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Exhibit 10.1
 
 
 
AEOLUS PHARAMACEUTICALS, INC.

 
SECURITIES PURCHASE AGREEMENT

 
This Securities Purchase Agreement (this “Agreement”) is dated as of February
19, 2013, between Aeolus Pharmaceuticals, Inc., a Delaware corporation (the
“Company”), and each of the purchasers identified on the signature pages hereto
(each, a “Purchaser” and collectively, the “Purchasers”).
 
WHEREAS, subject to the terms and conditions set forth in this Agreement and
pursuant to Section 4(2) of the Securities Act of 1933, as amended (the
“Securities Act”), and Rule 506 as promulgated by the U.S. Securities and
Exchange Commission (the “Commission”) under the Securities Act, the Company
desires to issue and sell to each Purchaser, and each Purchaser, severally and
not jointly, desires to purchase from the Company, the number of units (the
“Units”) set forth beneath such Purchaser’s name on the signature pages hereof,
with each unit consisting of (i) one (1) share of common stock, par value $0.01
per share (the “Common Shares”), and (ii) a warrant to purchase one (1) share of
Common Stock (each, a “Warrant” and collectively, the “Warrants”), as more fully
described in this Agreement (the “Offering”); and
 
WHEREAS, contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement,
substantially in the form attached hereto as Exhibit A (the “Registration Rights
Agreement”), pursuant to which the Company will agree to provide certain
registration rights with respect to the Registrable Securities (as defined in
the Registration Rights Agreement) under the Securities Act and the rules and
regulations promulgated thereunder, and applicable state securities laws.
 
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and each of the
Purchasers agree as follows:
 
ARTICLE I.
DEFINITIONS
 
1.1   Definitions.  In addition to the terms defined elsewhere in this Agreement
(including in the preamble and recitals above), for all purposes of this
Agreement, the following terms have the meanings set forth in this Section 1.1:
 
“Affiliate” means any Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with a
Person as such terms are used in and construed under Rule 405 under the
Securities Act.
 
“Board of Directors” means the board of directors of the Company.
 
“Closing” means the closing of the purchase and sale of the Units pursuant to
Section 2.1.
 
 
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“Closing Date” means the Trading Day on which this Agreement has been executed
and delivered by the parties hereto, and all conditions precedent to (i) the
Purchaser’s obligations to pay the Subscription Amount and (ii) the Company’s
obligations to deliver the securities comprising the Units, in each case, have
been satisfied or waived.
 
“Common Shares” means the shares of Common Stock issued to the Purchasers
pursuant to this Agreement.
 
“Common Stock Equivalents” means, collectively, Options and Convertible
Securities.
 
“Convertible Securities” means any stock or securities (other than Options)
convertible into or exercisable or exchangeable for shares of Common Stock.
 
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.
 
“Liens” means any lien, charge, security interest, encumbrance, right of first
refusal, preemptive right or other restriction, other than restrictions imposed
by securities laws.
 
“Options” means any rights, warrants or options to subscribe for or purchase
shares of Common Stock or Convertible Securities.
 
“Per Unit Purchase Price” equals $0.25.
 
“Person” means an individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or subdivision thereof) or other entity
of any kind.
 
“Principal Market” means the OTC Bulletin Board of the Financial Industry
Regulatory Authority, Inc.
 
“Securities Act” means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
 
“Short Sales” means all “short sales” as defined in Rule 200 of Regulation SHO
under the Exchange Act (but shall not be deemed to include the location and/or
reservation of borrowable shares of Common Stock).
 
“Subscription Amount” means the aggregate amount to be paid for the Units
purchased hereunder as specified beneath each Purchaser’s name on the signature
page of this Agreement and next to the heading “Subscription Amount,” in United
States dollars and in immediately available funds.
 
“Trading Day” means a day on which the Principal Market is open for trading.
 
“Transaction Documents” means this Agreement and the schedules and exhibits
attached hereto, the Registration Rights Agreement and the schedules and
exhibits attached thereto, the Warrants and any other agreement, instrument, and
other document executed and delivered pursuant hereto or thereto.
 
 
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ARTICLE II.
PURCHASE AND SALE
 
2.1 Authorization of Securities; Closing.
 
(a) Authorization.  The Company has duly authorized the issuance and sale at the
Closing of up to (i) 12,900,000 Units at the Per Unit Purchase Price for an
aggregate purchase price of up to $3,225,000, (ii) up to 12,900,000 Common
Shares to be issued as part of the Units, (iii) Warrants to purchase an
aggregate of up to 12,900,000 shares of Common Stock, substantially in the form
attached hereto as Exhibit B, and (iv) up to 12,900,000 shares of Common Stock
issuable upon the exercise of the Warrants (collectively, the “Warrant Shares”,
and together with the Common Shares and the Warrants, the “Securities”).
 
(b) Closing.  On the Closing Date, upon the terms and subject to the conditions
set forth herein, substantially concurrently with the execution and delivery of
this Agreement by the parties hereto, the Company shall sell, and each Purchaser
shall purchase, the number of Units specified beneath each such Purchaser’s name
on the signature pages hereto.  At the Closing, each Purchaser shall deliver to
the Company, via wire transfer of immediately available funds, an amount equal
to such Purchaser’s Subscription Amount as set forth beneath such Purchaser’s
name on the signature page hereto, and the Company shall deliver to such
Purchaser the securities represented by the Units so purchased, and the Company
and the Purchaser shall deliver the other items set forth in Section 2.2
deliverable at the Closing.  Upon satisfaction of the covenants and conditions
set forth in Sections 2.2 and 2.3, the Closing shall occur at the offices of the
Company or such other location as the parties shall mutually agree.
 
2.2          Deliveries.
 
(a) On or prior to the Closing Date, the Company shall deliver or cause to be
delivered to each Purchaser (or any appointed representative of such Purchaser)
the following:
 
(i) this Agreement, duly executed by the Company;
 
(ii) A duly executed stock certificate representing the Common Shares purchased
hereunder;
 
(iii) The Warrants purchased hereunder, duly executed by the Company;
 
(iv) the Registration Rights Agreement, duly executed by the Company;
 
(v) a certificate of the Company signed by its President and Chief Executive
Officer and dated as of the Closing Date, stating that the conditions in Section
2.3(b)(i) have been satisfied; and
 
(vi) a certificate of the Company’s Secretary, dated as of the Closing Date,
certifying (A) the Company’s certificate of incorporation and bylaws, as then in
effect and attached thereto, (B) the resolutions adopted by the Company’s Board
of Directors authorizing the transactions contemplated hereby and attached
thereto, and (C) as to the signatures and authority of Persons signing the
Transaction Documents and related documents on behalf of the Company.
 
 
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(b) On or prior to the Closing Date, each of the Purchasers shall deliver or
cause to be delivered to the Company:
 
(i) this Agreement, duly executed by the Purchaser;
 
(ii) the Purchaser’s Subscription Amount by wire transfer of immediately
available funds to the account as specified in writing by the Company;
 
(iii) The Warrants, duly executed by such Purchaser;
 
(iv) the Registration Rights Agreement, duly executed by the Purchaser; and
 
(v) a fully completed and duly executed Selling Stockholder Questionnaire,
reasonably satisfactory in form and substance to the Company and its counsel.
 
