stock of any transaction or Change described in this Section 5(b).

(c) Rights Upon Major Transaction .

(i) Major Transaction. In the event that a Major Transaction (as defined below) is consummated, then (1) in the case of a Cash-Out Major Transaction, and in the case of a Mixed Major Transaction to the extent of the percentage of the cash consideration in the Mixed Major Transaction (determined in accordance with the definition of a Mixed Major Transaction below), the Holder, at its option, may require the Company to redeem, effective immediately prior to the consummation of such Major Transaction, the Holder’s outstanding Warrants in accordance with Section 5(c)(iii) below and (2) in the case of all other Major Transactions, and in the case of a Mixed Major Transaction to the extent of the percentage of the consideration represented by securities of a Successor Entity in the Mixed Major Transaction, the Holder shall have the right to exercise this Warrant, effective immediately prior to the consummation of such Major Transaction, as a Cashless Major Exercise. Notwithstanding anything herein to the contrary, the Holder may elect to waive its rights under this Section 5(c) with respect to any Major Transaction in which event none of the provisions contained in this Section 5(c) shall apply.

Consummation of each of the following events shall constitute a “Major Transaction”:

(A) a consolidation, merger, exchange of shares, recapitalization, reorganization, business combination or other similar event, following which the holders of Common Stock immediately preceding such consolidation, merger, exchange, recapitalization, reorganization, combination or event either (a) no longer hold a majority of the shares of Common Stock or a majority of the voting power of the Successor Entity or (b) no longer have the ability to elect a majority of the board of directors of the Company or the Successor Entity (collectively, a “Change of Control Transaction”); or

 

7.


(B) a purchase, tender or exchange offer (other than any purchase, tender or exchange offer made by the Holder or its Affiliates) made to the holders of outstanding shares of Common Stock, such that following the consummation of such purchase, tender or exchange offer a Change of Control Transaction shall have occurred.

(C) [RESERVED] .

(D) [RESERVED] .

(E) [RESERVED] .

(F) [RESERVED] .

(ii) Assumption. In no event shall the Holder have the right to treat a Major Transaction as an Assumption unless the Company has elected to treat such Major Transaction as an Assumption pursuant to this paragraph. In the event of a Qualified Major Transaction, the Company shall have the exclusive right, in its sole discretion, to cause such Qualified Major Transaction (or the applicable portion of a Mixed Major Transaction) to be treated as an Assumption in accordance with this Section 5(c)(ii) with respect to the percentage of this Warrant then owned by the Holder equal to the percentage of the consideration to be paid in the Major Transaction represented by the securities of a Successor Entity. If the Successor Entity is a Publicly Traded Successor Entity, the percentage of consideration represented by securities of such Successor Entity shall be equal to the percentage that the value of the aggregate anticipated number of shares of the Publicly Traded Successor Entity to be issued to holders of Common Stock of the Company represents of the aggregate value of all consideration, including cash consideration, in such Major Transaction, as such values are set forth in any definitive agreement for the Major Transaction that has been executed at the time of the first public announcement of the Major Transaction or, if no such value is determinable from such definitive agreement, based on the closing price for shares of the Publicly Traded Successor Entity on its principal securities exchange on the Trading Day preceding the closing of the Major Transaction. If the Successor Entity is a Private Successor Entity, the percentage of consideration represented by securities of such Successor Entity shall be determined in good-faith by the Company’s Board of Directors. Any election by the Company to treat this Warrant as an Assumption pursuant to the terms hereof shall be made in the Major Transaction Notice (as defined in Section 5(c)(iii) below) in respect of such Qualified Major Transaction. The Company shall not enter into or be party to a Major Transaction that is to be treated as an Assumption, unless the Successor Entity assumes in writing all of the obligations of the Company under this Warrant and the Registration Rights Agreement in accordance with the provisions of this Section (ii), including agreements to deliver to each holder of Warrants in exchange for such Warrants a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to the Warrants, including, without limitation, representing the appropriate number of shares of the Successor Entity, having similar exercise rights as the Warrants (including but not limited to a similar Exercise Price and similar Exercise Price adjustment provisions based on the price per share or conversion ratio to be received by the holders of Common Stock in the Major Transaction) and similar registration rights as provided by the Registration Rights Agreement. Upon the occurrence of any Major Transaction treated as an Assumption hereunder, any Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Major Transaction, the provisions of this Warrant and the Registration Rights Agreement (or substantially similar instruments, if applicable) referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant with the same effect as if such Successor Entity had been named as the Company herein. Upon consummation of the Major Transaction, the Successor Entity shall deliver to the Holder confirmation that there shall be issued upon exercise or redemption of this Warrant at any time after the consummation of the Major Transaction, in lieu of the shares of Common Stock (or other securities, cash, assets or other property) issuable upon the exercise of the Warrants prior to such Major Transaction, such shares of common stock (or their equivalent) of the Successor Entity (based on the price per share or conversion ratio to be received by the holders of Common Stock in the Major Transaction), as adjusted in accordance with the provisions of this Warrant. The provisions of this Section shall apply similarly and equally to successive Major Transactions and shall be applied without regard to any limitations on the exercise of this Warrant other than any applicable beneficial ownership limitations. Any assumption of Company obligations under this paragraph shall be referred to herein as an “Assumption”.

