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Exhibit 10.1
 
AMENDED AND RESTATED EMPLOYMENT AGREEMENT

THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this “Agreement”) is made and
entered into as of March 4, 2013, by and between Aeolus Pharmaceuticals, Inc., a
Delaware corporation (the “Company”), and John L. McManus (“Executive”).
 
RECITALS
 
A. Executive has been President and Chief Executive Officer (“CEO”) of the
Company since 2006, and was responsible for refocusing the Company and integral
to the Company being awarded a contract, dated February 11, 2011, from the
Biomedical Advanced Research and Development Authority, a division of the
Department of Health and Human Services, for the development of the Company’s
lead compound for up to $118 million (the “BARDA Contract”).  The Board of
Directors of the Company (the “Board”) recognizes that Executive’s contributions
as President and CEO have been instrumental to the success of the Company.
Executive and the Company entered into an employment agreement dated July 14,
2006, which was subsequently amended and restated on July 30, 2010 (as amended
and restated, the “Prior Agreement”). The Board and Executive desire to amend
and restate the Prior Agreement pursuant to the terms hereof to assure the
Company of Executive’s continued employment in an executive capacity and to
compensate him therefor.
 
B.  The Company considers the establishment and maintenance of a sound
management to be essential to protecting and enhancing the best interests of the
Company and its stockholders.
 
C.  The Board has determined that appropriate steps should be taken to retain
Executive and to reinforce and encourage his continued attention and dedication
to his assigned duties.
 
D.  The Company desires to retain the services of Executive, and Executive
desires to be employed by the Company pursuant to the terms and conditions of
this Agreement.
 
AGREEMENT
 
NOW, THEREFORE, in consideration of the premises, the mutual promises and the
mutual covenants and agreements hereinafter set forth, the Company and Executive
hereby agree as follows:
 
1. EMPLOYMENT. During the Employment Period (as defined in Section 3 below), the
Company hereby agrees to continue to employ Executive and Executive hereby
agrees to continue to serve the Company, on the terms and conditions contained
in this Agreement.
 
2. POSITION AND DUTIES. Executive shall serve the Company as its President and
CEO and shall report to the Board. Executive shall be assigned the
responsibilities of such offices as they may be modified from time to time by
the Board; provided that such duties are consistent with Executive’s present
duties and with Executive’s positions. Executive hereby accepts such employment
and agrees to devote substantially all of his full business and professional
time and energy to the business and affairs of the Company.
 
Notwithstanding the foregoing, Executive shall be permitted to serve (i) as an
employee, consultant, officer and/or director of, and provide services to,
McManus Financial Consultants, Inc., and (ii) on the board of directors of any
other company or entity that does not compete directly with the Company.
 
3. EMPLOYMENT PERIOD. The “Employment Period” shall mean the period commencing
on the date hereof, and ending on March 4, 2014; provided that this Agreement
shall automatically renew for additional one-year periods, unless either party
gives the other written notice of such party’s intent not to renew this
Agreement at least ninety (90) days prior to the commencement of the next
one-year term of this Agreement (a “Non-Renewal Notice”).
 
4. COMPENSATION.
 
4.1 BASE SALARY. In consideration for services performed pursuant to this
Agreement, the Company will pay or cause to be paid to Executive, and Executive
will be entitled to receive and hereby agrees to accept, an initial monthly base
salary of $35,363.33, subject to increases in the discretion of the Board or its
Compensation Committee (“Base Salary”), payable in accordance with the Company’s
normal payroll payment practices.
 