2.3   Closing Conditions.
 
(a)           The obligations of the Company hereunder in connection with the
Closing are subject to the following conditions being met by each Purchaser or
waived by the Company:
 
(i) each of the representations and warranties of the Purchasers contained
herein shall be true and correct in all respects (in the case of any
representation or warranty containing a materiality or Material Adverse Effect
qualification) or in all material respects (in the case of any representation or
warranty not containing a materiality or Material Adverse Effect qualification)
at the Closing Date as if made on and as of such date, and all covenants and
agreements contained herein to be performed on the part of the Purchasers and
all conditions contained herein to be fulfilled or complied with by the
Purchasers at or prior to the Closing Date shall have been duly performed,
fulfilled or complied with; and
 
(ii) the delivery by the Purchaser of the items set forth in Section 2.2(b) of
this Agreement.
 
(b) The obligations of each Purchaser hereunder in connection with the Closing
are subject to the following conditions being met by the Company or waived by
such Purchaser:
 
(i) each of the representations and warranties of the Company contained herein
shall be true and correct in all respects (in the case of any representation or
warranty containing a materiality or Material Adverse Effect qualification) or
in all material respects (in the case of any representation or warranty not
containing a materiality or Material Adverse Effect qualification) at the
Closing Date as if made on and as of such date (except for representations and
warranties that speak as of a specific date which shall be true and correct as
of such specified date), and all covenants and agreements contained herein to be
performed on the part of the Company and all conditions contained herein to be
fulfilled or complied with by the Company at or prior to the Closing Date shall
have been duly performed, fulfilled or complied with, unless such conditions
have been waived;
 
 
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(ii) the delivery by the Company of the items set forth in Section 2.2(a) of
this Agreement;
 
(iii) there shall have been no Material Adverse Effect with respect to the
Company since the date hereof;
 
(iv) from the date hereof to the Closing Date, trading in the Common Stock shall
not have been suspended by the Commission or the Principal Market (except for
any suspension of trading of limited duration agreed to by the Company, which
suspension shall be terminated prior to the Closing), and, at any time prior to
the Closing Date, trading in securities generally shall not have been suspended
or limited, or minimum prices shall not have been established on the New York
Stock Exchange, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq
Global Select Market, or in the over-the-counter market, nor shall a banking
moratorium have been declared either by the United States or New York State
authorities nor shall there have occurred any material outbreak or escalation of
hostilities or other national or international calamity of such magnitude in its
effect on, or any material adverse change in, any financial market which, in
each case, in the reasonable judgment of the Purchasers, makes it impracticable
or inadvisable to purchase the Securities at the Closing;
 
(v) no statute, rule, regulation, executive order, decree, ruling or injunction
will have been enacted, entered, promulgated or endorsed by or in any court or
governmental authority of competent jurisdiction or any self-regulatory
organization having authority over the matters contemplated hereby which
prohibits the consummation of any of the transactions contemplated by this
Agreement or the Registration Rights Agreement, and which could, individually or
in the aggregate, have a Material Adverse Effect; and
 
(vi) the Company and each of Xmark JV Investment Partners, LLC, Xmark
Opportunity Fund, Ltd. and Xmark Opportunity Fund, L.P. (collectively, the
“Xmark Entities”) shall amend the outstanding warrants to purchase an aggregate
of up to 59,149,999 shares of Common Stock held by the Xmark Entities (the
“Xmark Warrants”) to reduce the exercise price thereunder to $0.01 per share and
each of the Xmark Entities shall have exercised all such warrants and entered
into a lock-up agreement with respect to such shares in the form attached hereto
as Exhibit C.
 
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
 
3.1 Representations and Warranties of the Company.  Except as set forth in any
of the SEC Reports (as defined in Section 3.1(g) below) or any documents
incorporated by reference therein, which such filings, writings and documents
shall qualify such representations and warranties in their entirety to the
extent of the disclosures contained therein, the Company hereby makes the
following representations and warranties to each Purchaser:
 
 
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(a) Organization and Qualification.  Each of the Company and its subsidiaries is
an entity duly incorporated or otherwise organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
organization, with the requisite power and authority to own and use its
properties and assets and to carry on its business as currently conducted.  Each
of the Company and its subsidiaries is duly qualified as a foreign entity to do
business and is in good standing in each jurisdiction in which its ownership of
property or the nature of the business conducted by it makes such qualification
necessary, except to the extent that the failure to be so qualified or be in
good standing would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
 
(b) Authorization; Enforcement.  The Company has the requisite corporate power
and authority to enter into and to consummate the transactions contemplated by
each of the Transaction Documents and otherwise to carry out its obligations
hereunder and thereunder.  The execution and delivery of each of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
action on the part of the Company and no further action is required by the
Company, the Board of Directors or the Company’s stockholders in connection
therewith, other than in connection with the Required Actions.  Each Transaction
Document to which it is a party has been (or upon delivery will have been) duly
executed by the Company and, when delivered in accordance with the terms hereof
and thereof, will constitute the valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except (i) as
limited by general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally, (ii) as limited by laws relating to
the availability of specific performance, injunctive relief or other equitable
remedies and (iii) insofar as indemnification and contribution provisions may be
limited by applicable law.
 
(c) Issuance of the Securities.  All corporate action required to be taken by
the Company for the authorization, issuance and sale of the Securities has been
duly and validly taken.  When the Common Shares and Warrant Shares have been
issued and delivered against payment therefor as provided herein, such Common
Shares and Warrant Shares when so issued and sold will be duly and validly
issued, fully paid and non-assessable and the Purchaser in whose names such
securities are registered will acquire good and valid title to such securities,
in each case free and clear of all Liens. The Company has reserved from its duly
authorized capital stock the maximum number of shares of Common Stock issuable
pursuant to this Agreement.  No further approval or authority of the Board of
Directors or the stockholders of the Company will be required for the issuance
and sale of any of the Securities, as contemplated herein.  The Warrants have
been duly and validly authorized by the Company and upon delivery to the
Purchasers at the Closing Date will be valid and binding obligations of the
Company, enforceable in accordance with their terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the rights and remedies of creditors
generally or subject to general principles of equity.
 
