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Exhibit 10.4    
  

September 3,
2002 

Henry
Skelsey

9 Sunset Lane

Rye, NY

Dear Henry, 

This
letter will confirm your separation from employment with Tanning, the terms of the separation, and our agreements relating to the separation. The effective date of your separation is
September 4, 2002. 

	I.
	Separation Terms

The
following terms apply to your separation. No other compensation or benefits will be provided to you, except as described in this letter. 

	A.
	Tanning
will pay you at your regular semi-monthly salary rate of $7,916.67 through September 4, 2002, less applicable deductions and withholding.

	B.
	Tanning
will continue to provide group medical, dental and vision insurance benefits to you and your covered dependents, if any, through September 30,2002. In order to exercise
your right to continue COBRA benefit coverage after September 30, 2002, you must submit back to us the completed election forms enclosed with this letter within 60 days. If you elect
continued coverage, for a period of three
(3) months after September 30, 2002 (the "Coverage Period"), we will pay the monthly premiums due under our standard COBRA policies for your coverage. Tanning will not be obligated under
this paragraph to pay for COBRA coverage during any period in which you are eligible to participate in a subsequent employer's plan.

	C.
	On
September 4, 2002, Tanning will pay you $6,831.52 for your hours of unused, accrued vacation, less applicable deductions and withholding.

	D.
	Your
participation, if any, in the Employee Stock Purchase Plan (ESPP) will end on September 4, 2002. You will be refunded any payroll deductions made from July 1, 2002
through September 4, 2002 in your final paycheck on September 4, 2002.

	E.
	Tanning
provided benefit coverage other than the group medical, dental and vision coverage outlined above, will end on September 4, 2002. This includes Tanning provided life
insurance, disability coverage (long-term disability and short-term disability) and 401(k) plan participation. In lieu of actual continuation of life insurance and
disability coverages, Tanning will pay you a lump sum payment of $377.25 on September 4, 2002..

	F.
	If
you have participated in the Denver Reserve Flex FY 2002 plan (health care and/or dependent care reimbursement accounts), you have until March 31, 2003 to submit for
reimbursement any qualified health care or dependent care expenses that have been incurred by you from January 1, 2002 through September 4, 2002.

	G.
	Your
1,221,570 vested stock options will continue to be exercisable while you remain a Director of Tanning. After your service as Director is completed, you will have
three years in which to exercise any vested options in accordance with the terms of your stock option agreement and the relevant stock option plan.

	H.
	If
you have outstanding business expenses that you have not yet submitted for reimbursement, you may submit your expenses by sending copies of your receipts and a signed itemized list
of expenses to Mary Cockshoot in Accounts Payable. You will be reimbursed in accordance with Tanning's standard expense policy. 

 

	I.
	You
will be paid applicable severance as part of your written employment agreement with Tanning of three months of base salary continuation, $46,500, less applicable deductions
and withholding.

	J.
	As
soon as possible, but no later than September 7, 2002, you must make arrangements to return your company issuedcredit card, any Tanning files, and any and all other Tanning
property in your possession, except as necessary or appropriate in connection with your ongoing relationship with Tanning. You will be allowed to retain your computer equipment and cellular phone and
continue email access (and use of your Tanning email address) while you are a Director of Tanning. A box and shipping instructions will be mailed to you for use to ship, at Tanning's expense, your
equipment, phone, etc. to Tanning's Denver office.

	K.
	To
the extent you currently have an outstanding balance on your corporate American Express Card, please make arrangements with American Express to pay off this balance.

	L.
	It
is expressly understood and agreed that you are entitled to continued indemnification rights pursuant to Tanning's certificate of incorporation and by-laws, and its
directors' and officers' insurance policies (in each case subject to the limitations contained therein), both in connection with your employment as an officer of Tanning and your ongoing service as a
Director of Tanning.

	II.
	Severance

In
exchange for the severance benefits identified below, which are in addition to those benefits to which you are otherwise entitled, you agree to execute, no later than 45 days after you
receive this letter, this letter agreement and the Release attached as Exhibit A. Moreover, the release must be executed after September 4, 2002. 

Upon
the eighth day after execution of the Release and letter agreement (and assuming that you do not revoke execution of the Release or letter agreement pursuant to its terms), the return of all
Tanning equipment and property required to be returned pursuant hereto, and proof that you have paid off in full any outstanding corporate American Express Card balance, you will qualify for the
following: 

	1.
	A
lump sum payment of $165,000, to replace the contractual severance payment obligation under section I(I), less applicable deductions and withholding.

	2.
	Tanning
will continue to provide you with your current level of group medical, dental and vision insurance benefits to you and your covered dependents, if any, through
September 30, 2002, and for as long thereafter as you continue to serve as Vice Chairman of the Board of Directors of Tanning. Tanning's obligations under this paragraph will be suspended for
such periods that you are and continue to be eligible to participate in a subsequent employer's medical plan. The provisions of this section II(2) will serve to replace the provisions of
section I(B) above.

	3.
	To
the extent Tanning still has an office in Stamford, CT, while you are a Director of Tanning you may have access to such office for Tanning related business.

	4.
	To
the extent Karen Samols remains employed by Tanning, and to the extent you are a Director of Tanning, you may use the services of Ms. Samols for Tanning related business. 

In
addition, you agree not to disclose the existence or contents of this letter agreement, or the events which led to your separation, other than to your attorney, your immediate family or as required
by law, and in the case of the financial terms of your separation, to your accountant and/or tax advisor as necessary to secure the benefits to which this letter agreement entitles you. In addition,
you will refrain from making statements, publicly or otherwise, orally or in writing, which are disparaging or adverse to the interests of Tanning. Tanning hereby agrees to comparable
non-disparagement and (except as

  
required by law) confidentiality restrictions with respect to you and the contents of this letter agreement and the events that led to your separation. 

You
acknowledge that in the course of your employment with Tanning you received, and may continue to receive, confidential information regarding Tanning and its business. You agree to keep such
information confidential and to not disclose such information to third parties without the prior written consent of Tanning. Upon your separation from Tanning, you agree to return all confidential
information in your possession and to not take or retain any such information in any form, whether printed, electronic, or otherwise, except as necessary or appropriate in connection with your ongoing
relationship with Tanning. You acknowledge that the surviving provisions set forth in your employment agreement that you signed at the time of your hire, a form of which is attached hereto as
Exhibit B, including sections 5, 6, 7, 8, 10 and 14, remain in effect and will continue to be binding on you. 

You
acknowledge that after receiving the amounts described in this letter, you will have been paid in full for all salary, bonuses, vacation pay, and all other compensation of any kind that you were
or will be owed by Tanning. 

You
agree that the provision of the benefits described in this letter will not be construed to be an admission by Tanning of any liability whatsoever in connection with your employment by Tanning or
any other transaction between us, and you understand that Tanning expressly denies any liability. You
agree that the benefits described in this letter agreement are reasonable and fair for the Release and the other agreements set forth in this letter agreement. 

This
letter agreement will be governed by and interpreted in accordance with the laws of the State of Colorado. This letter agreement, the Release, and the surviving provisions of the employment
agreement between you and Tanning set forth above, collectively represent the entire agreement between you (or anyone who has or obtains any legal rights or claims through you) and Tanning with
respect to the subject matter covered herein and therein. They replace any other oral or written agreements, representations, promises or discussions between us. In the event of a conflict between the
provisions of this letter agreement and the surviving provisions of the employment agreement, the provisions of this letter agreement will control. This letter agreement and the Release may only be
amended by a writing that is executed by both parties. 

If
this letter agreement is acceptable, please sign below and sign the attached Release within 45 days after receipt, and return the letter agreement and Release to the Director of Human
Resources, Tanning Technology Corp., 4600 South Syracuse Street, Suite 1200, Denver, CO 80237. You may revoke the letter agreement or the Release within seven days after you sign it by
delivering written notice to the Director of Human Resources. We recommend that you seek the advice of an attorney before signing any agreement. 

	

 	
 	

Very truly yours,

Tanning Technology Corporation
	

 	
 	

By:	
 	

	

 	
 	

Its:	
 	

  
This letter agreement voluntarily agreed to and accepted. 

	

 Henry Skelsey	
 	

 
	

Date:	
 	

	
 	

 

 

EXHIBIT A  

 RELEASE  

        I, Henry Skelsey, hereby release and discharge Tanning Technology Corporation and its successors, predecessors, affiliates, officers, directors, shareholders,
employees, agents, and representatives (collectively, "Tanning") from any and all liability or claims of whatever nature, whether known or unknown (collectively, "Claims"), based on conduct prior to
the date hereof, which could be asserted against Tanning arising out of or relating to my employment with Tanning Technology Corporation, my separation of employment from Tanning Technology
Corporation, including all matters relating to the subject matter of this Release, the letter agreement to which it is attached (the "Letter Agreement"), or the events leading to their execution
(collectively, the "Released Claims"). This Release specifically includes, among other things, any and all claims under the federal Age Discrimination in Employment Act, 29
U.S.C. § 621, et seq. I agree not to file suit, or file any complaint or charge with any federal, state, or local
agency, against Tanning arising out of the Released Claims. Notwithstanding anything contained in the foregoing to the contrary, the Released Claims shall not include, and this release shall not waive
any Claims I may have: (i) relating to any indemnification or other rights pursuant to the Company's charter, certificate of incorporation, by-laws or directors' and officers'
insurance policies or otherwise; (ii) for accrued employee benefits under Tanning's benefit plans and accrued and unpaid salary and expense reimbursement, in each case as of the date of this
Agreement; or (iii) pursuant to the Letter Agreement. 

        I
acknowledge that: (1) I have been given up to 45 days to consider this Release and the Letter Agreement before signing it, and agree that any changes to the Release or
Letter Agreement, material or immaterial, did not restart the 45 day period; (2) I have been encouraged by Tanning to seek the advice of legal counsel before signing this Release or the
Letter Agreement; (3) the Release and Letter Agreement were freely and voluntarily signed; and (4) I have received the Reduction in Force information included in Schedule 1 as
required by the Old Workers' Benefit Protection Act, including an identification of the group of individuals covered by the Reduction in Force, and a list of all job titles and ages of employees
affected by the Reduction in Force. I understand that I may revoke this Release and the Letter Agreement within seven days after I sign them by delivering written notice to the Director of
Human Resources, Tanning Technology Corporation, at 4600 South Syracuse Street, Suite 1200, Denver, Colorado 80237. 

	

Date:	
 	

	
 	

 Henry Skelsey

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Exhibit 4.1  

      

ARENA PHARMACEUTICALS, INC.  

and  

COMPUTERSHARE TRUST COMPANY, INC., as Rights Agent  

RIGHTS AGREEMENT  

Dated as of October 30, 2002  

       

      

      

 
 

TABLE OF CONTENTS    
  

	 
	 	Page

	Section 1.      Certain Definitions	 	1
	Section 2.      Appointment of Rights Agent	 	4
	Section 3.      Issue of Right Certificates	 	4
	Section 4.      Form of Right Certificates	 	5
	Section 5.      Countersignature and Registration	 	5
	Section 6.      Transfer, Split Up, Combination and Exchange of Right Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates	 	5
	Section 7.      Exercise of Rights; Purchase Price; Expiration Date of Rights	 	6
	Section 8.      Cancellation and Destruction of Right Certificates	 	7
	Section 9.      Availability of Preferred Shares	 	7
	Section 10.    Preferred Shares Record Date	 	7
	Section 11.    Adjustment of Purchase Price, Number of Shares or Number of Rights	 	8
	Section 12.    Certificate of Adjusted Purchase Price or Number of Shares	 	13
	Section 13.    Consolidation, Merger or Sale or Transfer of Assets or Earning Power	 	13
	Section 14.    Fractional Rights and Fractional Shares	 	13
	Section 15.    Rights of Action	 	14
	Section 16.    Agreement of Right Holders	 	15
	Section 17.    Right Certificate Holder Not Deemed a Stockholder	 	15
	Section 18.    Concerning the Rights Agent	 	15
	Section 19.    Merger or Consolidation or Change of Name of Rights Agent	 	16
	Section 20.    Duties of Rights Agent	 	16
	Section 21.    Change of Rights Agent	 	17
	Section 22.    Issuance of New Right Certificates	 	18
	Section 23.    Redemption	 	18
	Section 24.    Exchange	 	19
	Section 25.    Notice of Certain Events	 	20
	Section 26.    Notices	 	20
	Section 27.    Supplements and Amendments	 	21
	Section 28.    Successors	 	21
	Section 29.    Benefits of this Agreement	 	21
	Section 30.    Severability	 	21
	Section 31.    Governing Law	 	21
	Section 32.    Counterparts	 	21
	Section 33.    Descriptive Headings	 	21
	Section 34.    Administration	 	22

 

	Exhibit A	 	—	 	Form of Certificate of Designations of Series A Junior Participating Preferred Stock
	Exhibit B	 	—	 	Form of Right Certificate
	Exhibit C	 	—	 	Summary of Rights to Purchase Preferred Shares

ii

 
 

RIGHTS AGREEMENT    
  

        Rights Agreement, dated as of October 30, 2002, between Arena Pharmaceuticals, Inc., a Delaware corporation (the
"Company"), and Computershare Trust Company, Inc., as Rights Agent (the "Rights Agent"). 

