Amendment No. 2 dated as of January 3, 2008 to the Rights Agreement, dated as of September 5, 2002, as amended on October 23, 2006 (the Rights Agreement), between Pharmos Corporation and American Stock Transfer & Trust Co., as Rights Agent

inadvertently and, within two business days after such notification, such Person is the Beneficial Owner of less than 15% of the outstanding shares of Common Stock, (B) by reason of such Person’s Beneficial Ownership of 15% or more of the outstanding shares of Common Stock on the date hereof if, prior to the Record Date, such Person notifies the Board of Directors that such Person is no longer the Beneficial Owner of 15% or more of the then outstanding shares of Common Stock or (C) the Board of Directors 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 Beneficial Ownership as promptly as practicable of a sufficient number of shares of Common Stock so that such Person would no longer be an Acquiring Person, as defined pursuant to the foregoing provisions of this paragraph (a). In addition, notwithstanding the foregoing, none of Vela Pharmaceuticals Inc., a Delaware corporation (“Vela”), or any Affiliate or Associate thereof, or any stockholder of Vela (including, without limitation, New Enterprise Associates, Venrock Associates and Robert Johnston) or Lloyd I. Miller, III, or their respective Affiliates or Associates, shall become an “Acquiring Person” as a result of (i) the approval, execution, delivery or performance of that certain Agreement and Plan of Merger dated as of March 14, 2006, as amended (and as the same may hereafter be amended from time to time, the “Merger Agreement”), by and among the Company, Vela and Vela Acquisition Corporation and Vela Acquisition No.2 Corporation, including the approval, execution, delivery or performance of any amendments thereto, (ii) the consummation of the Merger (as such term is defined in the Merger Agreement), (iii) the issuance of Common Stock pursuant to the Merger Agreement, (iv) the announcement of the Merger Agreement or the Merger, (v) the consummation of any other transaction contemplated by the Merger Agreement, (vi) the approval, execution, delivery or performance of that certain Securities Purchase Agreement dated as of the date hereof (and as the same may hereafter be amended from time to time, the “Securities Purchase Agreement”) by and among the Company and the purchasers identified on the signature pages hereto, including the approval, execution, delivery or performance of any amendments thereto, (vii) the issuance of the Debentures, as defined in the Securities Purchase Agreement (the “Debentures”), (viii) the issuance of Common Stock upon conversion of the Debentures or any interest accrued thereon, (ix) the announcement of the transactions contemplated by the Securities Purchase Agreement, or (x) the consummation of any other transaction contemplated by the Securities Purchase Agreement. Furthermore, none of Vela or any Affiliate or Associate thereof, or any stockholder of Vela (including without limitation New Enterprise Associates, Venrock Associates and Robert Johnston) or Lloyd I. Miller, III, shall become an “Acquiring Person” until such time as such Person, together with all Affiliates and Associates, is the Beneficial Owner of 20% or more of the shares of Common Stock then outstanding, including any shares of Common Stock issued pursuant to the Merger Agreement and held by such Person, together with all Affiliates and Associates.

2.            Section 1(i) of the Rights Agreement, which sets forth the definition of “Stock Acquisition Date,” is hereby amended by adding as the final sentence thereto the following:

Notwithstanding anything in the Agreement to the contrary, no Stock Acquisition Date shall be deemed to have occurred in connection with or as a result of (i) the approval, execution, delivery or performance of the Merger Agreement, (ii) the consummation of the Merger, (iii) the issuance of Common Stock pursuant to the Merger Agreement, (iv) the announcement of the Merger Agreement or the

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