 
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(d) No Conflicts.  The execution, delivery and performance of the Transaction
Documents by the Company and the consummation by the Company of the transactions
contemplated hereby and thereby do not and will not:  (i) conflict with or
violate any provision of the Company’s certificate of incorporation or bylaws in
effect as of the date of execution of this Agreement, or (ii) subject to taking
the Required Actions (as defined below), conflict with, breach, or constitute a
default (or an event that with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or both) of,
any Permit (as defined below) agreement, mortgage, indenture, credit facility,
indebtedness or other instrument (evidencing a Company indebtedness or
otherwise) or other understanding to which the Company is a party or by which
any property or asset of the Company is bound or affected, or (iii) result in a
violation of any law, rule, regulation, order, judgment, injunction, decree or
other restriction of any court or governmental authority to which the Company is
subject (including federal and state securities laws and regulations), or by
which any property or asset of the Company is bound or affected, except in the
case of each of clauses (ii) and (iii) immediately above, such as would not,
individually or in the aggregate: (a) adversely affect the legality, validity or
enforceability of any of the Transaction Documents, (b) reasonably be expected
to have or result in a material adverse effect on the results of operations,
assets, business, operations or financial condition of the Company and its
subsidiaries, taken as a whole, or (c) adversely impair the Company’s ability to
perform in any material respect on a timely basis its obligations under any
Transaction Document (any of foregoing clauses (a), (b) or (c), a “Material
Adverse Effect”).
 
(e) No Violation.  Neither the Company nor any of its subsidiaries is (i) in
violation of its certificate of incorporation or bylaws in effect as of the date
of execution of this Agreement, or (ii) in default in the performance or
observance of any material obligation, agreement, covenant or condition
contained in any agreement, mortgage, indenture, credit facility, indebtedness
or other instrument (evidencing a Company indebtedness or otherwise) or other
understanding to which the Company or any of its subsidiaries is a party or by
which any property or asset of the Company or any of its subsidiaries is bound
or affected, or (iii) in violation of any statute, rule, ordinance or regulation
of any governmental authority, including without limitation all foreign,
federal, state and local laws applicable to its business, except, in the case of
each of clauses (ii) and (iii) immediately above, such as would not,
individually or in aggregate, have a Material Adverse Effect.
 
(f) Filings and Consents.  The Company is not required to obtain any consent,
waiver, authorization or order of, give any notice to, or make any filing or
registration with, any court or other federal, state, local or other
governmental authority or other Person in connection with the execution,
delivery and performance by the Company of the Transaction Documents, other
than: (i) the filing of a Form 8-K disclosing the transactions contemplated
hereby (the “Form 8-K Filing”), (ii) the filing with the Commission of a Notice
of Exempt Offering of Securities on Form D, (iii) applicable state securities
filings, and (iv) the filing with the Commission of one or more Registration
Statements in accordance with the requirements of the Registration Rights
Agreement (collectively, the actions and/or approvals specified in subclauses
(i)-(iv) immediately above are referred to herein as the “Required Actions”).
 
 
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(g) SEC Reports.  The Company has filed all reports, schedules, forms,
statements and other documents required to be filed by the Company under the
Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the two
years preceding the date hereof (the foregoing materials, including the exhibits
thereto and documents incorporated by reference therein, being collectively
referred to herein as the “SEC Reports”) on a timely basis or has received a
valid extension of such time of filing and has filed any such SEC Reports prior
to the expiration of any such extension.  Other than as disclosed to the
Purchasers with respect to the calculation of the Company’s fully-diluted
earnings per share, as of their respective dates, the SEC Reports complied in
all material respects with the requirements of the Exchange Act, as applicable,
and none of the SEC Reports, when filed, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. Other than as
disclosed to the Purchasers with respect to the calculation of the Company’s
fully-diluted earnings per share, the financial statements of the Company
included in the SEC Reports comply in all material respects with applicable
accounting requirements and the rules and regulations of the Commission with
respect thereto as in effect at the time of filing.  Other than as disclosed to
the Purchasers with respect to the calculation of the Company’s fully-diluted
earnings per share, such financial statements have been prepared in accordance
with United States generally accepted accounting principles applied on a
consistent basis during the periods involved (“GAAP”), except as may be
otherwise specified in such financial statements or the notes thereto and except
to the extent that unaudited financial statements may not contain all footnotes
required by GAAP, and such statements fairly present in all material respects
the financial position of the Company and its consolidated subsidiaries as of
and for the dates thereof and the results of operations and cash flows for the
periods then ended, subject, in the case of unaudited statements, to normal,
immaterial, year-end audit adjustments.  The Company’s independent registered
public accounting firm is identified in the Annual Report on Form 10-K for the
fiscal year ended September 30, 2012 (the “2012 Form 10-K”), and such accounting
firm is a registered public accounting firm as required by the Exchange Act.
 
(h) Capitalization.  The Company has not issued any capital stock since its most
recently filed periodic report under the Exchange Act, other than pursuant to
the exercise of stock options under the Company’s stock option plans, and
pursuant to the conversion and/or exercise of Common Stock Equivalents
(including the issuance of up to 59,149,000 shares of Common Stock upon exercise
of the Xmark Warrants) outstanding as of the date of the most recently filed
periodic report under the Exchange Act.  No Person has any right of first
refusal, preemptive right, right of participation, or any similar right to
participate in the transactions contemplated by the Transaction
Documents.  Except as described above and in the Company’s SEC Reports, there
are no outstanding options, warrants, scrip rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities, rights or
obligations convertible into or exercisable or exchangeable for, or giving any
Person any right to subscribe for or acquire, any shares of Common Stock, or
contracts, commitments, understandings or arrangements by which the Company or
any subsidiary is or may become bound to issue additional shares of Common Stock
or Common Stock Equivalents, other than as a result of the purchase and sale of
the Securities.  The issuance and sale of the Common Shares and the Warrant
Shares, will not obligate the Company to issue shares of Common Stock or other
securities to any Person (other than the Purchaser) and will not result in a
right of any holder of Company securities to adjust the exercise, conversion,
exchange or reset price under any of such securities. All of the outstanding
shares of capital stock of the Company are validly issued, fully paid and
nonassessable.  There are no stockholders agreements, voting agreements or other
similar agreements with respect to the Company’s capital stock to which the
Company is a party or, to the knowledge of the Company, between or among any of
the Company’s stockholders that are not described in the SEC Reports.
 
 
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(i) Sarbanes-Oxley Act Compliance.  The Company is in material compliance with
all provisions of the Sarbanes-Oxley Act of 2002 that are applicable to it as of
the Closing Date.
 
(j) No Undisclosed Liabilities.  Since the date of the latest audited financial
statements included within the SEC Reports, except as specifically disclosed in
a subsequent SEC Report filed prior to the date hereof, (i) there has been no
event, occurrence or development that has had or that could reasonably be
expected to result in a Material Adverse Effect, (ii) the Company has not
incurred any liabilities (contingent or otherwise) other than (A) trade payables
and accrued expenses incurred in the ordinary course of business consistent with
past practice and (B) liabilities not required to be reflected in the Company’s
financial statements pursuant to GAAP or disclosed in filings made with the
Commission, (iii) the Company has not altered its method of accounting, (iv) the
Company has not declared or made any dividend or distribution of cash or other
property to its stockholders or purchased, redeemed or made any agreements to
purchase or redeem any shares of its capital stock and (v) the Company has not
issued any equity securities to any officer, director or Affiliate, except
pursuant to existing Company equity incentive plans and the exercise of the
Xmark Warrants.  The Company does not have pending before the Commission any
request for confidential treatment of information.
 