        WHEREAS,
the Board of Directors of the Company has authorized and declared a dividend of one preferred share purchase right (a "Right")
for each Common Share (as hereinafter defined) of the Company outstanding at the Close of Business (as hereinafter defined) on November 13, 2002 (the "Record
Date"), each Right representing the right to purchase one one-hundredth of a Preferred Share (as hereinafter defined), upon the terms and subject to the conditions
herein set forth, and has further authorized and directed the issuance of one Right with respect to each Common Share that shall become outstanding between the Record Date and the earliest of the
Distribution Date, the Redemption Date and the Final Expiration Date (as such terms are hereinafter defined). 

        NOW
THEREFORE, in consideration of the premises and the mutual agreements herein set forth, the parties hereby agree as follows: 

        SECTION 1.    CERTAIN DEFINITIONS.    For purposes of this Agreement, the following
terms have the meanings indicated: 

        (a)  "Acquiring Person" shall mean any Person (as such term is hereinafter defined) who or which, together with all Affiliates
and Associates (as such terms are hereinafter defined) of such Person, shall be the Beneficial Owner (as such term is hereinafter defined) of 10% or more of the Common Shares of the Company then
outstanding, but shall not include the Company, any Subsidiary (as such term is hereinafter defined) of the Company, any employee benefit plan of the Company or any Subsidiary of the Company, or any
entity holding Common Shares of the Company for or pursuant to the terms of any such plan. Notwithstanding the foregoing, (i) BVF (as such term is hereafter defined) shall not be deemed an
Acquiring Person unless it becomes the Beneficial Owner of Common Shares of the Company representing more than the BVF Percentage (as such term is hereinafter defined) of the Common Shares of the
Company then outstanding and (ii) no Person (including BVF) shall be or become an "Acquiring Person" as the result of an acquisition of Common Shares of the Company by the Company which, by
reducing the number of shares outstanding, increases the proportionate number of shares beneficially owned by such Person to 10% or more (or more than the BVF Percentage in the case of BVF) of the
Common Shares of the Company then outstanding; provided, however, that if a Person shall be or become the Beneficial Owner of 10% or more (or more than
the BVF Percentage in the case of BVF) of the Common Shares of the Company then outstanding by reason of share purchases by the Company and shall thereafter become the Beneficial Owner of any
additional
Common Shares of the Company, then such Person shall be deemed to be an "Acquiring Person". Notwithstanding the foregoing, if the Board of Directors of the Company determines in good faith that a
Person who would otherwise be an "Acquiring Person", as defined pursuant to the foregoing provisions of this paragraph (a), has become such inadvertently, and such Person divests as promptly as
practicable a sufficient number of Common Shares of the Company so that such Person would no longer be an "Acquiring Person," as defined pursuant to the foregoing provisions of this
paragraph (a), then such Person shall not be deemed to be an "Acquiring Person" for any purposes of this Agreement. 

        (b)  "Affiliate" and "Associate" shall have the respective meanings ascribed
to such terms in Rule 12b-2 of the General Rules and Regulations promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as in effect on the date of this Agreement. 

        (c)  A
Person shall be deemed the "Beneficial Owner" of and shall be deemed to "beneficially
own" any securities: 

        (i)    which
such Person or any of such Person's Affiliates or Associates beneficially owns, directly or indirectly; 

        (ii)  which
such Person or any of such Person's Affiliates or Associates has (A) the right to acquire (whether such right is exercisable immediately or only after the
passage of time) pursuant 

 

to any agreement, arrangement or understanding (other than customary agreements with and between underwriters and selling group members with respect to a bona fide public offering of securities), or
upon the exercise of conversion rights, exchange rights, rights (other than these Rights), warrants or options, or otherwise; provided, however, that a
Person shall not be deemed the Beneficial Owner of, or to beneficially own, securities tendered pursuant to a tender or exchange offer made by or on behalf of such Person or any of such Person's
Affiliates or Associates until such tendered securities are accepted for purchase or exchange; or (B) the right to vote pursuant to any agreement, arrangement or understanding;  provided, however,
that a Person shall not be deemed the Beneficial Owner of, or to beneficially own, any security if the agreement, arrangement or
understanding to vote such security (1) arises solely from a revocable proxy or consent given to such Person in response to a public proxy or consent solicitation made pursuant to, and in
accordance with, the applicable rules and regulations promulgated under the Exchange Act and (2) is not also then reportable on Schedule 13D under the Exchange Act (or any comparable or
successor report); or 

        (iii)  which
are beneficially owned, directly or indirectly, by any other Person with whom such Person or any of such Person's Affiliates or Associates has any agreement,
arrangement or understanding (other than customary agreements with and between underwriters and selling group members with respect to a bona fide public offering of securities) for the purpose of
acquiring, holding, voting (except to the extent contemplated by the proviso to Section 1(c)(ii)(B)) or disposing of any securities of the
Company. 

        Notwithstanding
anything in this definition of Beneficial Owner to the contrary, the phrase "then outstanding," when used with reference
to a Person's beneficial ownership of securities of the Company, shall mean the number of such securities then issued and outstanding together with the number of such securities not then actually
issued and outstanding which such Person would be deemed to own beneficially hereunder. 

        Notwithstanding
the foregoing, none of the Company's directors or officers shall be deemed to be the Beneficial Owner of, or to beneficially own, any Common Shares of the Company owned
by any other director or officer of the Company solely by virtue of such persons acting in their capacities as such, including, without limitation, in connection with any formulation and publication
of the recommendation of the Board of Directors of the Company of a position, and any actions taken in furtherance thereof, with respect to any acquisition proposal relating to the Company, a tender
or exchange offer for any Common Shares of the Company or any solicitation of proxies with respect to any Common Shares of the Company. 

        (d)  "Business Day" shall mean any day other than a Saturday, a Sunday or a day on which banking institutions in New York, New
York or San Diego, California are authorized or obligated by law or executive order to close. 

        (e)  "BVF" shall mean and include, individually and collectively, Biotechnology Value Fund, L.P., a Delaware limited
partnership, Biotechnology Value Fund II, L.P., a Delaware limited partnership, BVF Investments, L.L.C., a Delaware limited liability company, BVF Partners L.P., a Delaware limited partnership, and
BVF Inc., a Delaware corporation, Mark N. Lampert, and their Affiliates and Associates, but shall not mean or include any transferee of any shares of Common Shares of the Company from any of
the foregoing persons. 

        (f)    "BVF Percentage" shall mean 28%; provided, however, that whenever BVF
disposes of beneficial ownership of any Common Shares of the Company and, immediately thereafter, BVF shall be the Beneficial Owner of less than 27% of the Common Shares of the Company then
outstanding, the BVF Percentage shall automatically decrease to equal the percentage of the then outstanding Common Shares of the Company beneficially owned by BVF after giving effect to such
disposition, rounded up to the next highest whole percentage; provided further that the BVF Percentage shall in no 

2

 

event be less than the percentage set forth in Section 1(a) hereof, and shall in no event increase as a result of any acquisition of beneficial
ownership of Common Shares of the Company by BVF following
any decrease in the BVF Percentage caused by any disposition of beneficial ownership of Common Shares of the Company by BVF. 

        (g)  "Close of Business" on any given date shall mean 5:00 P.M. New York time, on such date;  provided, however, that if such date is not a Business Day it shall mean
5:00 P.M. New York time, on the next succeeding Business Day. 

        (h)  "Common Shares" when used with reference to the Company shall mean the shares of common stock, par value $.0001 per
share, of the Company. "Common Shares" when used with reference to any Person other than the Company shall mean the capital stock (or equity interest)
with the greatest voting power of such other Person or, if such other Person is a Subsidiary of another Person, the Person or Persons which ultimately control such first-mentioned Person. 

        (i)    "Distribution Date" shall have the meaning set forth in  Section 3(a) hereof. 

        (j)    "Final Expiration Date" shall have the meaning set forth in  Section 7(a) hereof. 

        (k)  "Person" shall mean any individual, firm, corporation or other entity, and shall include any successor (by merger or
otherwise) of such entity. 

        (l)    "Preferred Shares" shall mean shares of Series A Junior Participating Preferred Stock, par value $.0001 per share,
of the Company having the rights and preferences set forth in the Form of Certificate of Designations of Series A Junior Participating Preferred Stock, a copy of which is attached to this
Agreement as Exhibit A. 

        (m)  "Purchase Price" shall have the meaning set forth in Section 7(b)
hereof. 

        (n)  "Redemption Date" shall have the meaning set forth in Section 7(a)
hereof. 

        (o)  "Shares Acquisition Date" shall mean the first date of public announcement by the Company or an Acquiring Person that an
Acquiring Person has become such. 

        (p)  "Subsidiary" of any Person shall mean any corporation or other entity of which a majority of the voting power of the
voting equity securities or equity interest is owned, directly or indirectly, by such Person. 

3

   
        SECTION 2.    APPOINTMENT OF RIGHTS AGENT.    The Company hereby appoints
the Rights
Agent to act as agent for the Company in accordance with the terms and conditions hereof, and the Rights Agent hereby accepts such appointment. The Company may from time to time appoint such
co-Rights Agents as it may deem necessary or desirable. 

        SECTION 3.    ISSUE OF RIGHT CERTIFICATES.    (a) Until the earlier of
(i) the tenth day after the Shares Acquisition Date or (ii) the tenth Business Day (or such later date as may be determined by action of the Board of Directors of the Company prior to
such time as any Person becomes an Acquiring Person) after the date of the commencement by any Person (other than the Company, any Subsidiary of the Company, any employee benefit plan of the Company
or of any Subsidiary of the Company or any entity holding Common Shares of the Company for or pursuant to the terms of any such plan) of, or of the first public announcement of the intention of any
Person (other than the Company, any Subsidiary of the Company, any employee benefit plan of the Company or of any Subsidiary of the Company or any entity holding Common Shares of the Company for or
pursuant to the terms of any such plan) to commence a tender or exchange offer the consummation of which would result in any Person becoming an Acquiring Person (including in the case of either
clause (i) or (ii) any such date which is after the date of this Agreement and prior to the issuance of the Rights; the earlier of such dates being herein referred to as the
"Distribution Date"), (x) the Rights will be evidenced (subject to the provisions of  Section 3(b) hereof) by the certificates for Common Shares
of the Company registered in the names of the holders thereof (which certificates
shall also be deemed to be Right Certificates) and not by separate Right Certificates (as hereinafter defined), and (y) the right to receive Right Certificates will be transferable only in
connection with the transfer of Common Shares of the Company. As soon as practicable after the Distribution Date, the Company will prepare and execute, the Rights Agent will countersign, and the
Company will send or cause to be sent (and the Rights Agent will, if requested, send) by first-class, insured, postage-prepaid mail, to each record holder of Common Shares of the Company as of the
Close of Business on the Distribution Date, at the address of such holder shown on the records of the Company, a Right Certificate, in substantially the form of  Exhibit B hereto (a "Right Certificate"), evidencing one Right for each Common Share of the
Company so held (subject to adjustment as provided in this Agreement). As of the Distribution Date, the Rights will be evidenced solely by such Right Certificates. 

        (b)  On
the Record Date, or as soon as practicable thereafter, the Company will send a copy of a Summary of Rights to Purchase Preferred Shares, in substantially the form of  Exhibit C hereto (the
"Summary of Rights"), by first-class, postage-prepaid mail, to each record
holder of Common Shares of the Company as of the Close of Business on the Record Date, at the address of such holder shown on the records of the Company. With respect to certificates for Common Shares
of the Company outstanding as of the Record Date, until the Distribution Date, the Rights will be evidenced by such certificates registered in the names of the holders thereof together with a copy of
the Summary of Rights attached thereto. Until the Distribution Date (or the earlier of the Redemption Date or the Final Expiration Date), the surrender for transfer of any certificate for Common
Shares of the
Company outstanding on the Record Date, with or without a copy of the Summary of Rights attached thereto, shall also constitute the transfer of the Rights associated with the Common Shares of the
Company represented thereby. 

        (c)  Certificates
for Common Shares of the Company which become outstanding (including, without limitation, reacquired Common Shares of the Company referred to in the last
sentence of this paragraph (c)) after the Record Date but prior to the earliest of the Distribution Date, the Redemption Date or the Final Expiration Date shall have impressed on, printed on,
written on or otherwise affixed to them the following legend: 

        This
certificate also evidences and entitles the holder hereof to certain rights as set forth in a Rights Agreement between Arena Pharmaceuticals, Inc. (the
"Company") and Computershare Trust Company, Inc. (the "Rights Agent") dated as of
October 30, 2002 (the "Rights Agreement"), the terms of which are hereby incorporated herein by reference and a copy of which is on file at 

4

 

the principal executive offices of the Company. Under certain circumstances, as set forth in the Rights Agreement, such Rights will be evidenced by separate certificates and will no longer be
evidenced by this certificate. The Company will mail to the holder of this certificate a copy of the Rights Agreement without charge after receipt of a written request therefor. Under certain
circumstances, as set forth in the Rights Agreement, Rights issued to any Person who becomes an Acquiring Person (as defined in the Rights Agreement) may become null and void. 

With
respect to such certificates containing the foregoing legend, until the Distribution Date, the Rights associated with the Common Shares of the Company represented by such certificates shall be
evidenced by such certificates alone, and the surrender for transfer of any such certificate shall also constitute the transfer of the Rights associated with the Common Shares of the Company
represented thereby. In the event that the Company purchases or acquires any Common Shares of the Company after the Record Date but prior to the Distribution Date, any Rights associated with such
Common Shares of the Company shall be deemed cancelled and retired so that the Company shall not be entitled to exercise any Rights associated with the Common Shares of the Company which are no longer
outstanding. 