 
 
 

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4.2 STOCK OPTIONS AND RELATED INCENTIVE PLANS. Executive shall be eligible to
participate in the Company’s existing incentive programs and any additional or
successor incentive plan or plans. On the date hereof, Executive shall be
granted a stock option to purchase 2,000,000 shares of Common Stock of the
Company (subject to adjustment for stock splits, recapitalizations and similar
transactions), with an exercise price equal to the closing stock price on the
date of the grant. The stock option shall vest at a rate of 8.33% per month
following the date of grant as long as Executive continues to be an employee of
or consultant to the Company through the applicable vesting date,
inclusive.  Without limiting the foregoing, each fiscal year, beginning with the
fiscal year ending September 30, 2014, Executive shall be granted a stock option
to purchase at least 250,000 shares of Common Stock of the Company (subject to
adjustment for stock splits, recapitalizations and similar transactions), with
an exercise price equal to the closing stock price on the date of the grant.
Each of these stock options shall vest at a rate of 8.33% per month following
the date of grant as long as Executive continues to be an employee of or
consultant to the Company through the applicable vesting date, inclusive. In the
case of a Change in Control (as defined in Section 8 below), all of the options
shall fully vest and be immediately exercisable. The foregoing grants shall be
subject to the Company’s standard form of stock option grant agreement and the
Company’s then existing stock plan.
 
4.3 EXPENSES.  The Company shall reimburse Executive for all reasonable and
documented expenses incurred and paid by Executive in the course of the
performance of his duties pursuant to this Agreement in accordance with the
Company’s customary reimbursement policies.
 
4.4 FRINGE BENEFITS.  Executive shall be entitled to continue to participate in
or receive benefits under all of the Company’s employee benefits plans and
arrangements in effect on the date hereof or plans or arrangements providing
Executive with at least equivalent benefits thereunder, subject in each case to
any eligibility requirements. The Company agrees that, without Executive’s
consent, it will not make any changes in such plans or arrangements which would
materially adversely affect Executive’s rights or benefits thereunder unless
such changes affect all participants in such plans or with such arrangements on
a proportionate basis.  Executive shall be entitled to participate in or receive
benefits under any pension plan, profit-sharing plan, savings plan, stock option
plan, life insurance, disability insurance, health-and-accident plan or
arrangement made available by the Company in the future to its executives and
key management employees, subject to and on a basis consistent with the terms,
conditions and overall administration of such plans and arrangements. Nothing
paid to Executive under any plan or arrangement presently in effect or made
available in the future shall be deemed to be in lieu of compensation to
Executive hereunder.  The Company shall consider procuring and maintaining, on
behalf of Executive, (i) a supplemental term life insurance policy with
Executive as beneficiary, that will pay Executive’s estate a death benefit of at
least two times the amount of the Base Salary, and (ii) a disability program or
insurance policy with Executive as beneficiary, that will pay Executive a
benefit of at least at least 75% of the amount of the Base Salary in the event
that Executive is terminated due to disability in accordance with Section 6.2
below. Executive agrees to use his best efforts to cooperate in applying for and
procuring any such life insurance and disability policies, including submitting
to physical examinations and taking such other actions as may be necessary to
obtain such policies.
 
4.5 VACATIONS. Executive shall be entitled to the number of paid vacation days
in each calendar year determined by the Board from time to time for its senior
executive officers (prorated in any calendar year during which Executive is
employed by the Company for less than the entire such year in accordance with
the number of days in such calendar year during which he is so employed).
Executive shall also be entitled to all paid holidays given by the Company to
its senior executive officers.
 
4.6 PERQUISITES. Executive shall be entitled to continue to receive the fringe
benefits appertaining to the office of President and CEO of the Company in
accordance with present practice.
 
4.7 CORPORATE PARTNERSHIP OR SALE OF THE COMPANY. If there is a Corporate
Partnership or a Change in Control (each as defined below) during the Employment
Period, then Executive shall be entitled to receive a bonus of not less than
$250,000 upon the execution and delivery of a definitive and enforceable
agreement representing the earliest to occur of a Corporate Partnership or a
Change in Control. A “Corporate Partnership” means a development or partnership
with another entity for the joint development or commercialization of any of the
Company’s owned or in-licensed patent rights, or the investment by a life
sciences company of $3 million or greater in one transaction or a series of
related transactions.
 
 
 

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5. CONFIDENTIAL INFORMATION.
 