(k) No Litigation.  There is no action, suit, inquiry, notice of violation,
proceeding or investigation pending or, to the knowledge of the Company,
threatened against or affecting the Company, any subsidiary or any of their
respective properties before or by any court, arbitrator, governmental or
administrative agency or regulatory authority (federal, state, county, local or
foreign) (collectively, an “Action”) which (i) adversely affects or challenges
the legality, validity or enforceability of any of the Transaction Documents or
the Securities, or (ii) could, if there were an unfavorable decision, have or
reasonably be expected to result in a Material Adverse Effect.
 
(l) Permits.  Each of the Company and its subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state, local or
foreign regulatory authorities necessary to conduct their respective businesses
as described in the SEC Reports (collectively, “Permits”), except where the
failure to possess such permits could not reasonably be expected to result in a
Material Adverse Effect, and neither the Company nor any subsidiary has received
any notice of proceedings relating to the revocation or modification of any such
Permit.
 
(m) Title to Property and Assets.  Each of the Company and its subsidiaries has
good and marketable title in fee simple to all real property described in the
SEC Reports as being owned by it, and good and marketable title to all tangible
properties and assets described in the SEC Reports as being owned by it, in each
case free and clear of all Liens, except (i) as set forth in the SEC Reports,
(ii) for Liens as do not materially affect the value of such property and do not
materially interfere with the use made and proposed to be made of such property
by the Company and its subsidiaries and (iii) Liens for the payment of federal,
state or other taxes, the payment of which is neither delinquent nor subject to
penalties. Any real property and buildings held under lease by the Company and
its subsidiaries are held by them under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the use made
and proposed to be made of such property and buildings by the Company and its
subsidiaries. The Company and its subsidiaries own or lease all such properties
as are necessary to its operations as now conducted or as proposed to be
conducted, except where the failure to so own or lease would not have a Material
Adverse Effect.
 
 
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(n) Patents and Trademarks.  Each of the Company and its Subsidiaries have, or
have rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, trade secrets, inventions, copyrights,
licenses and other intellectual property rights and similar rights necessary or
material for use in connection with their respective businesses as described in
the SEC Reports and which the failure to so have could reasonably be expected to
have a Material Adverse Effect (collectively, the “Intellectual Property
Rights”).  Neither the Company nor any subsidiary has received a notice (written
or otherwise) that any of the Intellectual Property Rights used by the Company
or any subsidiary violates or infringes upon the rights of any Person.  To the
knowledge of the Company, all such Intellectual Property Rights are enforceable
and there is no existing infringement by another Person of any of the
Intellectual Property Rights.  The Company and its Subsidiaries have taken
reasonable security measures to protect the secrecy, confidentiality and value
of all of their intellectual properties, except where the failure to do so could
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
 
(o) Insurance.  Each of the Company and its subsidiaries carries, or is covered
by, insurance from insurers of recognized financial responsibility in such
amounts and covering such risks as is customary for companies engaged in similar
businesses in similar industries.  All policies of insurance of the Company and
its subsidiaries are in full force and effect; each of the Company and its
subsidiaries is in compliance with the terms of such policies in all material
respects; and none of the Company or its subsidiaries has received notice from
any insurer or agent of such insurer that capital improvements or other
expenditures are required or necessary to be made in order to continue such
insurance; there are no claims by the Company or any of its subsidiaries under
any such policy or instrument as to which any insurance company is denying
liability or defending under a reservation of rights clause; and none of the
Company or its subsidiaries has any reason to believe that it will not be able
to renew its existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to continue
its business at a cost that could not reasonably be expected to have a Material
Adverse Effect.
 
(p) Environmental.  Each of the Company and its subsidiaries (i) is in
compliance with all applicable foreign, federal, state and local laws and
regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants (collectively, “Environmental Laws”), (ii) has received and is in
compliance with all Permits required of it under applicable Environmental Laws
to conduct its business and (iii) has not received notice of any actual or
potential liability for the investigation or remediation of any disposal or
release of hazardous or toxic substances or wastes, pollutants or contaminants,
except, in each case, where such non-compliance with Environmental Laws, failure
to receive required Permits, or liability would not, individually or in the
aggregate, have a Material Adverse Effect, whether or not arising from
transactions in the ordinary course of business. The Company has not been named
as a “potentially responsible party” under the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended.
 
 
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(q) Employee Benefit Plans.  Except as would not, individually or in the
aggregate, have a Material Adverse Effect: (i) Each “employee benefit plan”
(within the meaning of Section 3(3) of the Employee Retirement Security Act of
1974, as amended (“ERISA”)) for which the Company or any member of its
“Controlled Group” (defined as any organization which is a member of a
controlled group of corporations within the meaning of Section 414 of the
Internal Revenue Code of 1986, as amended (the “Code”)) would have any liability
(each a “Plan”) has been maintained in compliance with its terms and with the
requirements of all applicable statutes, rules and regulations including ERISA
and the Code; (ii) with respect to each Plan subject to Title IV of ERISA (a) no
“reportable event” (within the meaning of Section 4043(c) of ERISA) has occurred
or is reasonably expected to occur, (b) no “accumulated funding deficiency”
(within the meaning of Section 302 of ERISA or Section 412 of the Code), whether
or not waived, has occurred or is reasonably expected to occur, (c) the fair
market value of the assets under each Plan exceeds the present value of all
benefits accrued under such Plan (determined based on those assumptions used to
fund such Plan) and (d) neither the Company nor any member of its Controlled
Group has incurred, or reasonably expects to incur, any liability under Title IV
of ERISA (other than contributions to the Plan or premiums to the Pension
Benefit Guaranty Corporation in the ordinary course and without default) in
respect of a Plan (including a “multiemployer plan”, within the meaning of
Section 4001(c)(3) of ERISA); and (iii) each Plan that is intended to be
qualified under Section 401(a) of the Code is so qualified and nothing has
occurred, whether by action or by failure to act, which would cause the loss of
such qualification.
 
(r) Taxes.  The Company has filed all federal, state, local and foreign income
and franchise tax returns required to be filed through the date hereof, subject
to permitted extensions, and has paid all taxes due thereon, and no tax
deficiency has been determined adversely to the Company, nor does the Company
have any knowledge of any tax deficiencies that could, in the aggregate,
reasonably be expected to have a Material Adverse Effect.  There is no pending
dispute with any taxing authority relating to the Company’s payment of taxes in
any material amount except which the Company is contesting in good faith and the
Company has no knowledge of any proposed liability for any tax to be imposed
upon the properties or assets of the Company for which there is not an adequate
reserve reflected in the Company’s financial statements included in the 2012
Form 10-K.
 
(s) Transactions With Affiliates and Employees.  None of the officers or
directors of the Company and, to the knowledge of the Company, none of the
employees of the Company is presently a party to any transaction with the
Company or any subsidiary (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement providing for
the furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner, in each case in excess of $120,000
other than for (i) payment of salary or consulting fees for services rendered,
(ii) reimbursement for expenses incurred on behalf of the Company and (iii)
other employee benefits, including stock option agreements under any stock
option plan of the Company.
 