        SECTION 4.    FORM OF RIGHT CERTIFICATES.    The Right Certificates (and the forms of
election to purchase Preferred Shares and of assignment to be printed on the reverse thereof) shall be substantially the same as Exhibit B hereto
and may have such marks of identification or designation and such legends, summaries or endorsements printed thereon as the Company may deem appropriate and as are not inconsistent with the provisions
of this Agreement, or as may be required to comply with any applicable law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange on which the Rights
may from time to time be listed, or to conform to usage. Subject to the provisions of Section 22 hereof, the Right Certificates shall entitle the
holders thereof to purchase such number of one one-hundredths of a Preferred Share as shall be set forth therein at the Purchase Price, but the number of such one
one-hundredths of a Preferred Share and the Purchase Price shall be subject to adjustment as provided herein. 

        SECTION 5.    COUNTERSIGNATURE AND REGISTRATION.    The Right Certificates shall be
executed on behalf of the Company by its Chairman of the Board, its Chief Executive Officer, its President, any of its Vice Presidents or its Treasurer, either manually or by facsimile signature,
shall have affixed thereto the Company's seal or a facsimile thereof, and shall be attested by the Secretary or an Assistant Secretary of the Company, either manually or by facsimile signature. The
Right Certificates shall be manually countersigned by the Rights Agent and shall not be valid for any purpose unless countersigned. In case any officer of the Company who shall have signed any of the
Right Certificates shall cease to be such officer of the Company before countersignature by the Rights Agent and issuance and delivery by the Company, such Right Certificates, nevertheless, may be
countersigned by the Rights Agent and issued and delivered by the Company with the same force and effect as though the person who signed such Right Certificates had not ceased to be such officer of
the Company; and any Right Certificate may be signed on behalf of the Company by any person who, at the actual date of the execution of such Right Certificate, shall be a proper officer of the Company
to sign such Right Certificate, although at the date of the execution of this Rights Agreement any such person was not such an officer. 

        Following
the Distribution Date, the Rights Agent will keep or cause to be kept, at its principal office, books for registration and transfer of the Right Certificates issued hereunder.
Such books shall show the names and addresses of the respective holders of the Right Certificates, the number of Rights evidenced on its face by each of the Right Certificates and the date of each of
the Right Certificates. 

        SECTION 6.    TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE OF RIGHT CERTIFICATES; MUTILATED, DESTROYED, LOST OR STOLEN
RIGHT CERTIFICATES.    Subject to the provisions of Section 14 hereof, at any time after the Close of Business
on the Distribution Date, and at or prior to the Close of Business on the earlier of the Redemption Date or the Final Expiration 

5

 

Date, any Right Certificate or Right Certificates (other than Right Certificates representing Rights that have become void pursuant to  Section 11(a)(ii) hereof or that have been exchanged
pursuant to Section 24 hereof)
may be transferred, split up, combined or exchanged for another Right Certificate or Right Certificates, entitling the registered holder to purchase a like number of one one-hundredths of
a Preferred Share as the Right Certificate or Right Certificates surrendered then entitled such holder to purchase. Any registered holder desiring to transfer, split up, combine or exchange any Right
Certificate or Right Certificates shall make such request in writing delivered to the Rights Agent, and shall surrender the Right Certificate or Right Certificates to be transferred, split up,
combined or exchanged at the principal office of the Rights Agent. Thereupon the Rights Agent shall countersign and deliver to the Person entitled thereto a Right Certificate or Right Certificates, as
the case may be, as so requested. The Company may require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer, split up, combination
or exchange of Right Certificates. 

        Upon
receipt by the Company and the Rights Agent of evidence reasonably satisfactory to them of the loss, theft, destruction or mutilation of a Right Certificate, and, in case of loss,
theft or destruction, of indemnity or security reasonably satisfactory to them, and, at the Company's request, reimbursement to the Company and the Rights Agent of all reasonable expenses incidental
thereto, and upon surrender
to the Rights Agent and cancellation of the Right Certificate if mutilated, the Company will make and deliver a new Right Certificate of like tenor to the Rights Agent for delivery to the registered
holder in lieu of the Right Certificate so lost, stolen, destroyed or mutilated. 

        SECTION 7.    EXERCISE OF RIGHTS; PURCHASE PRICE; EXPIRATION DATE OF
RIGHTS.    (a) The registered holder of any Right Certificate may, subject to the second paragraph of  Section 11(a)(ii), exercise the Rights
evidenced thereby (except as otherwise provided herein) in whole or in part at any time after the
Distribution Date upon surrender of the Right Certificate, with the form of election to purchase on the reverse side thereof duly executed, to the Rights Agent at the principal office of the Rights
Agent, together with payment of the Purchase Price for each one one-hundredth of a Preferred Share as to which the Rights are exercised, at or prior to the earliest of (i) the Close
of Business on the tenth anniversary of the execution of this Agreement (the "Final Expiration Date"), (ii) the time at which the Rights are
redeemed as provided in Section 23 hereof (the "Redemption Date"), or (iii) the time at
which such Rights are exchanged as provided in Section 24 hereof. 

        (b)  The
Purchase Price for each one one-hundredth of a Preferred Share purchasable pursuant to the exercise of a Right shall initially be a price of $36, and
shall be subject to adjustment from time to time as provided in Sections 11 and 13 hereof and shall be
payable in lawful money of the United States of America in accordance with paragraph (c) below (the "Purchase Price"). 

        (c)  Upon
receipt of a Right Certificate representing exercisable Rights, with the form of election to purchase duly executed, accompanied by payment of the Purchase Price
for the shares to be purchased and an amount equal to any applicable transfer tax required to be paid by the holder of such Right Certificate in accordance with  Section 9 hereof by wire transfer,
certified check, cashier's check, official bank check or money order payable to the order of the Company, the
Rights Agent shall thereupon promptly (i)(A) requisition from any transfer agent of the Preferred Shares certificates for the number of Preferred Shares to be purchased and the Company hereby
irrevocably authorizes its transfer agent to comply with all such requests, or (B) requisition from the depositary agent depositary receipts representing such number of one
one-hundredths of a Preferred Share as are to be purchased (in which case certificates for the Preferred Shares represented by such receipts shall be deposited by the transfer agent with
the depositary agent) and the Company hereby directs the depositary agent to comply with such request, (ii) when appropriate, requisition from the Company the amount of cash to be paid in lieu
of issuance of fractional shares in accordance with Section 14 hereof, (iii) after receipt of such certificates or depositary receipts,
cause the same to be delivered to or upon the order of the registered holder of such Right Certificate, registered in such name or names as may be designated by 

6

 

such holder and (iv) when appropriate, after receipt, deliver such cash to or upon the order of the registered holder of such Right Certificate. 

        (d)  In
case the registered holder of any Right Certificate shall exercise less than all the Rights evidenced thereby, a new Right Certificate evidencing Rights equivalent to
the Rights remaining unexercised shall be issued by the Rights Agent to the registered holder of such Right Certificate or to such holder's duly authorized assigns, subject to the provisions of  Section 14 hereof. 

        SECTION 8.    CANCELLATION AND DESTRUCTION OF RIGHT CERTIFICATES.    All Right
Certificates surrendered for the purpose of exercise, transfer, split up, combination or exchange shall, if surrendered to the Company or to any of its agents, be delivered to the Rights Agent for
cancellation or in cancelled form, or, if surrendered to the Rights Agent, shall be cancelled by it, and no Right Certificates shall be issued in lieu thereof except as expressly permitted by any of
the provisions of this Rights Agreement. The Company shall deliver to the Rights Agent for cancellation and retirement, and the Rights Agent shall so cancel and retire, any other Right Certificate
purchased or acquired by the Company otherwise than upon the exercise thereof. The Rights Agent shall deliver all cancelled Right Certificates to the Company, or shall, at the written request of the
Company, destroy such cancelled Right Certificates, and in such case shall deliver a certificate of destruction thereof to the Company. 

        SECTION 9.    AVAILABILITY OF PREFERRED SHARES.    The Company covenants and agrees
that it will cause to be reserved and kept available out of its authorized and unissued Preferred Shares or any Preferred Shares held in its treasury, the number of Preferred Shares that will be
sufficient to permit the exercise in full of all outstanding Rights in accordance with Section 7. The Company covenants and agrees that it will
take all such action as may be necessary to ensure that all Preferred Shares delivered upon exercise of Rights shall, at the time of delivery of the certificates for such Preferred Shares (subject to
payment of the Purchase Price), be duly and validly authorized and issued and fully paid and nonassessable shares. 

        The
Company further covenants and agrees that it will pay when due and payable any and all federal and state transfer taxes and charges which may be payable in respect of the issuance or
delivery of the Right Certificates or of any Preferred Shares upon the exercise of Rights. The Company shall not, however, be required to pay any transfer tax which may be payable in respect of any
transfer or delivery of Right Certificates to a Person other than, or the issuance or delivery of certificates or depositary receipts for the Preferred Shares in a name other than that of, the
registered holder of the Right Certificate evidencing Rights surrendered for exercise or to issue or to deliver any certificates or depositary receipts for Preferred Shares upon the exercise of any
Rights until any such tax shall have been paid (any such tax being payable by the holder of such Right Certificate at the time of surrender) or until it has been established to the Company's
reasonable satisfaction that no such tax is due. 

        SECTION 10.    PREFERRED SHARES RECORD DATE.    Each Person in whose name any
certificate for Preferred Shares is issued upon the exercise of Rights shall for all purposes be deemed to have become the holder of record of the Preferred Shares represented thereby on, and such
certificate shall be dated, the date upon which the Right Certificate evidencing such Rights was duly surrendered and payment of the Purchase Price (and any applicable transfer taxes) was made;  provided,
however, that if the date of such surrender and payment is a date upon which the Preferred Shares transfer books of the Company are closed,
such Person shall be deemed to have become the record holder of such shares on, and such certificate shall be dated, the next succeeding Business Day on which the Preferred Shares transfer books of
the Company are open. Prior to the exercise of the Rights evidenced thereby, the holder of a Right Certificate shall not be entitled to any rights of a holder of Preferred Shares for which the Rights
shall be exercisable, including, without limitation, the right to vote, to receive dividends or other distributions or to exercise any preemptive rights, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided herein. 

7

   
        SECTION 11.    ADJUSTMENT OF PURCHASE PRICE, NUMBER OF SHARES OR NUMBER OF RIGHTS.
    The Purchase Price, the number of Preferred Shares or other securities covered by each Right and the number of Rights outstanding are subject to adjustment from time to time as provided
in this Section 11. 

        (a)  (i) In
the event the Company shall at any time after the date of this Agreement (A) declare a dividend on the Preferred Shares payable in Preferred
Shares, (B) subdivide the outstanding Preferred Shares, (C) combine the outstanding Preferred Shares into a smaller number of Preferred Shares or (D) issue any shares of its
capital stock in a reclassification of the Preferred Shares (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing or surviving
corporation), except as otherwise provided in this Section 11(a), the Purchase Price in effect at the time of the record date for such dividend
or of the effective date of such subdivision, combination or reclassification, and the number and kind of shares of capital stock issuable on such date, shall be proportionately adjusted so that the
holder of any Right exercised after such time shall be entitled to receive the aggregate number and kind of shares of capital stock which, if such Right had been exercised immediately prior to such
date and at a time when the Preferred Shares transfer books of the Company were open, such holder would have owned upon such exercise and been entitled to receive by virtue of such dividend,
subdivision, combination or reclassification; provided, however, that in no event shall the consideration to be paid upon the exercise of one Right be
less than the aggregate par value of the shares of capital stock of the Company issuable upon exercise of one Right. 

        (ii)  Subject
to Section 24 of this Agreement, in the event any Person becomes an Acquiring Person, each holder of a
Right shall thereafter have a right to receive, upon exercise thereof at a price equal to the then current Purchase Price multiplied by the number of one one-hundredths of a Preferred
Share for which a Right is then exercisable, in accordance with the terms of this Agreement and in lieu of Preferred Shares, such number of Common Shares of the Company as shall equal the result
obtained by (x) multiplying the then current Purchase Price by the number of one one-hundredths of a Preferred Share for which a Right is then exercisable and dividing that product
by (y) 50% of the then current per share market price of the Company's Common Shares (determined pursuant to Section 11(d) hereof) on the
date of the occurrence of such event; provided, however, that if the transaction that would otherwise give rise to the foregoing adjustment is also
subject to the provisions of Section 13 hereof, then only the provisions of Section 13
hereof shall apply and no adjustment shall be made pursuant to this Section 11(a)(ii). In the event that any Person shall become an Acquiring
Person and the Rights shall then be outstanding, the Company shall not take any action which would eliminate or diminish the benefits intended to be afforded by the Rights. 

        From
and after the occurrence of such event, any Rights that are or were acquired or beneficially owned by any Acquiring Person (or any Associate or Affiliate of such Acquiring Person)
shall be void
and any holder of such Rights shall thereafter have no right to exercise such Rights under any provision of this Agreement. No Right Certificate shall be issued pursuant to  Section 3 that
represents Rights beneficially owned by an Acquiring Person whose Rights would be void pursuant to the preceding sentence or any
Associate or Affiliate thereof; no Right Certificate shall be issued at any time upon the transfer of any Rights to an Acquiring Person whose Rights would be void pursuant to the preceding sentence or
any Associate or Affiliate thereof or to any nominee of such Acquiring Person, Associate or Affiliate; and any Right Certificate delivered to the Rights Agent for transfer to an Acquiring Person whose
Rights would be void pursuant to the preceding sentence shall be cancelled. 