5.1 CONFIDENTIALITY. Executive will not, either during, or for a period of eight
(8) years after, the end of the Employment Period, disclose to any third person
or use the results of the services performed by Executive pursuant to this
Agreement or any confidential or proprietary information of the Company or its
affiliates, business partners or collaborators (“Confidential Information”) for
any purpose other than the performance of the services performed by Executive
pursuant to this Agreement, without the prior written authorization of the
Company. This obligation shall not apply to information that:
 
(a) is now, or hereafter becomes, through no act or failure to act on the part
of Executive, generally known or available;
 
(b) is known by Executive at the time of receiving such information;
 
(c) is hereafter furnished to Executive by a third party, which did not acquire
such information directly or indirectly from the Company;
 
(d) is independently developed by Executive without use or knowledge of such
information; or
 
(e) is required by law, or order of any court or governmental authority to be
disclosed by Executive; in such event, however, Executive must give the Company
sufficient advance written notice to permit it to seek a protective order or
other similar order with respect to such information and Executive may disclose
only the minimum information required to be disclosed in order to comply,
whether or not a protective order or similar order is obtained.
 
For purposes of this Section  5, “Confidential Information” includes, without
limitation, the results of the services performed by Executive pursuant to this
Agreement and the structure and activity of chemical compositions, know-how,
data, process, technique, formula work-in-process, patent applications,
marketing methods and plans, pricing information, manufacturing or engineering
information and any other unpublished information related to the business or
financial condition of the Company and its affiliates, business partners and
collaborators.
 
6. TERMINATION.
 
6.1 DEATH. Executive’s employment hereunder shall terminate upon his death.
 
6.2 DISABILITY. If, as a result of Executive’s incapacity due to physical or
mental illness, Executive shall have been absent from his duties hereunder on a
full time basis for one hundred twenty (120) consecutive business days, and
within thirty (30) days after written notice of termination is given shall not
have returned to the performance of his duties hereunder on a full time basis,
the Company may terminate Executive’s employment hereunder.
 
6.3 CAUSE. The Company may terminate Executive’s employment hereunder for Cause.
For purposes of this Agreement, “Cause” shall be defined as any of the
following; provided, however, that the Board by a duly adopted resolution has
determined the presence of such cause in good faith: (i) Executive’s material
breach of any of his duties or responsibilities under this Agreement; or (ii)
Executive’s commission of an act of fraud or willful misconduct or gross
negligence in the performance of his duties or responsibilities. For purposes of
this Section 6.3, no act, or failure to act, on Executive’s part shall be
considered “willful” unless done, or omitted to be done, by him not in good
faith and without reasonable belief that his action or omission was in the best
interests of the Company.
 
Notwithstanding the foregoing, Executive shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to
Executive a copy of a resolution, duly adopted by the affirmative vote of not
less than two-thirds of the entire membership of the Board at a meeting of the
Board called and held for the purpose (after reasonable notice to Executive and
an opportunity for him, together with his counsel, to be heard before the
Board), finding that in the good faith opinion of the Board, Executive engaged
in conduct set forth above in clause (i) or (ii) and specifying the particulars
thereof in detail.
 
 
 

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6.4 TERMINATION BY EXECUTIVE. Executive may terminate his employment hereunder
(i) for Good Reason, (ii) if his health should become impaired to an extent that
makes the continued performance of his duties hereunder hazardous to his
physical or mental health or his life, or (iii) at any time by giving six
months’ written notice to the Company of his intention to terminate. For
purposes of this Agreement, “Good Reason” shall mean (A) any material reduction
in Executive’s authority, duties or responsibilities, except in connection with
termination of Executive’s employment for Cause, (B) so long as the BARDA
Contract remains in effect and the Company is continuing to receive
reimbursement thereunder, a reduction by 1% or more of Executive’s Base Salary
or a material reduction in Executive’s fringe benefits or (C) any material
breach of this Agreement by the Company.
 
6.5 NOTICE OF TERMINATION. Any termination by the Company pursuant to Section
6.3 above or by Executive pursuant to Section 6.4 above shall be communicated by
written Notice of Termination to the other party hereto. For purposes of this
Agreement, a “Notice of Termination” shall mean a notice which shall indicate
the specific termination provision in this Agreement relied upon and shall set
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of Executive’s employment under the provision so
indicated.
 