(iii) Notice; Major Transaction Early Termination Right; Notice of Cashless Major Exercise. At least fifteen (15) days prior to the consummation of any Major Transaction, but, in any event, within two (2) Trading Days following

 

8.


the date of the public announcement of any Major Transaction, the Company shall deliver written notice thereof via facsimile and overnight courier to the Holder (a “Major Transaction Notice”), which such Major Transaction Notice shall, if applicable, indicate whether the Company desires to have the Warrant treated as an Assumption in accordance with the provisions of Section 5(c)(ii) above. Other than in respect of all or a portion of the Warrant that is to be treated as an Assumption or is eligible for a Cashless Major Exercise (without taking into consideration the 9.98% Cap) in accordance with Section 5(c)(i), the Holder may, by delivery of written notice (“Major Transaction Early Termination Notice”) to the Company at any time during the period beginning after the Holder’s receipt of a Major Transaction Notice and ending five (5) Trading Days prior to the consummation of such Major Transaction (the “Early Termination Period”), require the Company to redeem (an “Early Termination Upon Major Transaction”), effective immediately prior to the consummation of such Major Transaction, all or any portion of this Warrant not treated as an Assumption or eligible to be exercised as a Cashless Major Exercise pursuant to Section 5(c)(i) above (without taking into consideration the 9.98% Cap). The Major Transaction Early Termination Notice shall indicate the portion of the Warrant that the Holder is electing to have redeemed. Such portion of this Warrant (the “Redeemable Portion”) shall be redeemed by the Company at a price (the “Major Transaction Warrant Early Termination Price”) payable in cash equal to the value of the Redeemable Portion determined by use of the Black Scholes Option Pricing Model using the criteria set forth in Schedule 1 hereto (the “Black Scholes Value”).

To the extent the Holder shall elect to effect a Cashless Major Exercise in respect of a Major Transaction, the Holder shall deliver its exercise notice in accordance with Section 3(b), within the Early Termination Period.

(iv) Escrow; Payment of Major Transaction Warrant Early Termination Price . Following the receipt of a Major Transaction Early Termination Notice or a notice of a Cashless Major Exercise from the Holder, the Company shall not effect a Major Transaction that is being treated as an Early Termination Upon Major Transaction or in connection with which this Warrant is eligible to be exercised as a Cashless Major Exercise unless it either (a) obtains the written agreement of the Successor Entity that payment of the Major Transaction Warrant Early Termination Price and/or applicable Cashless Major Shares shall be made to the Holder upon consummation of such Major Transaction or (b) it shall first place into an escrow account with an independent escrow agent, at least three (3) Trading Days prior to the closing date of such Major Transaction (the “Major Transaction Escrow Deadline”), a number of shares of Common Stock or an amount in cash, as applicable, equal to the Major Transaction Warrant Early Termination Price and/or applicable Cashless Major Shares. If an escrow account is required to be established pursuant to the preceding sentence, concurrently upon closing of such Major Transaction, the Company shall pay or shall instruct the escrow agent to pay the Major Transaction Warrant Early Termination Price and/or to deliver the applicable Cashless Major Shares to the Holder. For purposes of determining the amount, if any, required to be placed in escrow pursuant to the provisions of this subsection (iv) and without affecting the amount of the actual Major Transaction Warrant Early Termination Price and/or the number of applicable Cashless Major Shares, the calculation of the “Stock Price” referred to in Schedule 1 hereto shall be determined based on the Closing Market Price (as defined on Schedule I) of the Common Stock on the Trading Day immediately preceding the date that the funds and/or applicable Cashless Major Shares, as applicable, are deposited with the escrow agent.

Notwithstanding anything to the contrary in this Section 5, until the Major Transaction Warrant Early Termination Price is paid in full, this Warrant may be exercised, in whole or in part, by the Holder.

For purposes hereof:

“Another Entity” shall mean an entity in which the holders of a majority of the shares of Common Stock of the Company immediately prior to the consummation of a Major Transaction do not hold a majority of the equity securities in such entity.

“Cash-Out Major Transaction” means a Major Transaction in which the consideration payable to holders of Common Stock in connection with the Major Transaction consists solely of cash.

“Cashless Major Exercise” shall mean an exercise of this Warrant or portion thereof as a “Cashless Major Exercise” in accordance with Section 3(b) and 5(c)(i) hereof.

 

9.


“Eligible Market” means NASDAQ, the New York Stock Exchange, Inc., the NYSE Arca, the NASDAQ Capital Market, the NASDAQ Global Select Market or the NYSE Alternext U.S. or any successor exchanges or markets thereof.