        (iii)  In
the event that there shall not be sufficient Common Shares of the Company issued but not outstanding or authorized but unissued to permit the exercise in full of
the Rights in accordance with the foregoing subparagraph (ii), the Company shall take all such action as may be necessary to authorize additional Common Shares of the Company for issuance upon
exercise of the Rights. In the event the Company shall, after good faith effort, be unable to take all such 

8

 

action as may be necessary to authorize such additional Common Shares of the Company, the Company shall substitute, for each Common Share of the Company that would otherwise be issuable upon exercise
of a Right, a number of Preferred Shares or fraction thereof such that the current per share market price of one Preferred Share multiplied by such number or fraction is equal to the current per share
market price of one Common Share of the Company as of the date of issuance of such Preferred Shares or fraction thereof. 

        (b)  In
case the Company shall fix a record date for the issuance of rights, options or warrants to all holders of Preferred Shares entitling them (for a period expiring
within 45 calendar days after such record date) to subscribe for or purchase Preferred Shares (or shares having the same rights, privileges and preferences as the Preferred Shares
("equivalent preferred shares")) or securities convertible into Preferred Shares or equivalent preferred shares at a price per Preferred Share or
equivalent preferred share (or having a conversion price per share, if a security convertible into Preferred Shares or equivalent preferred shares) less than the then current per share market price of
the Preferred Shares (as defined in Section 11(d) hereof) on such record date, the Purchase Price to be in effect after such record date shall be
determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the number of Preferred Shares outstanding on such record
date plus the number of Preferred Shares which the aggregate offering price of the total number of Preferred Shares and/or equivalent preferred shares so to be offered (and/or the aggregate initial
conversion price of the convertible securities so to be offered) would purchase at such current market price and the denominator of which shall be the number of Preferred Shares outstanding on such
record date plus the number of additional Preferred Shares and/or equivalent preferred shares to be offered for subscription or purchase (or into which the convertible securities so to be offered are
initially convertible); provided, however, that in no event shall the consideration to be paid upon the exercise of one Right be less than the aggregate
par value of the shares of capital stock of the Company issuable upon exercise of one Right. In case such subscription price may be paid in a consideration part or all of which shall be in a form
other than cash, the value of such consideration shall be as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the
Rights Agent. Preferred Shares owned by or held for the account of the Company shall not be deemed outstanding for the purpose of any such computation. Such adjustment shall be made successively
whenever such a record date is fixed; and in the event that such rights, options or warrants are not so issued, the Purchase Price shall be adjusted to be the Purchase Price which would then be in
effect if such record date had not been fixed. 

        (c)  In
case the Company shall fix a record date for the making of a distribution to all holders of the Preferred Shares (including any such distribution made in connection
with a consolidation or merger in which the Company is the continuing or surviving corporation) of evidences of indebtedness or assets (other than a regular quarterly cash dividend or a dividend
payable in Preferred Shares) or subscription rights or warrants (excluding those referred to in Section 11(b) hereof), the Purchase Price to be
in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the then current
per share market price of the Preferred Shares on such record date, less the fair market value (as determined in good faith by the Board of Directors of the Company, whose determination shall be
described in a statement filed with the Rights Agent) of the portion of the assets or evidences of indebtedness so to be distributed or of such subscription rights or warrants applicable to one
Preferred Share and the denominator of which shall be such current per share market price of the Preferred Shares; provided, however, that in no event
shall the consideration to be paid upon the exercise of one Right be less than the aggregate par value of the shares of capital stock of the Company to be issued upon exercise of one Right. Such
adjustments shall be made successively whenever such a record date is fixed; and in the event that such distribution is not so made, the Purchase Price shall again be adjusted to be the Purchase Price
which would then be in effect if such record date had not been fixed. 

9

   
        (d)  (i) For the purpose of any computation hereunder, the "current per share market price" of any security (a
"Security" for the purpose of this Section 11(d)(i)) on any date shall be deemed to be the
average of the daily closing prices per share of such Security for the thirty (30) consecutive Trading Days (as such term is hereinafter defined) which fall within the one-year
period ending on such date and have the lowest such average; provided, however, that in the event that the current per share market price of the
Security is determined during a period following the announcement by the issuer of such Security of (A) a dividend or distribution on such Security payable in shares of such Security or
securities convertible into such shares, or (B) any subdivision, combination or reclassification of such Security and prior to the expiration of thirty (30) Trading Days after the
ex-dividend date for such dividend or distribution, or the record date for such subdivision, combination or reclassification, then, and in each such case, the current per share market
price shall be appropriately adjusted to reflect the current market price per share equivalent of such Security. The closing price for each day shall be the last sale price, regular way, or, in case
no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange or, if the Security is not listed or admitted to trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Security is listed or admitted to trading or, if the Security is
not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotations System
("NASDAQ") or such other system then in use, or, if on any such date the Security is not quoted by any such organization, the average of the closing bid
and asked prices as furnished by a professional market maker making a market in the Security selected by the Board of Directors of the Company. The term "Trading
Day" shall mean a day on which the principal national securities exchange on which the Security is listed or admitted to trading is open for the transaction of business or, if
the Security is not listed or admitted to trading on any national securities exchange, a Business Day. 

        (ii)  For
the purpose of any computation hereunder, the "current per share market price" of the Preferred Shares shall be
determined in accordance with the method set forth in Section 11(d)(i). If the Preferred Shares are not publicly traded, the
"current per share market price" of the Preferred Shares shall be conclusively deemed to be the current per share market price of the Common Shares of
the Company as determined pursuant to Section 11(d)(i) (appropriately adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the date hereof), multiplied by one hundred. If neither the Common Shares of the Company nor the Preferred Shares are publicly held or so listed or traded,
"current per share market price" shall mean the fair value per share as determined in good faith by the Board of Directors of the Company, whose
determination shall be described in a statement filed with the Rights Agent. 

        (e)  No
adjustment in the Purchase Price shall be required unless such adjustment would require an increase or decrease of at least 1% in the Purchase Price;  provided, however, that any adjustments which by
reason of this Section 11(e) are not required to
be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 11 shall be made to the
nearest cent or to the nearest one one-millionth of a Preferred Share or one ten-thousandth of any other share or security as the case may be. Notwithstanding the first
sentence of this Section 11(e), any adjustment required by this Section 11 shall be made
no later than the earlier of (i) three years from the date of the transaction which requires such adjustment or (ii) the date of the expiration of the right to exercise any Rights. 

        (f)    If
as a result of an adjustment made pursuant to Section 11(a) hereof, the holder of any Right thereafter
exercised shall become entitled to receive any shares of capital stock of the Company other than Preferred Shares, thereafter the number of such other shares so receivable upon exercise of any 

10

 

Right shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Preferred Shares contained in  Section 11(a)
through (c), inclusive, and the provisions of Sections 7,
9, 10 and 13 with respect to the Preferred Shares shall apply on like terms to any such other shares. 

        (g)  All
Rights originally issued by the Company subsequent to any adjustment made to the Purchase Price hereunder shall evidence the right to purchase, at the adjusted
Purchase Price, the number of one one-hundredths of a Preferred Share purchasable from time to time hereunder upon exercise of the Rights, all subject to further adjustment as provided
herein. 

        (h)  Unless
the Company shall have exercised its election as provided in Section 11(i), upon each adjustment of the
Purchase Price as a result of the calculations made in Sections 11(b) and (c), each Right outstanding
immediately prior to the making of such adjustment shall thereafter evidence the right to purchase, at the adjusted Purchase Price, that number of one one-hundredths of a Preferred Share
(calculated to the nearest one one-millionth of a Preferred Share) obtained by (i) multiplying (x) the number of one one-hundredths of a share covered by a Right
immediately prior to this adjustment by (y) the Purchase Price in effect immediately prior to such adjustment of the Purchase Price and (ii) dividing the product so obtained by the
Purchase Price in effect immediately after such adjustment of the Purchase Price. 

        (i)    The
Company may elect on or after the date of any adjustment of the Purchase Price to adjust the number of Rights, in substitution for any adjustment in the number of
one one-hundredths of a Preferred Share purchasable upon the exercise of a Right. Each of the Rights outstanding after such adjustment of the number of Rights shall be exercisable for the
number of one one-hundredths of a Preferred Share for which a Right was exercisable immediately prior to such adjustment. Each Right held of record prior to such adjustment of the number
of Rights shall become that number of Rights (calculated to the nearest one ten-thousandth) obtained by dividing the Purchase Price in effect immediately prior to adjustment of the
Purchase Price by the Purchase Price in effect immediately after adjustment of the Purchase Price. The Company shall make a public announcement of its election to adjust the number of Rights,
indicating the record date for the adjustment, and, if known at the time,
the amount of the adjustment to be made. This record date may be the date on which the Purchase Price is adjusted or any day thereafter, but, if the Right Certificates have been issued, shall be at
least 10 days later than the date of the public announcement. If Right Certificates have been issued, upon each adjustment of the number of Rights pursuant to this  Section 11(i), the Company
shall, as promptly as practicable, cause to be distributed to holders of record of Right Certificates on such record
date Right Certificates evidencing, subject to Section 14 hereof, the additional Rights to which such holders shall be entitled as a result of
such adjustment, or, at the option of the Company, shall cause to be distributed to such holders of record in substitution and replacement for the Right Certificates held by such holders prior to the
date of adjustment, and upon surrender thereof, if required by the Company, new Right Certificates evidencing all the Rights to which such holders shall be entitled after such adjustment. Right
Certificates so to be distributed shall be issued, executed and countersigned in the manner provided for herein and shall be registered in the names of the holders of record of Right Certificates on
the record date specified in the public announcement. 

        (j)    Irrespective
of any adjustment or change in the Purchase Price or the number of one one-hundredths of a Preferred Share issuable upon the exercise of the
Rights, the Right Certificates theretofore and thereafter issued may continue to express the Purchase Price and the number of one one-hundredths of a Preferred Share which were expressed
in the initial Right Certificates issued hereunder. 

        (k)  Before
taking any action that would cause an adjustment reducing the Purchase Price below one one-hundredth of the then par value, if any, of the Preferred
Shares issuable upon exercise of the Rights, the Company shall take any corporate action which may, in the opinion of its counsel, be 

11

 

necessary in order that the Company may validly and legally issue fully paid and nonassessable Preferred Shares at such adjusted Purchase Price. 

        (l)    In
any case in which this Section 11 shall require that an adjustment in the Purchase Price be made effective as
of a record date for a specified event, the Company may elect to defer until the occurrence of such event the issuing to the holder of any Right exercised after such record date of the Preferred
Shares and other capital stock or securities of the Company, if any, issuable upon such exercise over and above the Preferred Shares and other capital stock or securities of the Company, if any,
issuable upon such exercise on the basis of the Purchase Price in effect prior to such adjustment; provided, however, that the Company shall deliver to
such holder a due bill or other appropriate instrument evidencing such holder's right to receive such additional shares upon the occurrence of the event requiring such adjustment. 

        (m)  Anything
in this Section 11 to the contrary notwithstanding, the Company shall be entitled to make such reductions
in the Purchase Price, in addition to those adjustments expressly required by this Section 11, as and to the extent that it in its sole
discretion shall determine to be advisable in order that any consolidation or subdivision of the Preferred Shares, issuance wholly for cash of any Preferred Shares at less than the current market
price, issuance wholly for cash of Preferred Shares or securities which by their terms are convertible into or exchangeable for Preferred Shares, dividends on Preferred Shares payable in Preferred
Shares or issuance of rights, options or warrants referred to hereinabove in  Section 11(b), hereafter made by the Company to holders of its Preferred Shares shall not be taxable to such
stockholders. 

        (n)  In
the event that at any time after the date of this Agreement and prior to the Distribution Date, the Company shall (i) declare or pay any dividend on the Common
Shares of the Company payable in Common Shares of the Company or (ii) effect a subdivision, combination or consolidation of the Common Shares of the Company (by reclassification or otherwise
than by payment of dividends in Common Shares of the Company) into a greater or lesser number of Common Shares of the Company, then in any such case (A) the number of one
one-hundredths of a Preferred Share purchasable after such event upon proper exercise of each Right shall be determined by multiplying the number of one one-hundredths of a
Preferred Share so purchasable immediately prior to such event by a fraction, the numerator of which is the number of Common Shares of the Company outstanding immediately before such event and the
denominator of which is the number of Common Shares of the Company outstanding immediately after such event, and (B) each Common Share of the Company outstanding immediately after such event
shall have issued with respect to it that number of Rights which each Common Share of the Company outstanding immediately prior to such event had issued with respect to it. The adjustments provided
for in this Section 11(n) shall be made successively whenever such a dividend is declared or paid or such a subdivision, combination or
consolidation is effected. 

12

   
        SECTION 12.    CERTIFICATE OF ADJUSTED PURCHASE PRICE OR NUMBER OF SHARES.    Whenever
an adjustment is made as provided in Section 11 or 13 hereof, the Company shall promptly
(a) prepare a certificate setting forth such adjustment, and a brief statement of the facts accounting for such adjustment, (b) file with the Rights Agent and with each transfer agent
for the Common Shares of the Company or the Preferred Shares a copy of such certificate and (c) mail a brief summary thereof to each holder of a Right Certificate in accordance with  Section 25
hereof. 