6.6 DATE OF TERMINATION. “Date of Termination” shall mean (i) if Executive’s
employment is terminated by his death, the date of his death, (ii) if
Executive’s employment is terminated pursuant to Section 6.2 above, thirty (30)
days after Notice of Termination is given (provided that Executive shall not
have returned to the performance of his duties on a full-time basis during such
thirty (30) day period), (iii) if Executive’s employment is terminated pursuant
to Section 6.3 or clause (iii) of Section 6.4 above, the date specified in the
Notice of Termination, or (iv) if Executive’s employment is terminated for any
other reason, the date on which a Notice of Termination is given; provided that
if within sixty (60) days after a Notice of Termination is given the party
receiving such Notice of Termination notifies the other party that a dispute
exists concerning the termination, the Date of Termination shall be the date on
which the dispute is finally determined, either by mutual written agreement of
the parties, by a binding and final arbitration award or by a final judgment,
order or decree of a court of competent jurisdiction (the time for appeal
therefrom having expired and no appeal having been perfected).
 
7. COMPENSATION UPON TERMINATION, DEATH OR DURING DISABILITY.
 
7.1 DEATH. If Executive’s employment shall be terminated by reason of his death,
the Company shall pay to such person as he shall designate in a notice filed
with the Company, or, if no such person shall be designated, to his estate as a
death benefit, an amount equal to his Base Salary through the Date of
Termination at the rate in effect at the time of his death and the Company shall
have no further obligations to Executive under this Agreement.
 
7.2 DISABILITY. During any period that Executive fails to perform his duties
hereunder as a result of incapacity due to physical or mental illness, Executive
shall continue to receive his full Base Salary and incentive compensation until
Executive’s employment is terminated pursuant to Section 6.2 above, or until
Executive terminates his employment pursuant to clause (ii) of Section 6.4
above, whichever first occurs. After termination, the Company shall pay
Executive an amount equal to his Base Salary through the Date of Termination at
the rate in effect at the time of his incapacity and the Company shall have no
further obligations to Executive under this Agreement.
 
7.3 CAUSE. If Executive’s employment shall be terminated for Cause, the Company
shall pay Executive his full Base Salary through the Date of Termination at the
rate in effect at the time Notice of Termination is given and the Company shall
have no further obligations to Executive under this Agreement.
 
7.4 OTHER.
 
(a) If the Company shall terminate Executive’s employment other than pursuant to
Sections 6.1, 6.2 or 6.3 above, and the Company has not provided Executive with
a Non-Renewal Notice in accordance with Section 3 hereof, then the Company shall
pay to Executive in cash a severance benefit equal to the sum of A+B, whereby
“A” is the Executive’s Base Salary at the rate in effect as of the date of
termination, and “B” is the average of the annual bonus(es) paid, if any, to
Executive during the two (2) full years immediately preceding the year in which
the date of termination occurs. Such amount shall be paid in installments over
twelve (12) months in accordance with the Company’s normal payroll payment
practices and, subject to Section 7.6 below, commencing within thirty (30) days
following Executive’s termination of employment; provided that prior to then
Executive has executed and delivered to the Company a general release and waiver
agreement in favor of the Company in a form acceptable to the Company (a
“General Release”) that has become irrevocable pursuant to its terms. However,
if such thirty (30)-day period begins in one calendar year and ends in another
calendar year, payments will commence in the second calendar year. If Executive
becomes (or would become) entitled to any payment under this Section 7.4(a)
pursuant to a Change in Control or otherwise, the Company shall vest, effective
as of immediately prior to such Change in Control or such other event that would
entitle Executive to a payment under this Section 7.4(a), all of Executive’s
stock options and other equity awards (if any).
 