“Mixed Major Transaction” means a Major Transaction in which the consideration payable to the stockholders of the Company consists partially of cash and partially of securities of a Successor Entity. If the Successor Entity is a Publicly Traded Successor Entity, the percentage of consideration represented by securities of such Successor Entity shall be equal to the percentage that the value of the aggregate anticipated number of shares of the Publicly Traded Successor Entity to be issued to holders of Common Stock of the Company represents in comparison to the aggregate value of all consideration, including cash consideration, in such Mixed Major Transaction, as such values are set forth in any definitive agreement for the Mixed Major Transaction that has been executed at the time of the first public announcement of the Major Transaction, or, if no such value is determinable from such definitive agreement, based on the closing market price for shares of the Publicly Traded Successor Entity on its principal securities exchange on the Trading Day immediately preceding the closing of the Mixed Major Transaction. If the Successor Entity is a Private Successor Entity, the percentage of consideration represented by securities of such Successor Entity shall be determined in good-faith by the Company’s Board of Directors.

“Parent Entity” of a Person means an entity that, directly or indirectly, controls the applicable Person and whose common stock or equivalent equity security is quoted or listed on an Eligible Market, or, if there is more than one such Person or Parent Entity, the Person or Parent Entity with the largest public market capitalization as of the date of consummation of a Major Transaction.

“Person” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity and a government or any department or agency thereof.

“Private Successor Entity” means a Successor Entity that is not a Publicly Traded Successor Entity.

“Publicly Traded Successor Entity” means a Successor Entity that is a publicly traded corporation whose common stock is quoted on or listed for trading on an Eligible Market (as defined above).

“Qualified Major Transaction” means a Major Transaction where (i) the consideration payable to holders of Common Stock in connection with the Major Transaction consists in whole or in part of securities of a Publicly Traded Successor Entity or (ii) any non-cash portion of the consideration payable to holders of Common Stock in connection with the Major Transaction consists of securities of a Private Successor Entity, which such Private Successor Entity shall be approved of in writing by the Holder.

“Successor Entity” means any Person purchasing the Company’s assets or Common Stock, or any successor entity resulting from such Major Transaction, or if the Warrant is to be exercisable for shares of capital stock of its Parent Entity (as defined above), its Parent Entity.

(d) Adjustments: Additional Shares, Securities or Assets . In the event that at any time, as a result of an adjustment made pursuant to this Section 5 or otherwise, Holder shall, upon Exercise of this Warrant, become entitled to receive shares and/or other securities or assets (other than Common Stock) then, wherever appropriate, all references herein to Common Stock shall be deemed to refer to and include such shares and/or other securities or assets; and thereafter the number of such shares and/or other securities or assets shall be subject to adjustment from time to time in a manner and upon terms as nearly equivalent as practicable to the provisions of this Section 5.

(e) Notice of Adjustments . Whenever the Exercise Price is adjusted pursuant to the terms of this Warrant, the Company shall promptly mail to the Holder a notice (an “Exercise Price Adjustment Notice”) setting forth the Exercise Price after such adjustment and setting forth a statement of the facts requiring such adjustment. The Company shall, upon the written request at any time of the Holder, furnish to such Holder a like Warrant setting forth (i) such adjustment or readjustment, (ii) the Exercise Price at the time in effect and (iii) the number of shares of Common Stock and the amount, if any, of other securities or property which at the time would be received upon Exercise of the Warrant. For purposes of clarification, whether or not the Company provides an Exercise Price Adjustment Notice pursuant to this Section 5(e), upon the occurrence of any event that leads to an adjustment of the

 

10.


Exercise Price, the Holder would be entitled to receive a number of Exercise Shares based upon the new Exercise Price, as adjusted, for exercises occurring on or after the date of such adjustment, regardless of whether the Holder accurately refers to the adjusted Exercise Price in the Exercise Form.

6. Fractional Interests.

No fractional shares or scrip representing fractional shares shall be issuable upon the Exercise of this Warrant, but on Exercise of this Warrant, Holder may purchase only a whole number of shares of Common Stock. If, on Exercise of this Warrant, Holder would be entitled to a fractional share of Common Stock, such fractional share shall be disregarded and the Company shall calculate and pay to the Holder an amount of cash in lieu of such fractional share, with such cash amount based on the Market Price (as defined in Section 3(a)(ii) above). If more than one Warrant shall be exercised concurrently by Holder, the number of whole shares which shall be issuable upon exercise thereof shall be computed on the basis of the aggregate Warrants so exercised.

7. Reservation of Shares .

From and after the date hereof, the Company shall at all times reserve for issuance such number of authorized and unissued shares of Common Stock (or other securities substituted therefor as herein above provided) as shall be sufficient for the Exercise of this Warrant. If at any time the number of shares of Common Stock authorized and reserved for issuance is below the number of shares sufficient to permit the Exercise of this Warrant (a “Share Authorization Failure”) (based on the Exercise Price in effect from time to time), the Company will promptly take all corporate action reasonably necessary to authorize and reserve a sufficient number of shares, including, without limitation, calling a special meeting of stockholders to authorize additional shares to meet the Company’s obligations under this Section 7, and using commercially reasonable efforts to obtain stockholder approval of an increase in such authorized number of shares. The Company covenants and agrees that upon the Exercise of this Warrant, other than in the event of a Share Authorization Failure, if any, all Exercise Shares shall be duly and validly issued, fully paid and nonassessable and not subject to preemptive rights, rights of first refusal or similar rights of any Person.