        SECTION 13.    CONSOLIDATION, MERGER OR SALE OR TRANSFER OF ASSETS OR EARNING
POWER.    In the event, directly or indirectly, at any time after a Person has become an Acquiring Person, (a) the Company shall consolidate with, or merge
with and into, any other Person, (b) any Person shall consolidate with the Company, or merge with and into the Company and the Company shall be the continuing or surviving corporation of such
merger and, in connection with such merger, all or part of the Common Shares of the Company shall be changed into or exchanged for stock or other securities of any other Person (or the Company) or
cash or any other property, or (c) the Company shall sell or otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise transfer), in one or more transactions, assets or
earning power aggregating 50% or more of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to any other Person other than the Company or one or more of its
wholly-owned Subsidiaries, then, and in each such case, proper provision shall be made so that (i) each holder of a Right (other than Rights which have become void pursuant to  Section 11(a)(ii) hereof) shall thereafter have the right to receive, upon the exercise thereof at a price equal to the then current
Purchase Price multiplied by the number of one one-hundredths of a Preferred Share for which a Right is then exercisable, in accordance with the terms of this Agreement and in lieu of
Preferred Shares, such number of Common Shares of such other Person (including the Company as successor thereto or as the surviving corporation) as shall equal the result obtained by
(A) multiplying the then current Purchase Price by the number of one one-hundredths of a Preferred Share for which a Right is then exercisable and dividing that product by
(B) 50% of the then current per share market price of the Common Shares of such other Person (determined pursuant to Section 11(d) hereof)
on the date of consummation of such consolidation, merger, sale or transfer; (ii) the issuer of such Common Shares shall thereafter be liable for, and shall assume, by virtue of such
consolidation, merger, sale or transfer, all the obligations and duties of the Company pursuant to this Agreement; (iii) the term "Company" shall
thereafter be deemed to refer to such issuer; and (iv) such issuer shall take such steps (including, but not limited to, the reservation of a sufficient number of its Common Shares to permit
the exercise in full of all outstanding Rights in accordance with this Agreement) in connection with such consummation as may be necessary to assure that the provisions hereof shall thereafter be
applicable, as nearly as reasonably may be, in relation to the Common Shares thereafter deliverable upon the exercise of the Rights. The Company shall not consummate any such consolidation, merger,
sale or transfer unless prior thereto the Company and such issuer shall have executed and delivered to the Rights Agent a supplemental agreement so providing. The Company shall not enter into any
transaction of the kind referred to in this Section 13 if at the time of such transaction there are any rights, warrants, instruments or
securities outstanding or any agreements or arrangements which, as a result of the consummation of such transaction, would eliminate or
substantially diminish the benefits intended to be afforded by the Rights. The provisions of this Section 13 shall similarly apply to successive
mergers or consolidations or sales or other transfers. 

        SECTION 14.    FRACTIONAL RIGHTS AND FRACTIONAL SHARES.    (a) The Company
shall not be required to issue fractions of Rights or to distribute Right Certificates which evidence fractional Rights. In lieu of such fractional Rights, there shall be paid to the registered
holders of the Right Certificates with regard to which such fractional Rights would otherwise be issuable, an amount in cash equal to the same fraction of the current market value of a whole Right.
For the purposes of this Section 14(a), the current market value of a whole Right shall be the closing price of the Rights for the Trading Day
immediately prior to the date on which such fractional Rights would have been otherwise issuable. The closing price for any day shall be the last sale price, regular way, or, in case no such sale 

13

 

takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange or, if the Rights are not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated
transaction reporting system with respect to securities listed on the principal national securities exchange on which the Rights are listed or admitted to trading or, if the Rights are not listed or
admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter
market, as reported by NASDAQ or such other system then in use or, if on any such date the Rights are not quoted by any such organization, the average of the closing bid and asked prices as furnished
by a professional market maker making a market in the Rights selected by the Board of Directors of the Company. If on any such date no such market maker is making a market in the Rights, the fair
value of the Rights on such date as determined in good faith by the Board of Directors of the Company shall be used. 

        (b)  The
Company shall not be required to issue fractions of Preferred Shares (other than fractions which are integral multiples of one one-hundredth of a
Preferred Share) upon exercise of the Rights or to distribute certificates which evidence fractional Preferred Shares (other than fractions which are integral multiples of one
one-hundredth of a Preferred Share). Fractions of Preferred Shares in integral multiples of one one-hundredth of a Preferred Share may, at the election of the Company, be
evidenced by depositary receipts, pursuant to an appropriate agreement between the Company and a depositary selected by it; provided, that such
agreement shall provide that the holders of such depositary receipts shall have all the rights, privileges and preferences to which they are entitled as beneficial owners of the Preferred Shares
represented by such depositary receipts. In lieu of fractional Preferred Shares that are not integral multiples of one one-hundredth of a Preferred Share, the Company shall pay to the
registered holders of Right Certificates at the time such Rights are exercised as herein provided an amount in cash equal to the same fraction of the current market value of one Preferred Share. For
the purposes of this Section 14(b), the current market value of a Preferred Share shall be the closing price of a Preferred Share (as determined
pursuant to the second sentence of Section 11(d)(i) hereof) for the Trading Day immediately prior to the date of such exercise. 

        (c)  The
holder of a Right by the acceptance of the Right expressly waives such holder's right to receive any fractional Rights or any fractional shares upon exercise of a
Right (except as provided above). 

        SECTION 15.    RIGHTS OF ACTION.    All rights of action in respect of this Agreement,
excepting the rights of action given to the Rights Agent under Section 18 hereof, are vested in the respective registered holders of the Right
Certificates (and, prior to the Distribution Date, the registered holders of the Common Shares of the Company); and any registered holder of any Right Certificate (or, prior to the Distribution Date,
of the Common Shares of the Company), without the consent of the Rights Agent or of the holder of any other Right Certificate (or, prior to the Distribution Date, of the Common Shares of the Company),
may, in such holder's own behalf and for such holder's own benefit, enforce, and may institute and maintain any suit, action or proceeding against the Company to enforce, or otherwise act in respect
of, such holder's right to exercise the Rights evidenced by such Right Certificate in the manner provided in such Right Certificate and in this Agreement. Without limiting the foregoing or any
remedies available to the holders of Rights, it is specifically acknowledged that the holders of Rights would not have an adequate remedy at law for any breach of this Agreement and will be entitled
to specific performance of the obligations under, and injunctive relief against actual or threatened violations of the obligations of any Person subject to, this Agreement. 

14

 

        SECTION 16.    AGREEMENT OF RIGHT HOLDERS.    Every holder of a Right, by accepting the
same, consents and agrees with the Company and the Rights Agent and with every other holder of a Right that: 

        (a)  prior
to the Distribution Date, the Rights will be transferable only in connection with the transfer of the Common Shares of the Company; 

        (b)  after
the Distribution Date, the Right Certificates are transferable only on the registry books of the Rights Agent if surrendered at the principal office of the Rights
Agent, duly endorsed or accompanied by a proper instrument of transfer; and 

        (c)  the
Company and the Rights Agent may deem and treat the Person in whose name the Right Certificate (or, prior to the Distribution Date, the associated Common Shares
certificate) is registered as the absolute owner thereof and of the Rights evidenced thereby (notwithstanding any notations of ownership or writing on the Right Certificates or the associated Common
Shares certificate made by anyone other than the Company or the Rights Agent) for all purposes whatsoever, and neither the Company nor the Rights Agent shall be affected by any notice to the contrary. 

        SECTION 17.    RIGHT CERTIFICATE HOLDER NOT DEEMED A STOCKHOLDER.    No holder, as
such, of any Right Certificate shall be entitled to vote, receive dividends or be deemed for any purpose the holder of the Preferred Shares or any other securities of the Company which may at any time
be issuable on the exercise of the Rights represented thereby, nor shall anything contained herein or in any Right Certificate be construed to confer upon the holder of any Right Certificate, as such,
any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon
any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting stockholders (except as
provided in Section 25 hereof), or to receive dividends or subscription rights, or otherwise, until the Right or Rights evidenced by such Right
Certificate shall have been exercised in accordance with the provisions hereof. 

        SECTION 18.    CONCERNING THE RIGHTS AGENT.    The Company agrees to pay to the Rights
Agent such compensation as has been agreed to in writing by the Company and the Rights Agent for all services rendered by it hereunder and, from time to time, on demand of the Rights Agent, its
reasonable expenses and counsel fees and other disbursements incurred by the Rights Agent in the administration and execution of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Rights Agent for, and to hold it harmless against, any loss, liability, obligation, damage or expense (including reasonable attorneys' fees and
other professional services) (collectively, "Losses"), incurred without negligence, bad faith or willful misconduct on the part of the Rights Agent, for
anything done or omitted by the Rights Agent in connection with the acceptance and administration of this Agreement, including, without limitation, the costs and expenses of defending against any
claim of liability in the premises. 

        The
Rights Agent shall be protected and shall incur no liability and shall be indemnified for and held harmless against any and all Losses for, or in respect of, any action taken,
suffered or omitted by it in connection with, its administration of this Agreement (i) in reliance upon any Right Certificate or certificate for the Preferred Shares or Common Shares or for
other securities of the Company, instrument of assignment or transfer, power of attorney, endorsement, affidavit, letter, notice, direction, consent, certificate, statement, or other paper or document
believed by it to be genuine and to be signed, executed and, where necessary, verified or acknowledged, by the proper person or persons, or (ii) otherwise upon the advice of counsel as set
forth in Section 20 hereof. Anything in this Agreement to the contrary notwithstanding, in no event shall the Rights Agent be liable for special,
indirect or consequential loss or damage of any kind whatsoever (including but not limited to lost profits), even if the Rights Agent has been advised of the likelihood of such loss or damage and
regardless of the form of action. 

15

   
        SECTION 19.    MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT.    Any
corporation or other Person into which the Rights Agent or any successor Rights Agent may be merged or with which it may be consolidated, or any corporation or other Person resulting from any merger
or consolidation to which the Rights Agent or any successor Rights Agent shall be a party, or any corporation or other Person succeeding to the stock transfer or corporate trust business of the Rights
Agent or any successor Rights Agent, shall be the successor to the Rights Agent under this Agreement without the execution or filing of any paper or any further act on the part of any of the parties
hereto; provided, that such corporation or other Person would be eligible for appointment as a successor Rights Agent under the provisions of  Section 21 hereof. In case at the time such successor Rights Agent shall succeed to the agency created by this Agreement, any of the Right
Certificates shall have been countersigned but not delivered, any such successor Rights Agent may adopt the countersignature of the predecessor Rights Agent and deliver such Right Certificates so
countersigned; and in case at that time any of the Right Certificates shall not have been countersigned, any successor Rights Agent may countersign such Right Certificates either in the name of the
predecessor Rights Agent or in the name of the successor Rights Agent; and in all such cases such Right Certificates shall have the full force provided in the Right Certificates and in this Agreement. 

        In
case at any time the name of the Rights Agent shall be changed and at such time any of the Right Certificates shall have been countersigned but not delivered, the Rights Agent may
adopt the countersignature under its prior name and deliver Right Certificates so countersigned; and in case at that time any of the Right Certificates shall not have been countersigned, the Rights
Agent may countersign such Right Certificates either in its prior name or in its changed name; and in all such cases such Right Certificates shall have the full force provided in the Right
Certificates and in this Agreement. 

        SECTION 20.    DUTIES OF RIGHTS AGENT.    The Rights Agent undertakes the duties and
obligations imposed by this Agreement upon the following terms and conditions, by all of which the Company and the holders of Right Certificates, by their acceptance thereof, shall be bound: 

        (a)  The
Rights Agent may consult with legal counsel (who may be legal counsel for the Company), and the opinion of such counsel shall be full and complete authorization and
protection to the Rights Agent as to any action taken or omitted by it in good faith and in accordance with or in reliance on such opinion. 

        (b)  Whenever
in the performance of its duties under this Agreement the Rights Agent shall deem it necessary or desirable that any fact or matter be proved or established by
the Company prior to taking,
suffering or omitting any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by
a certificate in form reasonably satisfactory to the Rights Agent signed by any one of the Chairman of the Board, the Chief Executive Officer, the President, any Vice President, the Treasurer or the
Secretary of the Company and delivered to the Rights Agent; and such certificate shall be full authorization to the Rights Agent for any action taken, suffered or omitted to be taken in good faith by
it under the provisions of this Agreement in reliance upon such certificate. 

        (c)  The
Rights Agent shall be liable hereunder to the Company and any other Person only for its own negligence, bad faith or willful misconduct, provided, however, that the
Rights Agent shall not be liable hereunder to the company or any other person for special, indirect or consequential loss or damage of any kind whatsoever. 

        (d)  The
Rights Agent shall not be liable for or by reason of any of the statements of fact or recitals contained in this Agreement or in the Right Certificates (except its
countersignature thereof) or be required to verify the same, but all such statements and recitals are and shall be deemed to have been made by the Company only. 

16

 

        (e)  The
Rights Agent shall not be under any responsibility in respect of the validity of this Agreement or the execution and delivery hereof (except the due execution hereof
by the Rights Agent) or in respect of the validity or execution of any Right Certificate (except its countersignature thereof); nor shall it be responsible for any breach by the Company of any
covenant or condition contained in this Agreement or in any Right Certificate; nor shall it be responsible for any change in the exercisability of the Rights (including the Rights becoming void
pursuant to Section 11(a)(ii) hereof) or any adjustment in the terms of the Rights (including the manner, method or amount thereof)
provided for in this Agreement, or the ascertaining of the existence of facts that would require any such change or adjustment (except with respect to the exercise of Rights evidenced by Right
Certificates after actual notice that such change or adjustment is required); nor shall it be responsible for any determination of the market value of the Rights or any Common Shares of the Company
pursuant to the provisions hereof; nor shall it by any act hereunder be deemed to make any representation or warranty as to the authorization or reservation of any Preferred Shares to be issued
pursuant to this Agreement or any Right Certificate or as to whether any Preferred Shares will, when issued, be validly authorized and issued, fully paid and nonassessable. 