 
 

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(b) If the Company provides Executive with a Non-Renewal Notice in accordance
with Section 3 hereof, other than pursuant to Sections 6.1, 6.2 or 6.3 above,
then the Company shall pay to Executive in cash a severance benefit equal to the
product of (I) the sum of A+B, whereby “A” is the Executive’s Base Salary at the
rate in effect as of the date the Non-Renewal Notice is delivered, and “B” is
the average of the annual bonus(es) paid, if any, to Executive during the two
(2) full years immediately preceding the year in which the Non-Renewal Notice is
delivered, multiplied by (II) (y) the number of days between the one-year
anniversary of the date of the Non-Renewal Notice and the last day of the
Employment Period in which the Non-Renewal Notice is delivered in accordance
with Section 3 hereof (the “Difference”), divided by (z) 365. Such amount shall
be paid in installments over the number of months obtained by dividing the
Difference by thirty (30) (rounded up to the nearest whole month) in accordance
with the Company’s normal payroll payment practices and, subject to Section 7.6
below, commencing within thirty (30) days following Executive’s termination of
employment; provided that prior to then Executive has executed and delivered to
the Company a General Release that has become irrevocable pursuant to its terms.
However, if such thirty (30)-day period begins in one calendar year and ends in
another calendar year, payments will commence in the second calendar year. If
Executive becomes (or would become) entitled to any payment under this Section
7.4(b) pursuant to a Change in Control or otherwise, the Company shall vest,
effective as of immediately prior to such Change in Control or such other event
that would entitle Executive to a payment under this Section 7.4(b), all of
Executive’s stock options and other equity awards (if any).
 
(c) If Executive shall terminate his employment pursuant to clause (i) of
Section 6.4 above, then the Company shall pay to Executive in cash a severance
benefit equal to the sum of A+B, whereby “A” is the Executive’s Base Salary at
the rate in effect as of the date of termination, and “B” is the average of the
annual bonus(es) paid, if any, to Executive during the two (2) full years
immediately preceding the year in which the date of termination occurs. Such
amount shall be paid in installments over twelve (12) months in accordance with
the Company’s normal payroll payment practices and, subject to Section 7.6
below, commencing within thirty (30) days following Executive’s termination of
employment; provided that prior to then Executive has executed and delivered to
the Company a General Release that has become irrevocable pursuant to its terms.
However, if such thirty (30)-day period begins in one calendar year and ends in
another calendar year, payments will commence in the second calendar year. If
Executive becomes (or would become) entitled to any payment under this Section
7.4(c) pursuant to a Change in Control or otherwise, the Company shall vest,
effective as of immediately prior to such Change in Control or such other event
that would entitle Executive to a payment under this Section 7.4(c), all of
Executive’s stock options and other equity awards (if any).
 
7.5 EMPLOYEE BENEFIT PLANS.
 
(a) Unless Executive’s employment is terminated pursuant to Section 6.3  above,
contingent upon Executive executing and delivering to the Company a General
Release, the Company shall maintain in full force and effect, for the continued
benefit of Executive for the full term of this Agreement all employee benefit
plans and programs in which Executive was entitled to participate immediately
prior to the Date of Termination; provided that Executive’s continued
participation is possible under the general terms and provisions of such plans
and programs.
 
(b) In the event that Executive’s participation in any such plan or program is
barred, contingent upon Executive executing and delivering to the Company a
General Release, the Company shall reimburse expenses actually incurred by
Executive during such period to obtain similar coverage, but only to the extent
Executive’s requested reimbursement of expenses for similar coverage does not
exceed the Company’s premiums or contributions that the Company would otherwise
pay under the terms of this Agreement as of the date of Executive’s termination,
or date of payment if later, to continue Executive’s participation in the
underlying plan for the period the expenses were incurred by Executive. Expenses
reimbursable under this  Section 7.5(b) shall be reimbursed within thirty (30)
days following Executive’s submission to the Company of the reimbursement
request and supporting documentation reasonably requested by the Company and in
no event later than the end of the calendar year following the calendar year in
which the expenses were incurred by Executive. The expenses eligible for
reimbursement under this Section 7.5(b) during any calendar year shall not
affect the expenses eligible for reimbursement under this Section 7.5(b) in any
other calendar year.
 