8. Restrictions on Transfer .

(a) Registration or Exemption Required . This Warrant has been issued in a transaction exempt from the registration requirements of the Securities Act by virtue of Regulation D and exempt from state registration or qualification under applicable state laws. Neither the Warrant nor the Exercise Shares may be pledged, transferred, sold, assigned, hypothecated or otherwise disposed of except pursuant to an effective registration statement covering the resale of such securities or an exemption to the registration requirements of the Securities Act and applicable state laws including, without limitation, a so-called “4(1) and a half” transaction.

(b) Assignment . Subject to applicable securities laws and Section 8(a), the Holder may sell, transfer, assign, pledge, or otherwise dispose of this Warrant, in whole or in part; provided that Holder may not sell, transfer, assign, pledge, or otherwise dispose of any portion of this Warrant with respect to less than the lesser of (x) two-hundred thousand (200,000) Warrant Shares or (y) all remaining Warrant Shares underlying this Warrant. Holder shall deliver a written notice to Company, substantially in the form of the Assignment attached hereto as  Exhibit B , indicating the Person or Persons to whom the Warrant shall be assigned and the respective number of warrants to be assigned to each assignee. The Company shall effect the assignment within five (5) Trading Days (the “Transfer Delivery Period”), and shall deliver to the assignee(s) designated by Holder a Warrant or Warrants of like tenor and terms for the appropriate number of shares. Subject to the foregoing, this Warrant and the rights evidenced hereby shall inure to the benefit of and be binding upon the successors and assigns of the Holder. The provisions of this Warrant are intended to be for the benefit of all Holders from time to time of this Warrant, and shall be enforceable by any such Holder. For avoidance of doubt, in the event Holder notifies the Company that such sale or transfer is a so called “4(1) and half” transaction, the parties hereto agree that a legal opinion from outside counsel for the Holder delivered to counsel for the Company substantially in the form attached hereto as  Exhibit C shall be the only requirement to satisfy an exemption from registration under the Securities Act to effectuate such “4(1) and half” transaction.

 

11.


9. Noncircumvention .

The Company hereby covenants and agrees that the Company will not, by amendment of its certificate of incorporation, bylaws or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, and will at all times in good faith carry out all the provisions of this Warrant and take all action as may be reasonably required to protect the rights of the Holder. Without limiting the generality of the foregoing, the Company (i) shall not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the Exercise Price then in effect, and (ii) shall take all such actions as may be reasonably necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant.

10. Events of Failure .

The occurrence of each of the following shall be considered to be an “Event of Failure.”

(i) A Delivery Failure Default occurs, where a “Delivery Failure Default” shall be deemed to have occurred if the Company fails to use its reasonable best efforts to deliver Exercise Shares to the Holder within any applicable Delivery Period (other than due to the limitation contained in the provisions contained in the second paragraph of Section 1);

(ii) A Legend Removal Failure occurs, where a “Legend Removal Failure” shall be deemed to have occurred if the Company fails to use its reasonable best efforts to issue Exercise Shares without a restrictive legend, or fails to use it reasonable best efforts to remove a restrictive legend, when and as required under Section 2(e) hereof;

(iii) a Transfer Delivery Failure occurs, where a “Transfer Delivery Failure” shall be deemed to have occurred if the Company fails to use its reasonable best efforts to deliver a Warrant within any applicable Transfer Delivery Period; and

(iv) a Registration Failure (as defined below).

For purposes hereof, “Registration Failure” means that (A) the Company fails to use its best efforts to file with the SEC on or before the Filing Deadline (as defined in the Registration Rights Agreement) any Registration Statement required to be filed pursuant to Section 2(a) of the Registration Rights Agreement, (B) the Company fails to use commercially reasonable efforts to cause a Registration Statement to be declared effective by the SEC prior to the Registration Deadline (as defined in the Registration Rights Agreement), and if such Registration Statement is not so filed prior to the Registration Deadline, as soon as possible thereafter, or fails to use commercially reasonable efforts to keep such Registration Statement current and effective as required in Section 3 of the Registration Rights Agreement (subject to the Company’s right to delay or suspend effectiveness pursuant to Section 3(o) of the Registration Rights Agreement), (C) any Registration Statement required to be filed under the Registration Rights Agreement, after its initial effectiveness and during the Registration Period (as defined in the Registration Rights Agreement), lapses in effect or sales of all of Registrable Securities (as defined in the Registration Rights Agreement) then outstanding cannot otherwise be made thereunder (whether by reason of the Company’s failure to amend or supplement the prospectus included therein in accordance with the Registration Rights Agreement, the Company’s failure to file and use commercially reasonable efforts to obtain effectiveness with the SEC of an additional Registration Statement or amended Registration Statement required pursuant to Sections 2(a)(ii) or 3(b) of the Registration Rights Agreement, as applicable, or otherwise) for a period of time in excess of the Grace Period (as defined in the Registration Rights Agreement) provided that in each case, a Registration Failure shall be deemed to not have occurred if such Registration Failure results from a breach by any holder of a Registrable Security of its obligations pursuant to Section 4 of the Registration Rights Agreement. 