        (f)    The
Company agrees that it will perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further and other acts,
instruments and assurances as may reasonably be required by the Rights Agent for the carrying out or performing by the Rights Agent of the provisions of this Agreement. 

        (g)  The
Rights Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder from any one of the Chairman of the
Board, the Chief Executive Officer, the President, any Vice President, the Secretary or the Treasurer of the Company, and to apply to such officers for advice or instructions in connection with its
duties, and it shall not be liable for any action taken, or suffered or omitted by it in good faith in accordance with instructions of any such officer or for any delay in acting while waiting for
those instructions. 

        (h)  The
Rights Agent and any stockholder, director, officer or employee of the Rights Agent may buy, sell or deal in any of the Rights or other securities of the Company or
become pecuniarily interested in any transaction in which the Company may be interested, or contract with or lend money to the Company or otherwise act as fully and freely as though it were not Rights
Agent under this Agreement. Nothing herein shall preclude the Rights Agent from acting in any other capacity for the Company or for any other legal entity. 

        (i)    The
Rights Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself or by or through its attorneys or
agents, and the Rights Agent shall not be answerable or accountable for any act, default, neglect or misconduct of any such attorneys or agents or for any loss to the Company resulting from any such
act, default, neglect or misconduct, provided reasonable care was exercised in the selection and continued employment thereof. 

        (j)    No
provision of this Agreement shall require the Rights Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its
duties hereunder or in the exercise of its rights if there shall be reasonable grounds for believing that repayment of such funds or adequate indemnification against such risk or liability is not
reasonably assured to it. 

        SECTION 21.    CHANGE OF RIGHTS AGENT.    The Rights Agent or any successor Rights
Agent may resign and be discharged from its duties under this Agreement upon thirty (30) days' notice in writing mailed to the Company and to each transfer agent of the Common Shares of the
Company or Preferred Shares by registered or certified mail, and to the holders of the Right Certificates by first-class mail. The Company may remove the Rights Agent or any successor Rights Agent
upon thirty (30) days' notice in writing, mailed to the Rights Agent or successor Rights Agent, as the case may be, and to each transfer agent of the Common Shares of the Company or Preferred
Shares by registered or certified mail, and to the holders of the Right Certificates by first-class mail. If the Rights Agent shall 

17

 

resign or be removed or shall otherwise become incapable of acting, the Company shall appoint a successor to the Rights Agent. If the Company shall fail to make such appointment within a period of
thirty (30) days after giving notice of such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Rights Agent or by the holder
of a Right Certificate (who shall, with such notice, submit such holder's Right Certificate for inspection by the Company), then the registered holder of any Right Certificate may apply to any court
of competent jurisdiction for the appointment of a new Rights Agent. Any successor Rights Agent, whether appointed by the Company or by such a court, shall be (i) a corporation organized and
doing business under the laws of the United States or of any state of the United States so long as such corporation is authorized to do business as a banking institution under such laws, in good
standing, which is
authorized under such laws to exercise corporate trust or stock transfer powers and is subject to supervision or examination by federal or state authorities and which has at the time of its
appointment as Rights Agent a combined capital and surplus of at least $50 million or (ii) an affiliate of an institution that satisfies the requirements set forth in clause (i)
of this sentence. After appointment, the successor Rights Agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Rights Agent without
further act or deed; but the predecessor Rights Agent shall deliver and transfer to the successor Rights Agent any property at the time held by it hereunder, and execute and deliver any further
assurance, conveyance, act or deed necessary for the purpose. Not later than the effective date of any such appointment the Company shall file notice thereof in writing with the predecessor Rights
Agent and each transfer agent of the Common Shares of the Company or Preferred Shares, and mail a notice thereof in writing to the registered holders of the Right Certificates. Failure to appoint a
successor Rights Agent or to give any notice provided for in this Section 21, however, or any defect therein, shall not affect the legality or
validity of the resignation or removal of the Rights Agent or the appointment of the successor Rights Agent, as the case may be. 

        SECTION 22.    ISSUANCE OF NEW RIGHT CERTIFICATES.    Notwithstanding any of the
provisions of this Agreement or of the Rights to the contrary, the Company may, at its option, issue new Right Certificates evidencing Rights in such form as may be approved by its Board of Directors
to reflect any adjustment or change in the Purchase Price and the number or kind or class of shares or other securities or property purchasable under the Right Certificates made in accordance with the
provisions of this Agreement. 

        SECTION 23.    REDEMPTION.    (a) The Board of Directors of the Company may, at
its option, at any time prior to such time as any Person becomes an Acquiring Person, redeem all but not less than all the then outstanding Rights at a redemption price of $.01 per Right,
appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date hereof (such redemption price being hereinafter referred to as the
"Redemption Price"). The redemption of the Rights by the Board of Directors may be made effective at such time, on such basis and with such conditions
as the Board of Directors in its sole discretion may establish. 

        (b)  Immediately
upon the action of the Board of Directors of the Company ordering the redemption of the Rights pursuant to paragraph (a) of this  Section 23, and without any further action and without any
notice, the right to exercise the Rights will terminate and the only right thereafter
of the holders of Rights shall be to receive the Redemption Price. The Company shall promptly give public notice of any such redemption; provided,
however, that the failure to give, or any defect in, any such notice shall not affect the validity of such redemption. Within ten (10) days after such action of the
Board of Directors ordering the redemption of the Rights, the Company shall mail a notice of redemption to all the holders of the then outstanding Rights at their last addresses as they appear upon
the registry books of the Rights Agent or, prior to the Distribution Date, on the registry books of the transfer agent for the Common Shares of the Company. Any notice which is mailed in the manner
herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of redemption will state the method by which the payment of the Redemption Price will be made. 

18

 

Neither the Company nor any of its Affiliates or Associates may redeem, acquire or purchase for value any Rights at any time in any manner other than that specifically set forth in this  Section 23
or in  Section 24 hereof, and other than in connection with the purchase of Common Shares of the Company prior to the Distribution Date. 

        SECTION 24.    EXCHANGE.    (a) The Board of Directors of the Company may, at
its option, at any time after any Person becomes an Acquiring Person, exchange all or part of the then outstanding and exercisable Rights (which shall not include Rights that have become void pursuant
to the provisions of Section 11(a)(ii) hereof) for Common Shares of the Company at an exchange ratio of one Common Share per Right,
appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date hereof (such exchange ratio being hereinafter referred to as the
"Exchange Ratio"). Notwithstanding the foregoing, the Board of Directors shall not be empowered to effect such exchange at any time after any Person
(other than the Company, any Subsidiary of the Company, any employee benefit plan of the Company or any such Subsidiary or any entity holding Common Shares of the Company for or pursuant to the terms
of any such plan), together with all Affiliates and Associates of such Person, becomes the Beneficial Owner of 50% or more of the Common Shares of the Company then outstanding. 

        (b)  Immediately
upon the action of the Board of Directors of the Company ordering the exchange of any Rights pursuant to paragraph (a) of this  Section 24 and without any further action and without any notice,
the right to exercise such Rights shall terminate and the only right thereafter
of a holder of such Rights shall be to receive that number of Common Shares of the Company equal to the number of such Rights held by such holder multiplied by the Exchange Ratio. The Company shall
promptly give public notice of any such exchange; provided, however, that the failure to give, or any defect in, such notice shall not affect the
validity of such exchange. The Company promptly shall mail a notice of any such exchange to all of the holders of such Rights at their last addresses as they appear upon the registry books of the
Rights Agent. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of exchange will state the method by which
the exchange of the Common Shares of the Company for Rights will be effected and, in the event of any partial exchange, the number of Rights which will be exchanged. Any partial exchange shall be
effected pro rata based on the number of Rights (other than Rights which have become void pursuant to the provisions of  Section 11(a)(ii) hereof) held by each holder of Rights. 

        (c)  In
the event that there shall not be sufficient Common Shares of the Company issued but not outstanding or authorized but unissued to permit any exchange of Rights as
contemplated in accordance with this Section 24, the Company shall take all such action as may be necessary to authorize additional Common Shares
of the Company for issuance upon exchange of the Rights. In the event the Company shall, after good faith effort, be unable to take all such action as may be necessary to authorize such additional
Common Shares of the Company, the Company shall substitute, for each Common Share of the Company that would otherwise be issuable upon exchange of a Right, a number of Preferred Shares or fraction
thereof such that the current per share market price of one Preferred Share multiplied by such number or fraction is equal to the current per share market price of one Common Share of the Company as
of the date of issuance of such Preferred Shares or fraction thereof. 

        (d)  The
Company shall not be required to issue fractions of Common Shares of the Company or to distribute certificates which evidence fractional Common Shares of the
Company. In lieu of such fractional Common Shares, the Company shall pay to the registered holders of the Right Certificates with regard to which such fractional Common Shares of the Company would
otherwise be issuable an
amount in cash equal to the same fraction of the current market value of a whole Common Share of the Company. For the purposes of this paragraph (d), the current market value of a whole Common
Share shall be the closing price of a Common Share of the Company (as determined pursuant to the second sentence of  Section 11(d)(i) hereof) for the Trading Day immediately prior to the date
of exchange pursuant to this  Section 24. 

19

   
        SECTION 25.    NOTICE OF CERTAIN EVENTS.    (a) In case the Company
shall
propose (i) to pay any dividend payable in stock of any class to the holders of its Preferred Shares or to make any other distribution to the holders of its Preferred Shares (other than a
regular quarterly cash dividend), (ii) to offer to the holders of its Preferred Shares rights or warrants to subscribe for or to purchase any additional Preferred Shares or shares of stock of
any class or any other securities, rights or options, (iii) to effect any reclassification of its Preferred Shares (other than a reclassification involving only the subdivision of outstanding
Preferred Shares), (iv) to effect any consolidation or merger into or with, or to effect any sale or other transfer (or to permit one or more of its Subsidiaries to effect any sale or other
transfer), in one or more transactions, of 50% or more of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to, any other Person, (v) to effect the liquidation,
dissolution or winding up of the Company, or (vi) to declare or pay any dividend on the Common Shares of the Company payable in Common Shares of the Company or to effect a subdivision,
combination or consolidation of the Common Shares of the Company (by reclassification or otherwise than by payment of dividends in Common Shares of the Company), then, in each such case, the Company
shall give to each holder of a Right Certificate, in accordance with Section 26 hereof, a notice of such proposed action, which shall specify the
record date for the purposes of such stock dividend, or distribution of rights or warrants, or the date on which such reclassification, consolidation, merger, sale, transfer, liquidation, dissolution,
or winding up is to take place and the date of participation therein by the holders of the Common Shares of the Company and/or Preferred Shares, if any such date is to be fixed, and such notice shall
be so given in the case of any action covered by clause (i) or (ii) above at least ten (10) days prior to the record date for determining holders of the Preferred Shares for
purposes of such action, and in the case of any such other action, at least ten (10) days prior to the date of the taking of such proposed action or the date of participation therein by the
holders of the Common Shares of the Company and/or Preferred Shares, whichever shall be the earlier. 

        (b)  In
case the event set forth in Section 11(a)(ii) hereof shall occur, then the Company shall as soon as
practicable thereafter give to each holder of a Right Certificate, in accordance with Section 26 hereof, a notice of the occurrence of such
event, which notice shall describe such event and the consequences of such event to holders of Rights under Section 11(a)(ii) hereof. 

        SECTION 26.    NOTICES.    Notices or demands authorized by this Agreement to be given
or made by the Rights Agent or by the holder of any Right Certificate to or on the Company shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed (until another
address is filed in writing with the Rights Agent) as follows: 

Arena
Pharmaceuticals, Inc.

6166 Nancy Ridge Drive

San Diego, California 92121

Attention: General Counsel 

With
a copy to: 

Milbank,
Tweed, Hadley & McCloy LLP

One Chase Manhattan Plaza

New York, New York 10005

Telecopier No: (212) 530-5219

Attention: Lawrence Lederman 

Subject
to the provisions of Section 21 hereof, any notice or demand authorized by this Agreement to be given or made by the Company or by the
holder of any Right Certificate to or on the Rights Agent 

20

 

shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Company) as follows: 

Computershare
Trust Company, Inc.

350 Indiana Street

Suite 800

Golden, CO 80401

Attention: Corporate Trust Department 

Notices
or demands authorized by this Agreement to be given or made by the Company or the Rights Agent to the holder of any Right Certificate shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed to such holder at the address of such holder as shown on the registry books of the Company. 

        SECTION 27.    SUPPLEMENTS AND AMENDMENTS.    The Company may from time to time and the
Rights Agent shall, if the Company so directs, supplement or amend this Agreement without the approval of any holders of Right Certificates in order to cure any ambiguity, to correct or supplement any
provision contained herein which may be defective or inconsistent with any other provisions herein, or to make any other provisions with respect to the Rights which the Company may deem necessary or
desirable, any such supplement or amendment to be evidenced by a writing signed by the Company and the Rights Agent; provided, however, that from and
after such time as any Person becomes an Acquiring Person, this Agreement shall not be amended in any manner which would adversely affect the interests
of the holders of Rights (other than any Acquiring Person and its Affiliates and Associates). Without limiting the foregoing, the Company may at any time prior to such time as any Person becomes an
Acquiring Person amend this Agreement to (a) fix a Final Expiration Date later than the date set forth in Section 7 hereof,
(b) reduce the Redemption Price or (c) increase the Purchase Price. 