 
 

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7.6 CODE SECTION 409A COMPLIANCE. Notwithstanding anything in this Section 7 to
the contrary, if any benefit or amount payable to Executive under this Section 7
on account of Executive’s termination of employment constitutes “nonqualified
deferred compensation” within the meaning of Section 409A of the Internal
Revenue Code of 1986, as amended (the “Code”), or successor provision (“409A”),
payment of such benefit or amount shall commence when Executive incurs a
“separation from service” within the meaning of Treasury Regulation Section
1.409A-1(h), which provides that a separation from service will be deemed to
occur if the Company and Executive reasonably anticipate that Executive shall
perform no further services for the Company and any entity that would be
considered a single employer with the Company under Code Section 414(b) or
414(c) (whether an employee or an independent contractor) or that the level of
bona fide services Executive will perform in the future (whether as an employee
or an independent contractor) will permanently decrease to no more than 49
percent of the average level of bona fide services performed (whether as an
employee or independent contractor) over the immediately preceding 36-month
period. Such payments or benefits shall be provided in accordance with the
timing provisions of this Section 7 by substituting the references to
“termination of employment” or “termination” with “separation from service”;
however, if at the time Executive incurs a separation from service, Executive is
a “specified employee” within the meaning of 409A, any benefit or amount payable
to Executive under this Section 7 on account of Executive’s termination of
employment that constitutes nonqualified deferred compensation subject to 409A
shall be delayed until the first day of the seventh month following Executive’s
separation from service (the “409A Suspension Period”). Within  fourteen (14)
days after the end of the 409A Suspension Period, the Company shall pay to
Executive (or his estate or beneficiary, as applicable) a lump sum payment in
cash equal to any payments (including interest on any such payments, at an
interest rate of not less than the average prime interest rate, as published in
the Wall Street Journal, over the 409A Suspension Period) that the Company would
otherwise have been required to provide under this Section 7 but for the
imposition of the 409A Suspension Period. Thereafter, Executive shall receive
any remaining payments due under this Section 7 in accordance with the terms of
this Section 7 (as if there had not been any suspension period beforehand). For
purposes of this Agreement, each payment that is part of a series of installment
payments shall be treated as a separate payment for purposes of 409A.
Notwithstanding anything in this Agreement to the contrary, all reimbursements
and in-kind benefits provided under this Agreement shall be made in accordance
with the following requirements of 409A: (i) the reimbursement of eligible
expenses will be made no later than the end of the calendar year following the
calendar year in which the expenses were incurred by Executive; (ii) the amount
of expenses eligible for reimbursement, or in-kind benefits provided, during a
calendar year may not affect the expenses eligible for reimbursement or in-kind
benefits to be provided in any other calendar year; and (iii) any right to
reimbursement of eligible expenses or in-kind benefits is not subject to
liquidation or exchange for any other benefit. In addition, notwithstanding
anything in this Agreement to the contrary, reimbursement of expenses incurred
due to a tax audit or litigation addressing the existence or amount of a tax
liability must be made by the end of Executive’s taxable year following
Executive’s taxable year in which the taxes that are subject to the audit or
litigation are remitted to the related taxing authority, or where as a result of
such audit or litigation no taxes are remitted, the end of Executive’s taxable
year following the taxable year in which the audit is completed or there is a
final and non-appealable settlement or other resolution of the litigation.
 
8. CHANGE IN CONTROL OF THE COMPANY. For purposes of this Agreement, a “Change
in Control” shall be deemed to have occurred at such time as:
 
(a) any person or more than one person acting as a group within the meaning of
Treasury Regulation § 1.409A-3(i)(5)(v)(B) acquires (or has acquired during the
twelve (12) month period ending on the date of the most recent acquisition by
such person or persons) beneficial ownership, as determined under the
constructive ownership rules of Code Section 318(a), shares of capital stock of
the Company entitling such person or persons to exercise more than 50% of the
total voting power of all voting shares of the Company; or
 
 
 

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(b) any person or more than one person acting as a group within the meaning of
Treasury Regulation § 1.409A-3(i)(5)(v)(B) acquires (or has acquired during the
twelve (12) month period ending on the date of the most recent acquisition by
such person or persons) assets of the Company that have a total fair market
value equal to or more than 40% of the total gross fair market value of all the
assets of the Company immediately before such acquisition or acquisitions as
determined under Treasury Regulation § 1.409A-3(i)(5)(vii).
 