11. Default .

(a) Events Of Default . Each of the following events shall be considered to be an “Event of Default,” unless waived by the Holder:

 

12.


(i) Failure To Effect Registration. With respect to all Registration Failures, a Registration Failure occurs and remains uncured for a period of more than forty-five (45) days (or sixty (60) days in the case where the Company (i) has, by the Filing Deadline (as defined the Registration Rights Agreement) filed a Registration Statement (as defined in the Registration Rights Agreement) covering the number of shares required by the Registration Rights Agreement, and (ii) has responded in writing to any comments to the Registration Statement that the Company has received from the SEC, within ten (10) Business Days of such receipt, and nevertheless the SEC has not declared effective the Registration Statement by the Registration Deadline (as defined in the Registration Rights Agreement), and such Registration Failure relates solely to the Company’s failure to have the Registration Statement declared effective by the Registration Deadline (as defined in the Registration Rights Agreement)) after written notice thereof by Holder to the Company; provided that in each case, a Registration Failure shall be deemed to not have occurred if such Registration Failure results from a breach by any holder of a Registrable Security of its obligations pursuant to Section 4 of the Registration Rights Agreement.

(ii) Failure To Deliver Common Stock . Other than as provided in Section 13(a) below, a Delivery Failure (as defined above) occurs and the Company fails for any reason to effect delivery of the applicable Exercise Shares for a period of more than twenty (20) days after written notice thereof by Holder to the Company; or at any time, the Company announces or states in writing that it will not honor its obligations to issue shares of Common Stock to the Holder upon Exercise by the Holder of the Exercise rights of the Holder in accordance with the terms of this Warrant.

(iii) Legend Removal Failure . A Legend Removal Failure (as defined above) occurs and remains uncured for a period of thirty (30) days after written notice thereof by Holder to the Company; and

(iv) Corporate Existence; Major Transaction . (A) The Company has failed to (x) either satisfy the requirements of Section 5(c)(iv)(a) above or place the Major Transaction Warrant Early Termination Price or the Cashless Major Shares, as the case may be, into escrow or (y) if an escrow account is required to be established pursuant to Section 5(c)(iv), to instruct the escrow agent to release such amount or such shares, as the case may be, to the Holder pursuant to Section 5(c)(iv), or (B) with respect to a Major Transaction that is to be treated as an Assumption under the terms hereof, the Company has failed to meet the Assumption requirements of Section 5(c)(ii).

(b) [RESERVED]

(c) Remedies, Other Obligations, Breaches And Injunctive Relief . The remedies provided in this Warrant shall be cumulative and in addition to all other remedies available under this Warrant, the Registration Rights Agreement and the 2011 Exchange Agreement, at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the right of the Holder to pursue actual damages for any failure by the Company to comply with the terms of this Warrant. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the holder of this Warrant shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required.

12. Holder’s Early Terminations . In the event that the Company does not deliver the applicable Major Transaction Warrant Early Termination Price or the Exercise Shares in respect of a Cashless Major Exercise, as the case may be, to the Holder within the time period or as otherwise required pursuant to the terms hereof, or at any time thereafter, the Holder shall have the option, upon notice to the Company, in lieu of early termination or Cashless Major Exercise, as the case may be, to require the Company to promptly return to the Holder all or any portion of this Warrant that was submitted for early termination or exercise. Upon the Company’s receipt of such notice, (x) the applicable early termination or exercise, as the case may be, shall be null and void with respect to such applicable portion of this Warrant, (y) the Company shall immediately return this Warrant, or issue a new Warrant to the Holder representing the portion of this Warrant that was submitted for early termination or exercise and (z) the Exercise Price of this Warrant or such new Warrant shall be adjusted to the greater of (A) the Exercise Price as in effect on the date on which the applicable early termination or exercise notice, as the case may be, is voided and (B) $1.60.

 

13.


13. Limitation on Issuance of Common Stock .

(a) Share Cap . Notwithstanding anything herein to the contrary, the maximum number of shares of Common Stock issued or issuable pursuant to (A) this Warrant, (B) the Warrants issued pursuant to the provisions of the 2010 Exchange Agreement, (C) all additional Warrants issued pursuant to the provisions of the 2011 Exchange Agreement and (D) all additional Warrants issued pursuant to the provisions of Section 2.15(a) of the Facility Agreement may not exceed 28,000,000 shares of Common Stock.