 
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(t) No General Solicitation; Certain Fees.  Neither the Company, nor any of its
subsidiaries or Affiliates, nor any Person acting on its or their behalf, has
engaged in any form of general solicitation or general advertising (within the
meaning of Regulation D) in connection with the offer or sale of the Securities.
 
(u) No Integration.  None of the Company, its subsidiaries, any of their
Affiliates, or any Person acting on their behalf has, directly or indirectly,
made any offers or sales of any security or solicited any offers to buy any
security, under circumstances that would require registration of any of the
Securities under the Securities Act, whether through integration with prior
offerings or otherwise.  None of the Company, its subsidiaries, their Affiliates
or any Person acting on their behalf will take any action or steps referred to
in the preceding sentence that would (i) require registration of any of the
Securities under the Securities Act, (ii) cause the Offering of the Securities
to be integrated with other offerings in violation of the Securities Act or
(iii) cause the sale and issuance of the Securities to be subject to any
stockholder approval requirement.
 
(v) Investment Company.  The Company is not, and, except for its affiliation
with Xmark Opportunity Partners, LLC, is not an Affiliate of, and immediately
after receipt of payment for the Securities, will not be or be an Affiliate of,
an “investment company” within the meaning of the Investment Company Act of
1940, as amended.
 
(w) Registration Rights.  Except as set forth in or contemplated by the
Registration Rights Agreement, no Person has any right to cause the Company to
effect the registration under the Securities Act of any securities of the
Company as a result of the transactions contemplated by this Agreement.
 
(x) Disclosure.  Except with respect to the material terms and conditions of the
transactions contemplated by the Transaction Documents, the Company confirms
that neither it nor any other Person acting on its behalf has provided the
Purchaser or its agents or counsel with any information that it believes
constitutes material, non-public information which is not otherwise disclosed in
the SEC Reports or will be disclosed in the Form 8-K Filing.   The Company
understands and confirms that the Purchaser will rely on the foregoing
representation in effecting transactions in securities of the Company.
 
(y) Foreign Corrupt Practices.  Neither the Company, nor to the knowledge of the
Company, any agent or other Person acting on behalf of the Company, has (i)
directly or indirectly, used any funds for unlawful contributions, gifts,
entertainment or other unlawful expenses related to foreign or domestic
political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to any foreign or domestic political
parties or campaigns from corporate funds, (iii) failed to disclose fully any
contribution made by the Company (or made by any person acting on its behalf of
which the Company is aware) which is in violation of law, or (iv) violated in
any material respect any provision of the Foreign Corrupt Practices Act of 1977,
as amended.
 
 
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(z) Brokers.  Except for Neidiger, Tucker, Bruner, Inc. and Ladenburg Thalmann &
Co. Inc., no person is entitled to any fees payable by the Company as a result
of the transactions contemplated by this Agreement.
 
(aa) OFAC.  Neither the Company nor, to the knowledge of the Company, any
director, officer, agent, employee or affiliate of the Company or any of its
subsidiaries is currently subject to any U.S. sanctions administered by the
Office of Foreign Assets Control of the U.S. Treasury Department (“OFAC”); and
the Company will not directly or indirectly use the proceeds of the offering, or
lend, contribute or otherwise make available such proceeds to any affiliate,
joint venture partner or other Person, which, to the Company's knowledge, will
use such proceeds for the purpose of financing the activities of any person
currently subject to any U.S. sanctions administered by OFAC.
 
The Purchaser acknowledges and agrees that the Company does not make and has not
made any representations or warranties with respect to the transactions
contemplated hereby other than those representations and warranties specifically
set forth in this Agreement.
 
3.2 Representations and Warranties of the Purchaser.  Each Purchaser, severally
and not jointly, represents and warrants with respect to only itself, as of the
Closing Date, that:
 
(a) Organization; Authority.  The Purchaser is either an individual or an entity
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with full right, corporate, partnership or
limited liability company power and authority to enter into and to consummate
the transactions contemplated by this Agreement and otherwise to carry out its
obligations hereunder.  The execution and delivery of the Transaction Documents
to which it is a party, and the performance by the Purchaser of the transactions
contemplated by such Transaction Documents, have been duly authorized by all
necessary corporate, partnership, limited liability company or similar action,
as applicable, on the part of the Purchaser.  Each of the Transaction Documents
to which the Purchaser is a party has been duly executed by the Purchaser, and
when delivered by the Purchaser in accordance with the terms of such Transaction
Document, will constitute the valid and legally binding obligation of the
Purchaser, enforceable against it in accordance with its terms, except: (i) as
limited by general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally, (ii) as limited by laws relating to
the availability of specific performance, injunctive relief or other equitable
remedies and (iii) insofar as indemnification and contribution provisions may be
limited by applicable law.
 
(b) No Conflicts. The execution, delivery and performance by the Purchaser of
each of the Transaction Documents to which it is a party, and the consummation
by the Purchaser of the transactions contemplated by each such Transaction
Document, do not and will not (i) conflict with or violate any provision of the
Purchaser’s certificate of incorporation, bylaws or other organizational or
charter documents, or (ii) conflict with or result in a violation of any law,
rule, regulation, order, judgment, injunction, decree or other restriction of
any court or governmental authority to which the Purchaser is subject (including
federal and state securities laws and regulations), or by which any property or
asset of the Purchaser is bound or affected.
 
 
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(c) Investment Purpose.  The Purchaser is acquiring the Securities as principal
for its own account and not with a view to or for distributing or reselling such
Securities or any part thereof in violation of the Securities Act or any
applicable state securities law, has no present intention of distributing any of
such Securities in violation of the Securities Act or any applicable state
securities law and has no direct or indirect arrangement or understandings with
any other Persons to distribute or regarding the distribution of such Securities
in violation of the Securities Act or any applicable state securities law (this
representation and warranty not limiting the Purchaser’s right to sell the
Securities or any part thereof in compliance with applicable federal and state
securities laws).  The Purchaser is acquiring the Securities hereunder in the
ordinary course of its business.
 
(d) Certain Transactions. Other than consummating the transactions contemplated
hereunder, the Purchaser has not, nor has any Person acting on behalf of or
pursuant to any understanding with the Purchaser, directly or indirectly
executed any purchases or sales, including Short Sales, of the securities of the
Company during the period commencing as of the time that the Purchaser first
became aware of the proposed transactions contemplated hereunder and ending
immediately prior to the execution hereof.  Notwithstanding the foregoing, in
the case of a Purchaser that is a multi-managed investment vehicle whereby
separate portfolio managers manage separate portions of the Purchaser’s assets
and the portfolio managers have no direct knowledge of the investment decisions
made by the portfolio managers managing other portions of the Purchaser’s
assets, the representation set forth above shall only apply with respect to the
portion of assets managed by the portfolio manager that made the investment
decision to purchase the Securities covered by this Agreement.  Other than to
other Persons party to this Agreement and its Affiliates and their respective
investment advisors, agents, counsel and other advisors, the Purchaser has
maintained the confidentiality of all disclosures made to it in connection with
this transaction (including the existence and terms of this transaction).
Notwithstanding the foregoing, for avoidance of doubt, nothing contained herein
shall constitute a representation or warranty, or preclude any actions, with
respect to the identification of the availability of, or securing of, available
shares to borrow in order to effect Short Sales or similar transactions in the
future.
 