9. BINDING AGREEMENTS. This Agreement and all rights of Executive hereunder
shall inure to the benefit of and be enforceable by Executive’s personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
 
10. NON-WAIVER OF RIGHTS. The failure to enforce, at any time, any of the
provisions of this Agreement, or to require, at any time, performance by the
other party of any of the provisions hereof shall in no way be construed to be a
waiver of such provision or to affect either the validity of this Agreement, or
any part hereof, or the right of either party thereafter to enforce each and
every provision in accordance with the terms of this Agreement.
 
11. INVALIDITY OF PROVISIONS. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other provisions
hereof, and this Agreement shall be construed in all respects as if such invalid
or unenforceable provisions were omitted.
 
12. ASSIGNMENTS. This Agreement is binding upon the parties hereto and their
respective successors, assigns, heirs and personal representatives. Except as
otherwise provided herein, neither of the parties hereto may make any assignment
of this Agreement, or any interest herein, without the prior written consent of
the other party, except that, without such consent, this Agreement shall be
assigned to any corporation or entity which shall succeed to the business
presently being operated by the Company, by operation of law or otherwise,
including by dissolution, merger, consolidation, transfer of assets, or
otherwise.
 
13. COUNTERPARTS. This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
 
14. AMENDMENTS. No modification, amendment or waiver of any of the provisions of
this Agreement shall be effective unless in writing specifically referring
hereto, and signed by the parties hereto.
 
15. NOTICES. For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
certified mail, return receipt requested, postage prepaid, addressed as follows:
 
 
 

   If to Executive:    John McManus    c/o Aeolus Pharmaceuticals, Inc.    26361
Crown Valley Parkway, Suite 150    Mission Viejo, CA 92691        If to the
Company:    Aeolus Pharmaceuticals, Inc.    26361 Crown Valley Parkway, Suite
150    Mission Viejo, CA 92691    Attention: Chairman of the Compensation
Committee of the Board of Directors

 
or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
 
16. SURVIVAL. Sections 4.3, 5, 7, 9-12, 14-15 and 17 of this Agreement, and this
Section 16 (and the defined terms used in each of the foregoing Sections), shall
survive termination or expiration of this Agreement for any reason.
 
17. ARBITRATION. Any controversy or claim arising out of or relating to this
Agreement or the making, performance or interpretation thereof shall be settled
by arbitration in Orange County, California, in accordance with the Rules of the
American Arbitration Association then existing, and judgment on the arbitration
award may be entered in any court having jurisdiction over the subject matter of
the controversy. Arbitrators shall be persons experienced in negotiating, making
and consummating employment matters. Notwithstanding the pendency of any such
dispute or controversy, the Company should continue to pay Executive his full
compensation in effect when the notice giving rise to the dispute was given
(including, but not limited to, base salary and any bonus due) and continue
Executive as a participant in all compensation, benefit and insurance plans in
which Executive was participating when the notice giving rise to the dispute was
given, until the dispute is finally resolved. Amounts paid under this section
are in addition to all other amounts due under this Agreement and shall not be
offset against or reduce any other amounts due under this Agreement. Judgment
may be entered on the arbitrator’s award in any court having jurisdiction;
provided, however, that Executive shall be entitled to seek specific performance
of his right to be paid during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
 
 
 
 

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18. ENTIRE AGREEMENT. This Agreement supersedes all prior employment agreements,
both written and oral, between the Company and Executive; and the Prior
Agreement is amended and restated in its entirety as set forth in this
Agreement.
 
19. INTERPRETATION. This Agreement shall in all respects be interpreted,
construed and governed by and in accordance with the laws of the State of
California, without regard to conflicts of laws principles.
 
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IN WITNESS WHEREOF, the Company has caused this Agreement to be signed by its
duly authorized officer and Executive has signed this Agreement.
 
AEOLUS PHARMACEUTICALS, INC.

           By: /s/ David Cavalier                            Name: David
Cavalier           Title: Chairman        EXECUTIVE        /s/ John L.
McManus                     John L. McManus        

 
 

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