(b) No Obligation to Net Cash Settle this Warrant . Notwithstanding anything to the contrary herein, in the event that the Company is not permitted to issue shares of Common Stock to Holder pursuant to this Warrant because of the provisions of Section 13(a) above or because the Holder would acquire a number of shares of Common Stock such that, upon such acquisition, the number of shares of Common Stock then beneficially owned by the Holder and its Affiliates and any other persons or entities whose beneficial ownership of Common Stock would be aggregated with the Holder’s for purposes of Section 13(d) of the Exchange Act (including shares held by any “group” of which the Holder is a member, but excluding shares beneficially owned by virtue of the ownership of securities or rights to acquire securities that have limitations on the right to convert, exercise or purchase similar to the limitation set forth herein) would exceed the 9.98% Cap (subject to the proviso to the 9.98% Cap set forth in the second paragraph of Section 1), the Company shall not be required to net cash settle or otherwise make any cash payment to Holder (i) with respect to any related obligation hereunder or (ii) to settle this Warrant by virtue of such limitation.

14. Benefits of this Warrant .

Nothing in this Warrant shall be construed to confer upon any person other than the Company and Holder any legal or equitable right, remedy or claim under this Warrant and this Warrant shall be for the sole and exclusive benefit of the Company and Holder.

15. Governing Law .

All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement (whether brought against a party hereto or its respective Affiliates, directors, officers, stockholders, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper or is an inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law. The parties hereby waive all rights to a trial by jury. If either party shall commence an action or proceeding to enforce any provisions of this Agreement, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its reasonable attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution or defense of such action or proceeding.

16. Loss of Warrant .

Upon receipt by the Company of evidence of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) of indemnity or security reasonably satisfactory to the Company, and upon surrender and cancellation of this Warrant, if mutilated, the Company shall execute and deliver a new Warrant of like tenor and date.

 

14.


17. Notice or Demands .

Notices or demands pursuant to this Warrant to be given or made by Holder to or on the Company shall be sufficiently given or made if sent by certified or registered mail, return receipt requested, postage prepaid or via overnight delivery with a nationally recognized courier service, and addressed, until another address is designated in writing by the Company, to the address set forth in Section 2(a) above. Notices or demands pursuant to this Warrant to be given or made by the Company to or on Holder shall be sufficiently given or made if sent by certified or registered mail, return receipt requested, postage prepaid or via overnight delivery with a nationally recognized courier service, and addressed, to the address of Holder set forth in the Company’s records, until another address is designated in writing by Holder.

[Signature page follows]

 

15.


IN WITNESS WHEREOF, the undersigned has executed this Warrant as of the                      day of              , 2011.

 

ARENA PHARMACEUTICALS, INC.
By:  

 

    Print Name:
    Title:

 

16.


EXHIBIT A

EXERCISE FORM FOR WARRANT

TO: ARENA PHARMACEUTICALS, INC.

CHECK THE APPLICABLE BOX:

 

¨

  

Cash Exercise

 

The undersigned hereby irrevocably exercises the attached warrant (the “Warrant”) with respect to                                  shares of Common Stock (the “Common Stock”) of ARENA PHARMACEUTICALS, INC., a Delaware corporation (the “Company”), and tenders herewith payment of the Exercise Price in full, together with all applicable transfer taxes.

 

[IF APPLICABLE: The undersigned hereby encloses $          as payment of the Exercise Price.]

 

[IF APPLICABLE: The undersigned hereby agrees to cancel $          of principal outstanding under Notes of the Company held by the Holder.]

¨

  

Cashless Exercise

 

The undersigned hereby irrevocably exercises the Warrant with respect to                                  shares of Common Stock of the Company, pursuant to the terms of the Cashless Exercise provisions set forth in Section 3(a)(ii) of the attached Warrant, and tenders herewith payment of all applicable transfer taxes, if any.

¨

  

Cashless Major Exercise

 

The undersigned hereby irrevocably exercises the Warrant with respect to      % of the Warrant currently outstanding pursuant to a Cashless Major Exercise in accordance with the terms of the Warrant.

¨

   [RESERVED]

1. The undersigned requests that any stock certificates for such shares be issued free of any restrictive legend, if appropriate, and a warrant representing any unexercised portion hereof be issued, pursuant to the Warrant in the name of the undersigned and delivered to the undersigned at the address set forth below. The undersigned agrees not to sell, transfer, assign, pledge, hypothecate or otherwise dispose of any of the Common Stock obtained on Exercise of the Warrant, except in accordance with applicable securities laws and the provisions of Section 8(a) of the Warrant.

2. The number of shares of Common Stock beneficially owned by the Holder and its Affiliates (as defined in the Warrant) and any other persons or entities whose beneficial ownership of Common Stock would be aggregated with the Holder’s for purposes of Section 13(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) (including shares held by any “group” of which the Holder is a member, but excluding shares beneficially owned by virtue of the ownership of securities or rights to acquire securities that have limitations on the right to convert, exercise or purchase similar to the limitation set forth herein) is                              . For purposes hereof, “group” has the meaning set forth in Section 13(d) of the Exchange Act and applicable regulations of the Securities and Exchange Commission, and the number of shares beneficially owned has been determined in a manner consistent with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder.

3. Capitalized terms used but not otherwise defined in this Exercise Form shall have the meaning ascribed thereto in the Warrant.


4. In the event of any conflict between the term of this Exercise Form and any provisions of this Warrant, the terms of the Warrant shall govern.