(e) Accredited Investor Status; Reliance on Exemptions.  At the time such
Purchaser was offered the Securities, it was, and as of the date hereof it is,
and on each date on which it exercises any warrants, it will be either: (i) an
“accredited investor” as defined in Rule 501 under the Securities Act or (ii) a
“qualified institutional buyer” as defined in Rule 144A(a) under the Securities
Act.  Such Purchaser is not required to be registered as a broker-dealer under
Section 15 of the Exchange Act. Such Purchaser, either alone or together with
its representatives, has such knowledge, sophistication and experience in
business and financial matters so as to be capable of evaluating the merits and
risks of the prospective investment in the Securities and has so evaluated the
merits and risks of such investment.  Such Purchaser is able to bear the
economic risk of an investment in the Securities and, at the present time, is
able to afford a complete loss of such investment.  Such Purchaser understands
that the Securities are being offered and sold to it in reliance on specific
exemptions from the registration requirements of United States federal and state
securities laws and that the Company is relying in part upon the truth and
accuracy of, and such Purchaser’s compliance with, the representations,
warranties, agreements, acknowledgments and understandings of such Purchaser set
forth herein in order to determine the availability of such exemptions and the
eligibility of such Purchaser to acquire the Securities.
 
 
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(f) Access to Information; Independent Investigation.  Such Purchaser and its
advisors, if any, have been furnished with all materials relating to the
business, finances and operations of the Company and materials relating to the
offer and sale of the Securities that have been requested by such
Purchaser.  Such Purchaser and its advisors, if any, in acquiring the
Securities, have relied solely on their independent investigation of the Company
and have been afforded the opportunity to ask questions of the Company.  Neither
such inquiries nor any other due diligence investigations conducted by such
Purchaser or its advisors, if any, or its representatives shall modify, amend or
affect such Purchaser’s right to rely on the Company’s representations and
warranties contained herein.  Such Purchaser understands that its investment in
the Securities involves a high degree of risk.  Such Purchaser has sought such
accounting, legal and tax advice as it has considered necessary to make an
informed investment decision with respect to its acquisition of the Securities.
 
(g) Suitability of Investment.  Such Purchaser understands that no United States
federal or state agency or any other government or governmental agency has
passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
 
(h) No General Solicitation. Such Purchaser is not purchasing the Units as a
result of any advertisement, article, notice or other communication regarding
the Units published in any newspaper, magazine or similar media or broadcast
over television or radio or presented at any seminar or any other general
solicitation or general advertisement.
 
(i) Residency.  Such Purchaser is a resident of that jurisdiction specified
beneath the Purchaser’s name on the signature pages hereto.
 
(j) Transfer or Resale.  Such Purchaser understands that except as provided in
the Registration Rights Agreement: (i) the Securities have not been and are not
being registered under the Securities Act or any state securities laws, and may
not be offered for sale, sold, assigned or transferred unless (A) subsequently
registered thereunder, (B) such Purchaser shall have delivered to the Company an
opinion of counsel, in a generally acceptable form, to the effect that such
Securities to be sold, assigned or transferred may be sold, assigned or
transferred pursuant to an exemption from such registration, or (C) such
Purchaser provides the Company with reasonable assurance that such Securities
can be sold, assigned or transferred pursuant to Rule 144 or Rule 144A
promulgated under the Securities Act (or a successor rule thereto)
(collectively, “Rule 144”); (ii) any sale of the Securities made in reliance on
Rule 144 may be made only in accordance with the terms of Rule 144 and further,
if Rule 144 is not applicable, any resale of the Securities under circumstances
in which the seller (or the Person (through whom the sale is made) may be deemed
to be an underwriter (as that term is defined in the Securities Act) may require
compliance with some other exemption under the Securities Act or the rules and
regulations of the SEC thereunder; and (iii) neither the Company nor any other
Person is under any obligation to register the Securities under the Securities
Act or any state securities laws or to comply with the terms and conditions of
any exemption thereunder.  Notwithstanding the foregoing, the Securities may be
pledged in connection with a bona fide margin account or other loan or financing
arrangement secured by the Securities and such pledge of Securities shall not be
deemed to be a transfer, sale or assignment of the Securities hereunder, and no
Purchaser effecting a pledge of Securities shall be required to provide the
Company with any notice thereof or otherwise make any delivery to the Company
pursuant to this Agreement or any other Transaction Document.).
 
 
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(k) Restricted Securities.  Such Purchaser understands that the certificates or
other instruments representing the Securities shall, until such time as the
resale of the Common Shares and Warrant Shares have been registered under the
Securities Act as contemplated by the Registration Rights Agreement, shall bear
any applicable legend as required by the “blue sky” laws of any state and a
restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of such stock certificates):
 
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR APPLICABLE
STATE SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT, OR (B) AN OPINION OF
COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER
SAID ACT (II) UNLESS SOLD OR TRANSFERRED TO A “QUALIFIED INSTITUTIONAL BUYER”
WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT OR (III) UNLESS SOLD
PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.  NOTWITHSTANDING THE
FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
 
(l) Change of Control. Such Purchaser has no present intent to effect a “change
of control” of the Company as such term is understood under the rules
promulgated pursuant to Section 13(d) of the Exchange Act.
 
The Company acknowledges and agrees that the Purchaser does not make or has not
made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in this Section 3.2.
 
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
 
4.1 Securities Laws Disclosure; Publicity.  The Company shall, if required,
within the time prescribed under the Exchange Act file a current report on Form
8-K disclosing the material terms of the transaction and including the
Transaction Documents as exhibits thereto.  From and after the issuance of such
Form 8-K, the Company shall have publicly disclosed all material, non-public
information delivered to any Purchaser by the Company or any of its
subsidiaries, or any of their respective officers, directors, employees or
agents in connection with the transactions contemplated by this Agreement.  The
Company and the Purchasers shall consult with each other in issuing any press
releases with respect to the transactions contemplated hereby, and neither the
Company nor the Purchasers shall issue any such press release nor otherwise make
any such public statement without the prior consent of the Company, with respect
to any press release of any of the Purchasers, or without the prior consent of
the Purchasers, with respect to any press release of the Company, which consent
shall not unreasonably be withheld or delayed, except if such disclosure is
required by law, in which case the disclosing party shall promptly provide the
other party with prior notice of such public statement or communication.
 
 
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4.2 Non-Public Information.  Except with respect to the material terms and
conditions of the transactions contemplated by this Agreement which will
subsequently become public information in accordance with Section 4.1, the
Company covenants and agrees that neither it, nor any other Person acting on its
behalf, will provide the Purchasers or their agents or counsel with any
information that the Company believes constitutes material non-public
information, unless prior thereto each of the Purchasers shall expressly agree
with the Company regarding the confidentiality and use of such information.  The
Company understands and confirms that the Purchasers shall be relying on the
foregoing covenant in effecting transactions in securities of the Company.
 