        SECTION 28.    SUCCESSORS.    All the covenants and provisions of this Agreement by or
for the benefit of the Company or the Rights Agent shall bind and inure to the benefit of their respective successors and assigns hereunder. 

        SECTION 29.    BENEFITS OF THIS AGREEMENT.    Nothing in this Agreement shall be
construed to give to any Person other than the Company, the Rights Agent and the registered holders of the Right Certificates (and, prior to the Distribution Date, the Common Shares of the Company)
any legal or equitable right, remedy or claim under this Agreement; but this Agreement shall be for the sole and exclusive benefit of the Company, the Rights Agent and the registered holders of the
Right Certificates (and, prior to the Distribution Date, the Common Shares of the Company). 

        SECTION 30.    SEVERABILITY.    If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement
shall remain in full force and effect and shall in no way be affected, impaired or invalidated. 

        SECTION 31.    GOVERNING LAW.    This Agreement and each Right Certificate issued
hereunder shall be deemed to be a contract made under the laws of the State of Delaware and for all purposes shall be governed by and construed in accordance with the laws of such State applicable to
contracts to be made and performed entirely within such State. 

        SECTION 32.    COUNTERPARTS.    This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. 

        SECTION 33.    DESCRIPTIVE HEADINGS.    Descriptive headings of the several Sections of
this Agreement are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. 

21

 

        SECTION 34.    ADMINISTRATION.    The Board of Directors of the Company shall have the
exclusive power and authority to administer and interpret the provisions of this Agreement and to exercise all rights
and powers specifically granted to the Board of Directors of the Company or to the Company or as may be necessary or advisable in the administration of this Agreement. All such actions, calculations,
determinations and interpretations which are done or made by the Board of Directors of the Company in good faith shall be final, conclusive and binding on the Company, the Rights Agent, the holders of
the Rights and all other parties and shall not subject the Board of Directors of the Company to any liability to the holders of the Rights. 

22

 

        IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and attested, all as of the day and year first above written. 

	Attest:	 	ARENA PHARMACEUTICALS, INC.

	

By:	

 	
 	

By:	

 
	 	
 Name:	 	 	
 Name:

Title:
	

Attest:	
 	
COMPUTERSHARE TRUST COMPANY, INC.

	

By:	

 	
 	

By:	

 
	 	
 Name:	 	 	
 Name:

Title:

23

EXHIBIT A  

FORM  

of  

CERTIFICATE OF DESIGNATIONS  

of  

SERIES A JUNIOR PARTICIPATING

PREFERRED STOCK  

of  

ARENA PHARMACEUTICALS, INC.  

(Pursuant to Section 151 of the

General Corporation Law of the State of Delaware)  

        Arena
Pharmaceuticals, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (hereinafter called the
"Corporation"), hereby certifies that the following resolution was adopted by consent of the Board of Directors of the Corporation on October 30,
2002, in accordance with the provisions of Section 151 of the General Corporation Law of the State of Delaware: 

        RESOLVED,
that pursuant to the authority granted to and vested in the Board of Directors of this Corporation (hereinafter called the "Board of
Directors" or the "Board") in accordance with the provisions of the Fifth Amended and Restated Certificate of Incorporation of
the Corporation, the Board of Directors hereby creates a series of Preferred Stock, par value $.0001 per share (the "Preferred Stock"), of the
Corporation and hereby states the designation and number of shares, and fixes the relative rights, preferences, and limitations thereof as follows: 

        "Series A
Junior Participating Preferred Stock: 

        Section 1.    Designation and Amount.    The shares of this series shall be designated as "Series A
Junior Participating Preferred Stock" (the "Series A Junior Preferred Stock") and the number of shares
constituting the Series A Junior Preferred Stock shall be three hundred fifty thousand (350,000) shares. Such number of shares may be increased or decreased by resolution of the Board of
Directors; provided that no decrease shall reduce the number of shares of Series A Junior Preferred Stock to a number less than the number of
shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the
Corporation convertible into Series A Junior Preferred Stock. 

        Section 2.    Dividends and Distributions.    

        (A)  Subject
to the rights of the holders of any shares of any series of Preferred Stock (or any other stock) ranking prior and superior to the Series A Junior
Preferred Stock with respect to dividends, the holders of shares of Series A Junior Preferred Stock, in preference to the holders of Common Stock, par value $.0001 per share (the
"Common Stock"), of the Corporation, and of any other class of stock ranking junior to the Series A Junior Preferred Stock with respect to the
payment of dividends, shall be entitled to receive, when, as and if declared by the Board of Directors out of 

 

funds legally available for the purpose, quarterly dividends payable in cash on the first day of March, June, September and December in each year (each such date being referred to herein as a
"Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share
of Series A Junior Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $1 or (b) subject to the provision for adjustment hereinafter
set forth, 100 times the aggregate per share amount of all cash dividends, and 100 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions,
other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the
immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A
Junior Preferred Stock. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the amount to which holders of shares of Series A Junior Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding
sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding immediately prior to such event. 

        (B)  The
Corporation shall declare a dividend or distribution on the Series A Junior Preferred Stock as provided in paragraph (A) of this Section immediately
after it declares a dividend or distribution on the
Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no dividend or distribution shall have been declared
on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $1 per share on the Series A Junior
Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. 

        (C)  Dividends
shall begin to accrue and be cumulative on outstanding shares of Series A Junior Preferred Stock from the Quarterly Dividend Payment Date next preceding
the date of issue of such shares, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin
to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of
Series A Junior Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be
cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Junior Preferred Stock in an amount less
than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Junior Preferred Stock entitled to receive payment of a dividend or distribution
declared thereon, which record date shall be not more than 60 days prior to the date fixed for the payment thereof. 

        Section 3.    Voting Rights.    The holders of shares of Series A Junior Preferred Stock shall have the
following voting rights: 

        (A)  Subject
to the provision for adjustment hereinafter set forth, each share of Series A Junior Preferred Stock shall entitle the holder thereof to 100 votes on all
matters submitted to a vote of the stockholders of the Corporation. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or
effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or 

A-2

 

otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the number of votes per share to which holders of
shares of Series A Junior Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. 

        (B)  Except
as otherwise provided herein, in any other Certificate of Designations creating a series of Preferred Stock or any similar stock, in the Certificate of
Incorporation of the Corporation or by law, the holders of shares of Series A Junior Preferred Stock and the holders of shares of Common Stock and any other capital stock of the Corporation
having general voting rights shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation. 

        (C)  Except
as set forth herein, or as otherwise provided by law, holders of Series A Junior Preferred Stock shall have no special voting rights and their consent
shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action. 

        Section 4.    Certain Restrictions.    

        (A)  Whenever
quarterly dividends or other dividends or distributions payable on the Series A Junior Preferred Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Junior Preferred Stock outstanding shall have been paid in full, the
Corporation shall not: 

        (i)    declare
or pay dividends, or make any other distributions, on any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up)
to the Series A Junior Preferred Stock; 

        (ii)  declare
or pay dividends, or make any other distributions, on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or
winding up) with the Series A Junior Preferred Stock, except dividends paid ratably on the Series A Junior Preferred Stock and all such parity stock on which dividends are payable or in
arrears in proportion to the total amounts to which the holders of all such shares are then entitled; 

        (iii)  redeem
or purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to
the Series A Junior Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such
junior stock in exchange for shares of any stock of the Corporation ranking junior (as to dividends and upon dissolution, liquidation or winding up) to the Series A Junior Preferred Stock; or 

        (iv)  redeem
or purchase or otherwise acquire for consideration any shares of Series A Junior Preferred Stock, or any shares of stock ranking on a parity with the
Series A Junior Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such
terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good
faith will result in fair and equitable treatment among the respective series or classes. 

        (B)  The
Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the
Corporation could, under
paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. 

        Section 5.    Reacquired Shares.    Any shares of Series A Junior Preferred Stock purchased or otherwise
acquired by the Corporation in any manner whatsoever shall be retired and cancelled 

A-3

 

promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred
Stock subject to the conditions and restrictions on issuance set forth herein, in the Certificate of Incorporation, or in any other Certificate of Designations creating a series of Preferred Stock or
any similar stock or as otherwise required by law. 

        Section 6.    Liquidation, Dissolution or Winding Up.    Upon any liquidation, dissolution or winding up of the
Corporation, no distribution shall be made (1) to the holders of shares of stock ranking junior (upon liquidation, dissolution or winding up) to the Series A Junior Preferred Stock
unless, prior thereto, the holders of shares of Series A Junior Preferred Stock shall have received $100 per share, plus an amount equal to accrued and unpaid dividends and distributions
thereon, whether or not declared, to the date of such payment, provided that the holders of shares of Series A Junior Preferred Stock shall be
entitled to receive an aggregate amount per share, subject to the provision for adjustment hereinafter set forth, equal to 100 times the aggregate amount to be distributed per share to holders of
shares of Common Stock, or (2) to the holders of shares of stock ranking on a parity (upon liquidation, dissolution or winding up) with the Series A Junior Preferred Stock, except
distributions made ratably on the Series A Junior Preferred Stock and all such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such
liquidation, dissolution or winding up. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of
shares of Common Stock, then in each such case the aggregate amount to which holders of shares of Series A Junior Preferred Stock were entitled immediately prior to such event under the proviso
in clause (1) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. 

        Section 7.    Consolidation, Merger, etc.    In case the Corporation shall enter into any consolidation,
merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each
share of Series A Junior Preferred Stock shall at the same time be similarly exchanged or changed into an amount per share, subject to the provision for adjustment hereinafter set forth, equal
to 100 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or
exchanged. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of
the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in
each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series A Junior
Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator
of which is the number of shares of Common Stock that were outstanding immediately prior to such event. 

        Section 8.    No Redemption.    The shares of Series A Junior Preferred Stock shall not be redeemable. 

        Section 9.    Rank.    The Series A Junior Preferred Stock shall rank, with respect to the payment of
dividends and the distribution of assets, junior to all series of any other class of Preferred Stock. 

        Section 10.    Amendment.    The Fifth Amended and Restated Certificate of Incorporation of the Corporation, as
amended, shall not be amended in any manner which would materially alter or change the powers, preferences or special rights of the Series A Junior Preferred Stock so as to affect them
adversely without the affirmative vote of the holders of at least two-thirds of the outstanding shares of Series A Junior Preferred Stock, voting together as a single class." 

A-4

 

        IN
WITNESS WHEREOF, Arena Pharmaceuticals, Inc. has caused this Certificate of Designations of Series A Junior Participating Preferred Stock to be duly executed by its Vice
President, General Counsel and Secretary this            day of November, 2002. 

	 	ARENA PHARMACEUTICALS, INC.

	

 	

 Name:

Title:

A-5

EXHIBIT B  

FORM OF RIGHT CERTIFICATE  

	Certificate No. R-                        	 	                        Rights

NOT
EXERCISABLE AFTER OCTOBER 30, 2012 OR EARLIER IF REDEMPTION OR EXCHANGE OCCURS. THE RIGHTS ARE SUBJECT TO REDEMPTION AT $.01 PER RIGHT AND TO EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS
AGREEMENT. UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS OWNED BY ANY PERSON WHO IS OR BECOMES AN ACQUIRING PERSON (AS DEFINED IN THE RIGHTS AGREEMENT) SHALL BECOME NULL
AND VOID. 

Right Certificate  

ARENA PHARMACEUTICALS, INC.  

        This certifies that                        , or registered assigns,
 is the registered owner of the number of Rights set forth above, each of which entitles the owner
thereof, subject to the terms, provisions and conditions of the Rights Agreement, dated as of October 30, 2002 (the "Rights Agreement"), between
Arena Pharmaceuticals, Inc., a Delaware corporation (the "Company"), and Computershare Trust Company, Inc., as Rights Agent (the
"Rights Agent"), to purchase from the Company at any time after the Distribution Date (as such term is defined in the Rights Agreement) and prior to
5:00 P.M., Eastern time, on October 30, 2012 at the principal office of the Rights Agent, or at the office of its successor as Rights Agent, one one-hundredth of a fully paid
non-assessable share of Series A Junior Participating Preferred Stock, par value $.0001 per share (the "Preferred Shares"), of the
Company, at a purchase price of $36 per one one-hundredth of a Preferred Share (the "Purchase Price"), upon presentation and surrender of
this Right Certificate with the Form of Election to Purchase duly executed. The number of Rights evidenced by this Right Certificate (and the number of one one-hundredths of a Preferred
Share which may be purchased upon exercise hereof) set forth above, and the Purchase Price set forth above, are the number and Purchase Price as of October 30, 2002, based on the Preferred
Shares as constituted at such date. As provided in the Rights Agreement, the Purchase Price and the number of one one-hundredths of a Preferred Share which may be purchased upon the
exercise of the Rights evidenced by this Right Certificate are subject to modification and adjustment upon the happening of certain events. 

        This
Right Certificate is subject to all of the terms, provisions and conditions of the Rights Agreement, which terms, provisions and conditions are hereby incorporated herein by
reference and made a part hereof and to which Rights Agreement reference is hereby made for a full description of the rights, limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Right Certificates. Copies of the Rights Agreement are on file at the principal executive offices of the Company and the above-mentioned offices of the
Rights Agent. 