Dated:                     

 

 

 

Signature

 

 

 

Print Name

 

 

 

Address

NOTICE

The signature to the foregoing Exercise Form must correspond to the name as written upon the face of the attached Warrant in every particular, without alteration or enlargement or any change whatsoever.


EXHIBIT B

ASSIGNMENT

(To be executed by the registered holder

desiring to transfer the Warrant)

FOR VALUE RECEIVED, the undersigned holder of the attached warrant (the “Warrant”) hereby sells, assigns and transfers unto the person or persons below named the right to purchase                          shares of the Common Stock of ARENA PHARMACEUTICALS, INC. , a Delaware corporation, evidenced by the attached Warrant and does hereby irrevocably constitute and appoint                      attorney to transfer the said Warrant on the books of the Company, with full power of substitution in the premises.

 

Dated:                         

 

    Signature
Fill in for new registration of Warrant:    

 

Name

   

 

Address

   

 

Please print name and address of assignee

   
(including zip code number)    

NOTICE

The signature to the foregoing Assignment must correspond to the name as written upon the face of the attached Warrant in every particular, without alteration or enlargement or any change whatsoever.


EXHIBIT C

FORM OF OPINION

             , 20     

[                      ]

 

Re: Arena Pharmaceuticals, Inc. (the “Company”)

Dear Sir:

[                      ] (“[                      ]”) intends to transfer                      Warrants (the “Warrants”) of the Company to                      (“                      ”) without registration under the Securities Act of 1933, as amended (the “Securities Act”). In connection therewith, we have examined and relied upon the truth of representations contained in an Investor Representation Letter attached hereto and have examined such other documents and issues of law as we have deemed relevant.

Based on and subject to the foregoing, we are of the opinion that the transfer of the Warrants by                      to                      may be effected without registration under the Securities Act, provided, however, that the Warrants to be transferred to                      shall contain a legend restricting its transferability pursuant to the Securities Act and that transfer of the Warrants is subject to a stop order.

The foregoing opinion is furnished only to                      and may not be used, circulated, quoted or otherwise referred to or relied upon by you for any purposes other than the purpose for which furnished or by any other person for any purpose, without our prior written consent.

Very truly yours,


[FORM OF INVESTOR REPRESENTATION LETTER]

             , 20     

[                      ]

Gentlemen:

                     (“          ”) has agreed to purchase                      Warrants (the “Warrants”) of Arena Pharmaceuticals, Inc. (the “Company”) from [                      ] (“[                      ]”). We understand that the Warrants are “restricted securities.” We represent and warrant that              is a sophisticated institutional investor that would qualify as an “Accredited Investor” as defined in Rule 501 of Regulation D under the Securities Act of 1933, as amended (the “Securities Act”).

             represents and warrants as of the date hereof as follows:

1. That it is acquiring the Warrants and the shares of common stock, $0.0001 par value per share underlying such Warrants (the “Exercise Shares”) solely for its account for investment and not with a view to or for sale or distribution of said Warrants or Exercise Shares or any part thereof.              also represents that the entire legal and beneficial interests of the Warrants and Exercise Shares              is acquiring is being acquired for, and will be held for, its account only;

2. That it understands and agrees that the Warrants and the Exercise Shares have not been registered under the Securities Act on the basis that no distribution or public offering of the stock of the Company is to be effected.              realizes that the basis for the exemption may not be present if, notwithstanding its representations,              has a present intention of acquiring the securities for a fixed or determinable period in the future, selling (in connection with a distribution or otherwise), granting any participation in, or otherwise distributing the securities.              has no such present intention;

3. That it understands and agrees that the Warrants and the Exercise Shares must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available.              recognizes that the Company has no obligation to register the Warrants, or to comply with any exemption from such registration;

4. That it understands and agrees that neither the Warrants nor the Exercise Shares may be sold pursuant to Rule 144 adopted under the Securities Act unless certain conditions are met, including, among other things, the existence of a public market for the shares, the availability of certain current public information about Company, the resale following the required holding period under Rule 144 and the number of shares being sold during any three month period not exceeding specified limitations;

5. That it will not make any disposition of all or any part of the Warrants or Exercise Shares in any event unless and until:

(i) There is then in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with said registration statement; or

(ii)              shall have notified the Company of the proposed disposition and, in the case of a sale or transfer in a so called “4(1) and a half” transaction, shall have furnished counsel to the Company with an opinion of its counsel, substantially in the form of Exhibit C to the Warrant.

We acknowledge that the Company will place stop orders with respect to the Warrants and the Exercise Shares, and if a registration statement is not effective, the Exercise Shares shall bear the following restrictive legend:


“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER SAID ACT, OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SAID ACT INCLUDING, WITHOUT LIMITATION, PURSUANT TO RULES 144 OR 144A UNDER SAID ACT OR PURSUANT TO A PRIVATE SALE EFFECTED UNDER APPLICABLE FORMAL OR INFORMAL SEC INTERPRETATION OR GUIDANCE, SUCH AS A SO-CALLED “4(1) AND A HALF” SALE”, SUBJECT TO DELIVERY OF AN OPINION, AS PROVIDED IN THE WARRANT, DATED AS OF              , 20      , ISSUED BY THE COMPANY.