4.3 Use of Proceeds.  The Company shall use the net proceeds from the sale of
the Units for general business and working capital purposes.
 
4.4 Indemnification of Purchaser.  Subject to the provisions of this Section 4.4
and to the extent permitted by law, the Company will indemnify and hold each
Purchaser, its Affiliates, and their respective directors, managers, officers,
stockholders, members, partners, employees and agents (and any other Persons
with a functionally equivalent role of a Person holding such titles
notwithstanding a lack of such title or any other title), each Person who
controls such Purchaser (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, managers, officers,
stockholders, agents, members, partners, employees and agents (and any other
Persons with a functionally equivalent role of a Person holding such titles
notwithstanding a lack of such title or any other title) of such controlling
persons (each, a “Purchaser Party”) harmless from any and all losses,
liabilities, obligations, contingencies, damages, costs and expenses, including
all judgments, amounts paid in settlements, court costs and reasonable
attorneys’ fees and costs of investigation (“Damages”) that any Purchaser Party
may suffer or incur due to a claim by a third party as a result of or relating
to (a) any breach of any of the representations, warranties, covenants or
agreements made by the Company in this Agreement or (b) any action instituted
against a Purchaser in any capacity, or any of them or their respective
Affiliates, by any stockholder of the Company who is not an Affiliate of the
Purchaser, with respect to any of the transactions contemplated by this
Agreement (except to the extent such Damages are based upon a breach of the
Purchaser’s representations, warranties or covenants under this Agreement or any
agreements or understandings the Purchaser may have with any such stockholder or
any violations by the Purchaser of state or federal securities laws or any
conduct by the Purchaser which constitutes fraud, gross negligence, willful
misconduct or malfeasance).  If any action shall be brought against the
Purchaser Party in respect of which indemnity may be sought pursuant to this
Agreement, the Purchaser Party shall promptly notify the Company in writing, and
the Company shall have the right to assume the defense thereof with counsel of
its own choosing reasonably acceptable to the Purchaser Party.  The Purchaser
Party shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of the Purchaser Party except to the extent that (i) the
employment thereof has been specifically authorized by the Company in writing,
(ii) the Company has failed after a reasonable period of time to assume such
defense and to employ counsel or (iii) in such action there is, in the
reasonable opinion of counsel, a material conflict on any material issue between
the position of the Company and the position of the Purchaser Party, in which
case the Company shall be responsible for the reasonable fees and expenses of no
more than one such separate counsel.  The Company will not be liable to the
Purchaser Party under this Agreement (y) for any settlement by a Purchaser Party
effected without the Company’s prior written consent, which shall not be
unreasonably withheld or delayed; or (z) to the extent, but only to the extent
that a loss, claim, damage or liability is attributable to the Purchaser Party’s
breach of any of the representations, warranties, covenants or agreements made
by the Purchaser Party in this Agreement.
 
 
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4.5 Reservation of Common Stock.  As of the date hereof, the Company has
reserved and the Company shall continue to reserve and keep available at all
times, free of any Liens, a sufficient number of shares of Common Stock for the
purpose of enabling the Company to issue shares of Common Stock issued (i) as
part of the Units purchased pursuant to this Agreement, and (ii) upon the
exercise of the Warrants issued as part of the Units purchased pursuant to this
Agreement.
 
4.6 Equal Treatment of Purchasers.  The sale and purchase of the Units to a
Purchaser under this Agreement is, and shall be, on the same terms and
conditions offered all other Purchasers of the Units in the Offering.  If the
Company offers better terms to any other purchaser of Units in the Offering than
are being offered to the Purchasers under this Agreement, including, without
limitation, by amendment or modification to this Agreement or otherwise, then
the Company shall offer to sell the Units to the Purchaser on the same terms.
 
4.7 Certain Transactions and Confidentiality. Each Purchaser covenants that
neither it nor any Affiliate acting on its behalf or pursuant to any
understanding with it will execute any purchases or sales, including Short
Sales, of any of the Company’s securities during the period commencing with the
execution of this Agreement and ending at such time that the transactions
contemplated by this Agreement are first publicly announced pursuant to the Form
8-K as described in Section 4.1.  Each Purchaser covenants that until such time
as the transactions contemplated by this Agreement are publicly disclosed by the
Company pursuant to the Form 8-K as described in Section 4.1, such Purchaser
will maintain the confidentiality of the existence and terms of this
transaction.  Notwithstanding the foregoing and notwithstanding anything
contained in this Agreement to the contrary, the Company expressly acknowledges
and agrees that (i) no Purchaser makes any representation, warranty or covenant
hereby that it will not engage in effecting transactions in any securities of
the Company after the time that the transactions contemplated by this Agreement
are first publicly announced pursuant to the initial press release as described
in Section 4.1, (ii) no Purchaser shall be restricted or prohibited from
effecting any transactions in any securities of the Company in accordance with
applicable securities laws from and after the time that the transactions
contemplated by this Agreement are first publicly announced pursuant to the
initial press release as described in Section 4.1 and (iii) no Purchaser shall
have any duty of confidentiality to the Company or its subsidiaries after the
issuance of the initial press release as described in Section
4.1.  Notwithstanding the foregoing, in the case of a Purchaser that is a
multi-managed investment vehicle whereby separate portfolio managers manage
separate portions of the Purchaser’s assets and the portfolio managers have no
direct knowledge of the investment decisions made by the portfolio managers
managing other portions of the Purchaser’s assets, the covenants and agreements
set forth in the first two sentences of this Section 4.7 shall only apply with
respect to the portion of assets managed by the portfolio manager that made the
investment decision to purchase the Securities covered by this Agreement.
 
4.8 Transfer Restrictions. The Securities may only be disposed of in compliance
with state and federal securities laws. In connection with any transfer of
Securities other than pursuant to an effective registration statement, to the
Company or to an affiliate of a Purchaser or to an entity managed by a Purchaser
(provided, in such case the prospective transferee agrees in all such instances
in writing to be subject to the terms hereof to the same extent as if he or she
were an original Purchaser hereunder), the Company may require the transferor
thereof to provide to the Company an opinion of counsel, the form and substance
of which opinion shall be reasonably satisfactory to the Company, to the effect
that such transfer does not require registration of such transferred Securities
under the Securities Act. As a condition of transfer, any such transferee shall
agree in writing to be bound by the terms of this Agreement and shall have the
rights of a Purchaser under this Agreement and the Registration Rights
Agreement.
 
 
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4.9 No Integration.  The Company shall not, and shall use its reasonable best
efforts to ensure that no Affiliate of the Company shall, make any offers or
sales of any security or solicit offers to buy or otherwise negotiate in respect
of any offer or sale of any security (other than the Securities) under
circumstances that would cause the offering of the Securities to be integrated
with any other offering of securities by the Company (i) for the purpose of any
stockholder approval provision applicable to the Company or its securities or
(ii) for purposes of any registration requirement under the Securities Act.
 