        This
Right Certificate, with or without other Right Certificates, upon surrender at the principal office of the Rights Agent, may be exchanged for another Right Certificate or Right
Certificates of like tenor and date evidencing Rights entitling the holder to purchase a like aggregate number of Preferred Shares as the Rights evidenced by the Right Certificate or Right
Certificates surrendered shall have entitled such holder to purchase. If this Right Certificate shall be exercised in part, the holder shall be entitled to receive upon surrender hereof another Right
Certificate or Right Certificates for the number of whole Rights not exercised. 

        Subject
to the provisions of the Rights Agreement, the Rights evidenced by this Certificate (i) may be redeemed by the Company at a redemption price of $.01 per Right or
(ii) may be exchanged in 

 

whole or in part for Preferred Shares or shares of the Company's Common Stock, par value $.0001 per share. 

        No
fractional Preferred Shares will be issued upon the exercise of any Right or Rights evidenced hereby (other than fractions which are integral multiples of one
one-hundredth of a Preferred Share, which may, at the election of the Company, be evidenced by depositary receipts), but in lieu thereof a cash payment will be made, as provided in the
Rights Agreement. 

        No
holder of this Right Certificate shall be entitled to vote or receive dividends or be deemed for any purpose the holder of the Preferred Shares or of any other securities of the
Company which may at any time be issuable on the exercise hereof, nor shall anything contained in the Rights Agreement or herein be construed to confer upon the holder hereof, as such, any of the
rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting stockholders (except as provided in the Rights Agreement), or to receive dividends or subscription rights, or otherwise,
until the Right or Rights evidenced by this Right Certificate shall have been exercised as provided in the Rights Agreement. 

        This
Right Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the Rights Agent. 

B-2

 

        WITNESS
the facsimile signature of the proper officers of the Company and its corporate seal. Dated as of                        ,
            . 

	ATTEST:	 	ARENA PHARMACEUTICALS, INC.

	

By:	

 	
 	

By:	

 
	 	
 Name:	 	 	
 Name:

Title:
	Countersigned:	 	 	 
	

COMPUTERSHARE TRUST COMPANY, INC.	
 	

 	

 
	

By:	

 	
 	

 	

 
	 	
 Authorized Signature	 	 	 

B-3

 
Form of Reverse Side of Right Certificate  

FORM OF ASSIGNMENT  

(To be executed by the registered holder if such  

holder desires to transfer the Right Certificate.)  

        FOR
VALUE RECEIVED                              hereby sells, assigns and transfers
unto                        
 

	

	(Please print name and address of transferee)
	

	this Right Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and
appoint                        Attorney, to transfer the within Right Certificate on the books of the within-named Company, with
full power of substitution.

Dated:                        ,            

	 	 	
 Signature

Signature
Guaranteed: 

        Signatures
must be guaranteed by an eligible institution (a bank, stockbroker, savings and loan association or credit union with membership in an approved signature guarantee medallion
program) pursuant to Rule 17Ad-15 of the Securities Exchange Act of 1934. 

        The
undersigned hereby certifies that the Rights evidenced by this Right Certificate are not beneficially owned by an Acquiring Person or an Affiliate or Associate thereof (as defined in
the Rights Agreement). 

	 	 	
 Signature

B-4

 
FORM OF ELECTION TO PURCHASE  

(To be executed if holder desires to exercise  

Rights represented by the Right Certificate.)  

To:
ARENA PHARMACEUTICALS, INC. 

        The
undersigned hereby irrevocably elects to exercise                        Rights represented by this Right Certificate to purchase
the Preferred Shares issuable upon the exercise of such
Rights and requests that certificates for such Preferred Shares be issued in the name of: 

Please
insert social security

or other identifying number 

	

	(Please print name and address)
	

	If such number of Rights shall not be all the Rights evidenced by this Right Certificate, a new Right Certificate for the balance remaining of such Rights shall be registered in the name of and delivered to:
	

Please insert social security

or other identifying number	
 	

 
	

	(Please print name and address)
	

Dated:                        ,            

	 	 	
 Signature

Signature
Guaranteed: 

        Signatures
must be guaranteed by an eligible institution (a bank, stockbroker, savings and loan association or credit union with membership in an approved signature guarantee medallion
program) pursuant to Rule 17Ad-15 of the Securities Exchange Act of 1934. 

        The
undersigned hereby certifies that the Rights evidenced by this Right Certificate are not beneficially owned by an Acquiring Person or an Affiliate or Associate thereof (as defined in
the Rights Agreement). 

	 	 	
 Signature

B-5

 
NOTICE  

        The signature in the Form of Assignment or Form of Election to Purchase, as the case may be, must conform to the name as written upon the face of this Right
Certificate in every particular, without alteration or enlargement or any change whatsoever. 

        In
the event the certification set forth above in the Form of Assignment or the Form of Election to Purchase, as the case may be, is not completed, the Company and the Rights Agent will
deem the beneficial owner of the Rights evidenced by this Right Certificate to be an Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights Agreement) and such Assignment or
Election to Purchase will not be honored. 

B-6

EXHIBIT C  

UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE

RIGHTS AGREEMENT, RIGHTS OWNED BY ANY PERSON WHO

IS OR BECOMES AN ACQUIRING PERSON (AS DEFINED IN

THE RIGHTS AGREEMENT) SHALL BECOME NULL AND VOID  

SUMMARY OF RIGHTS TO PURCHASE

PREFERRED SHARES  

        On October 30, 2002, the Board of Directors of Arena Pharmaceuticals, Inc. (the "Company") adopted a
resolution declaring a dividend of one preferred share purchase right (a "Right") for each outstanding share of common stock, par value $.0001 per share
(the "Common Shares"), of the Company. The dividend is payable on November 13, 2002 (the "Record
Date") to the stockholders of record on that date. Each Right entitles the registered holder to purchase from the Company one one-hundredth of a share of
Series A Junior Participating Preferred Stock, par value $.0001 per share (the "Preferred Shares"), of the Company at a price of $36 per one
one-hundredth of a Preferred Share (the "Purchase Price"), subject to adjustment. The description and terms of the Rights are set forth in a
Rights Agreement dated as of October 30, 2002 (the "Rights Agreement") between the Company and Computershare Trust Company, Inc., as
Rights Agent (the "Rights Agent"). 

        Until
the earlier to occur of (i) 10 days following a public announcement that a person or group of affiliated or associated persons have acquired beneficial ownership of
10% or more (or, subject to the terms of the Rights Agreement, more than the BVF Percentage in the case of BVF (as such terms are defined in the Rights Agreement)) of the outstanding Common Shares of
the Company (an "Acquiring Person") or (ii) 10 business days (or such later date as may be determined by action of the Board of Directors prior
to such time as any person or group of affiliated persons becomes an Acquiring Person) following the commencement of, or announcement of an intention to make, a tender offer or exchange offer the
consummation of which would result in the beneficial ownership by a person or group of 10% or more (or more than the BVF Percentage in the case of BVF) of the outstanding Common Shares (the earlier of
such dates being called the "Distribution Date"), the Rights will be evidenced, with
respect to any of the Common Share certificates outstanding as of the Record Date, by such Common Share certificate with a copy of this Summary of Rights attached thereto. 

        The
Rights Agreement provides that, until the Distribution Date (or earlier redemption or expiration of the Rights), the Rights will be transferred with and only with the Common Shares.
Until the Distribution Date (or earlier redemption or expiration of the Rights), new Common Share certificates issued after the Record Date upon transfer or new issuance of Common Shares will contain
a notation incorporating the Rights Agreement by reference. Until the Distribution Date (or earlier redemption or expiration of the Rights), the surrender for transfer of any certificates for Common
Shares outstanding as of the Record Date, even without such notation or a copy of this Summary of Rights being attached thereto, will also constitute the transfer of the Rights associated with the
Common Shares represented by such certificate. As soon as practicable following the Distribution Date, separate certificates evidencing the Rights ("Right
Certificates") will be mailed to holders of record of the Common Shares as of the close of business on the Distribution Date and such separate Right Certificates alone will
evidence the Rights. 

        The
Rights are not exercisable until the Distribution Date. The Rights will expire on October 30, 2012 (the "Final Expiration
Date"), unless the Final Expiration Date is extended or the Rights are earlier redeemed or exchanged by the Company, in each case, as described below. 

        The
Purchase Price payable, and the number of Preferred Shares or other securities or property issuable, upon exercise of the Rights are subject to adjustment from time to time to
prevent dilution (i) in the event of a stock dividend on, or a subdivision, combination or reclassification of, the Preferred Shares, (ii) upon the grant to holders of the Preferred
Shares of certain rights or warrants to 

 

subscribe for or purchase Preferred Shares at a price, or securities convertible into Preferred Shares with a conversion price, less than the then-current market price of the Preferred
Shares or (iii) upon the distribution to holders of the Preferred Shares of evidences of indebtedness or assets (excluding regular periodic cash dividends paid out of earnings or retained
earnings or dividends payable in Preferred Shares) or of subscription rights or warrants (other than those referred to above). 

        The
number of outstanding Rights and the number of one one-hundredths of a Preferred Share issuable upon exercise of each Right are also subject to adjustment in the event of
a stock split of the Common Shares or a stock dividend on the Common Shares payable in Common Shares or subdivisions, consolidations or combinations of the Common Shares occurring, in any such case,
prior to the Distribution Date. 

        Preferred
Shares purchasable upon exercise of the Rights will not be redeemable. Each Preferred Share will be entitled to a minimum preferential quarterly dividend payment of $1 per
share but will be entitled to an aggregate dividend of 100 times the dividend declared per Common Share. In the event of liquidation, the holders of the Preferred Shares will be entitled to a minimum
preferential liquidation payment of $100 per share but will be entitled to an aggregate payment of 100 times the payment made per Common Share. Each Preferred Share will have 100 votes, voting
together with the Common Shares. Finally, in the event of any merger, consolidation or other transaction in which Common Shares are exchanged, each Preferred Share will be entitled to receive 100
times the amount received per Common Share. These rights are protected by customary antidilution provisions. 

        Because
of the nature of the Preferred Shares' dividend, liquidation and voting rights, the value of the one one-hundredth interest in a Preferred Share purchasable upon
exercise of each Right should approximate the value of one Common Share. 

        In
the event that any person or group of affiliated or associated persons becomes an Acquiring Person, the Rights Agreement provides that proper provision shall be made so that each
holder of a Right, other than Rights beneficially owned by the Acquiring Person (which will thereafter be void), will thereafter have the right to receive (subject to adjustment) upon exercise that
number of Common Shares having a market value of two times the Purchase Price. At any time after any person or group becomes an Acquiring Person and prior to the acquisition by such person or group of
50% or more of the outstanding Common Shares, the Board of Directors of the Company may exchange the Rights (other than Rights owned by such person or group, which will have become void), in whole or
in part, at an exchange ratio of one Common Share, or one one-hundredth of a Preferred Share (or of a share of a class or series of the Company's preferred stock having equivalent rights,
preferences and privileges), per Right (subject to adjustment). 

        The
Rights Agreement provides that none of the Company's directors or officers shall be deemed to beneficially own any Common Shares owned by any other director or officer by virtue of
such persons acting in their capacities as such, including in connection with the formulation and publication of the Board of Directors' recommendation of its position, and actions taken in
furtherance thereof, with respect to an acquisition proposal relating to the Company or a tender or exchange offer for the Common Shares. 

        In
the event that the Company is acquired in a merger or other business combination transaction or 50% or more of its consolidated assets or earning power are sold after a person or
group has become an Acquiring Person, proper provision will be made so that each holder of a Right will thereafter have the right to receive, upon the exercise thereof at the then current exercise
price of the Right, that number of shares of common stock of the acquiring company which at the time of such transaction will have a market value of two times the Purchase Price. 

        With
certain exceptions, no adjustment in the Purchase Price will be required until cumulative adjustments require an adjustment of at least 1% in such Purchase Price. No fractional
Preferred 

C-2

 

Shares will be issued (other than fractions which are integral multiples of one one-hundredth of a Preferred Share, which may, at the election of the Company, be evidenced by depositary
receipts) and in lieu thereof, an adjustment in cash will be made based on the market price of the Preferred Shares on the last trading day prior to the date of exercise. 

        At
any time prior to the acquisition by a person or group of affiliated or associated persons of beneficial ownership of 10% or more (or more than the BVF Percentage in the case of BVF)
of the outstanding Common Shares, the Board of Directors of the Company may redeem the Rights in whole, but not in part, at a price of $.01 per Right (the "Redemption
Price"). The redemption of the Rights may be made effective at such time on such basis with such conditions as the Board of Directors in its sole discretion may establish. 

        The
terms of the Rights may be amended by the Board of Directors of the Company without the consent of the holders of the Rights, including an amendment to (a) fix a Final
Expiration Date later than October 30, 2012, (b) reduce the Redemption Price or (c) increase the Purchase Price, except that from and after such time as any person or group of
affiliated or associated persons becomes an Acquiring Person, no such amendment may adversely affect the interests of the holders of the Rights (other than the Acquiring Person and its affiliates and
associates). 

        Until
a Right is exercised, the holder thereof, as such, will have no rights as a stockholder of the Company, including, without limitation, the right to vote or to receive dividends. 

        A
copy of the Rights Agreement has been filed with the Securities and Exchange Commission as an Exhibit to a Registration Statement on Form 8-A dated November  [    ], 2002. A copy
of the Rights Agreement is available free of charge from the Company. This summary description of
the Rights does not purport to be complete and is qualified in its entirety by reference to the Rights Agreement, which is hereby incorporated herein by reference. 

C-3

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TABLE OF CONTENTS

RIGHTS AGREEMENT

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