“THE SALE, TRANSFER OR ASSIGNMENT OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN REGISTRATION RIGHTS AGREEMENT DATED AS OF JUNE 2, 2010, AS AMENDED FROM TIME TO TIME, AMONG THE COMPANY AND CERTAIN HOLDERS OF ITS OUTSTANDING SECURITIES. COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE COMPANY.”

The undersigned agrees to notify the Company immediately of any development or occurrence which to the knowledge of the undersigned would render inaccurate or incomplete any of the representations or agreements contained in this letter and will indemnify and hold harmless the Company from and against any and all loss, damage, claim, liability and expense arising out of or resulting from the breach of any of the representations and agreements contained herein.

The Company and its counsel and transfer agent may rely on the information contained herein. At any time and from time to time after the date hereof,              shall, without further consideration, execute and deliver to [              ] or the Company such other instruments or documents and shall take such other actions as they may reasonably request to carry out the transactions contemplated hereby.

Very truly yours,


Schedule 1

Black-Scholes Value

Calculation Under Section 5(c)(iii)         

Remaining Term    Number of calendar days from date of consummation of the Major Transaction until the last date of the Term.
Interest Rate    A risk-free interest rate corresponding to the US$ LIBOR/Swap rate on the Trading Day immediately preceding the date on which the applicable Major Transaction is consummated for a period ending on the last date of the Term.
Volatility   

The lesser of (A): 50%; or

 

(B) (i) If the first public announcement of the Major Transaction is made at or prior to 4:00 p.m., New York City time, the arithmetic mean of the historical volatility for the 10, 30 and 50 Trading Day periods ending on the Trading Day immediately preceding such first public announcement, obtained from the HVT or similar function on Bloomberg; or

 

(ii) If the first public announcement of the Major Transaction is made after 4:00 p.m., New York City time, the arithmetic mean of the historical volatility for the 10, 30 and 50 Trading Day periods ending on the date of such first public announcement, obtained from the HVT or similar function on Bloomberg.

Stock Price    The greater of (1) the closing price of the Common Stock on NASDAQ, or, if that is not the principal trading market for the Common Stock, such principal market on which the Common Stock is traded or listed (the “Closing Market Price”) on the trading day immediately preceding the date on which a Major Transaction is consummated, (2) the first Closing Market Price following the first public announcement of a Major Transaction, or (3) the Volume Weighted Average Price as of the date immediately preceding the first public announcement of the Major Transaction.
Dividends    Zero.
Strike Price    Exercise Price as defined in section 3(a).

Exhibit 99.5

 

Contact: Arena Pharmaceuticals, Inc.       Media Contact: Russo Partners

Jack Lief

President and CEO

    David Schull, President david.schull@russopartnersllc.com 212.845.4271
Cindy McGee    
Manager, IR and Corporate Communications     Anthony J. Russo, Ph.D., CEO
858.453.7200, ext. 1479     tony.russo@russopartnersllc.com
    212.845.4251

www.arenapharm.com

 

 

Arena Pharmaceuticals Announces $35.5 Million Financing

- Arena to Use Approximately $17.7 Million of Proceeds to Prepay Outstanding Debt -

SAN DIEGO, March 29, 2011 — Arena Pharmaceuticals, Inc. (NASDAQ: ARNA) announced today that it has agreed to sell 12,150,000 shares of its common stock, at a price of $1.46 per share, and 12,150 shares of its Series C Convertible Preferred Stock, at a price of $1,460 per share, in a registered direct public offering to entities affiliated with Deerfield Management, a healthcare investment organization. The preferred stock is convertible into an aggregate of 12,150,000 shares of Arena common stock. Arena expects to receive gross proceeds of approximately $35.5 million. The closing of the offering is expected to take place on or about March 31, 2011.

Arena will use approximately $17.7 million of the proceeds from this offering to prepay a portion of the loan principal that otherwise would have been required to be repaid in June 2013 under the existing Facility Agreement between Arena and Deerfield.

A registration statement relating to the common stock and preferred stock has been filed with and declared effective by the Securities and Exchange Commission. A prospectus supplement relating to the offering will be filed with the Securities and Exchange Commission. This press release shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of, these securities in any state or other jurisdiction in which such offer, solicitation or sale would be unlawful prior to the registration or qualification under the securities laws of any such state or jurisdiction.

Concurrent with the offering described above, Arena agreed to reduce the exercise price and extend the exercise term of approximately 14.4 million of the 16.2 million outstanding warrants to purchase common stock that Deerfield received in connection with a June 2010 investment in Arena. These 14.4 million warrants will have an exercise price of $1.68 (reduced from $3.45) and will be exercisable beginning on the date that is six months after closing of the offering and until June 17, 2015 (extended from June 17, 2013). In addition, Arena and Deerfield agreed to terminate Deerfield’s right to loan Arena up to an additional $20 million and to receive additional warrants for up to 5,600,000 shares of Arena’s common stock with an exercise price of $5.42 per share.