4.10 Removal of Restrictive Legends. The certificates evidencing the Common
Shares shall not contain any legend restricting the transfer thereof: (A)
following any sale of such Common Shares pursuant to Rule 144, or (B) if such
Common Shares are eligible for sale under Rule 144(b)(1), (C) if such legend is
not required under applicable requirements of the Securities Act (including
judicial interpretations and pronouncements issued by the staff of the
Commission) and the Company shall have received an opinion of counsel to the
holder of such Common Shares in form reasonably acceptable to the Company to
such effect or (D) there is an effective registration statement covering the
re-sale of the Common Shares (collectively, the “Unrestricted Conditions”).  The
Company shall cause its counsel to issue a legal opinion to its transfer agent
if required by the transfer agent to effect the issuance of the Common Shares
without a restrictive legend or removal of the legend hereunder.  The Company
agrees that at such time as the Unrestricted Conditions are met, upon the
request of the holder of such Common Shares, the Company will, no later than
three (3) Trading Days following the delivery by the holder of the Common Shares
to the Company or the transfer agent of the certificate representing the Common
Shares issued with a restrictive legend, deliver or cause to be delivered to
such holder a certificate (or electronic transfer) representing such shares that
is free from all restrictive and other legends.
 
ARTICLE V.
MISCELLANEOUS
 
5.1 Termination.  This Agreement may be terminated by any Purchaser, as to such
Purchaser’s obligations hereunder only and without any effect whatsoever on the
obligations between the Company and the other Purchasers, by written notice to
the other parties, if the Closing has not been consummated on or before March 1,
2013; provided, however, that such termination will not affect the right of any
party to sue for any breach by the other party (or parties).
 
5.2 Fees and Expenses.  Except as expressly set forth in this Agreement to the
contrary, each party shall pay the fees and expenses of its advisers, counsel,
accountants and other experts, if any, and all other expenses incurred by such
party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement.
 
5.3 Entire Agreement.  This Agreement, together with the other Transaction
Documents and the exhibits and schedules hereto and thereto, contain the entire
understanding of the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, oral or written, with respect
to such matters, which the parties acknowledge have been merged into such
documents, exhibits and schedules.
 
 
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5.4 Notices.  Any and all notices or other communications or deliveries required
or permitted to be provided hereunder shall be in writing and shall be deemed
given and effective on the earliest of: (a) the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile number set
forth on the signature pages attached hereto prior to 5:30 p.m. (New York City
time) on a Trading Day, (b) the next Trading Day after the date of transmission,
if such notice or communication is delivered via facsimile at the facsimile
number set forth on the signature pages attached hereto on a day that is not a
Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (c)
the next  Trading Day following the date of mailing, if sent by U.S. nationally
recognized overnight courier service or (d) upon actual receipt by the party to
whom such notice is required to be given.  The address for such notices and
communications shall be as set forth on the signature pages attached hereto.
 
5.5 Amendments; Waivers.  Prior to Closing, no provision of this Agreement may
be waived, modified, supplemented or amended except in a written instrument
signed, in the case of an amendment, by the Company and the Purchasers obligated
to purchase at least 50% of the Units or, in the case of a waiver, by the party
against whom enforcement of any such waived provision is sought. After the
Closing, no provision of this Agreement may be waived, modified, supplemented or
amended except in a written instrument signed, in the case of an amendment, by
the Company and the Purchasers holding at least 50% of the outstanding
Securities or, in the case of a waiver, by the party against whom enforcement of
any such waived provision is sought.  No waiver of any default with respect to
any provision, condition or requirement of this Agreement shall be deemed to be
a continuing waiver in the future or a waiver of any subsequent default or a
waiver of any other provision, condition or requirement hereof, nor shall any
delay or omission of any party to exercise any right hereunder in any manner
impair the exercise of any such right.
 
5.6 Headings.  The headings herein are for convenience only, do not constitute a
part of this Agreement and shall not be deemed to limit or affect any of the
provisions hereof.
 
5.7 Successors and Assigns.  This Agreement shall be binding upon and inure to
the benefit of the parties and their successors and permitted assigns.  The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each Purchaser (other than by merger,
consolidation or sale of all or substantially all of the Company’s assets).  A
Purchaser may assign any or all of its rights under this Agreement to any Person
to whom the Purchaser assigns or transfers any Securities, provided that such
transferee agrees in writing to be bound, with respect to the transferred
Securities, by the provisions of this Agreement that apply to the “Purchasers.”
 
5.8 No Third-Party Beneficiaries.  This Agreement is intended for the benefit of
the parties hereto and their respective successors and permitted assigns and the
Purchaser Parties (with respect to Section 4.4) and is not for the benefit of,
nor may any provision hereof be enforced by, any other Person. Notwithstanding
anything to the contrary contained herein or in any of the other Transaction
Documents, Ladenburg Thalmann & Co. Inc. as placement agent shall be entitled to
rely on the representations and warranties of the Company contained herein and
in the other Transaction Documents.
 
 
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5.9 Governing Law.  All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York, without regard to the principles of conflicts of law thereof.  Each party
agrees that all legal proceedings concerning the interpretations, enforcement
and defense of the transactions contemplated by this Agreement (whether brought
against a party hereto or its respective Affiliates, directors, officers,
stockholders, employees or agents) shall be commenced exclusively in the state
and federal courts sitting in the City of New York, Borough of Manhattan. Each
party hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in the City of New York, borough of Manhattan for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper or is an inconvenient venue for such
proceeding.  Each party hereby irrevocably waives personal service of process
and consents to process being served in any such suit, action or proceeding by
mailing a copy thereof via registered or certified mail or overnight delivery
(with evidence of delivery) to such party at the address in effect for notices
to it under this Agreement and agrees that such service shall constitute good
and sufficient service of process and notice thereof.  Nothing contained herein
shall be deemed to limit in any way any right to serve process in any other
manner permitted by law.  If either party shall commence an action or proceeding
to enforce any provisions of this Agreement, then the prevailing party in such
action or proceeding shall be reimbursed by the other party for its reasonable
attorneys’ fees and other costs and expenses incurred with the investigation,
preparation and prosecution of such action or proceeding.
 
5.10 Execution.  This Agreement may be executed in two or more counterparts, all
of which when taken together shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party, it being understood that both parties need not
sign the same counterpart.  In the event that any signature is delivered by
facsimile transmission or by e-mail delivery of a “.pdf” format data file, such
signature shall create a valid and binding obligation of the party executing (or
on whose behalf such signature is executed) with the same force and effect as if
such facsimile or “.pdf” signature page were an original thereof.
 
5.11 Severability.  If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their commercially reasonable efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.
 
5.12 Replacement of Certificates.  If any certificate evidencing the securities
issued or issuable hereunder is mutilated, lost, stolen or destroyed, the
Company shall issue or cause to be issued in exchange and substitution for and
upon cancellation thereof (in the case of mutilation), or in lieu of and
substitution therefor, a new certificate, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction and
customary and reasonable indemnity or security, if requested.  The applicant for
a new certificate under such circumstances shall also pay any reasonable
third-party costs (including customary indemnity) associated with the issuance
of such replacement certificates.
 
 
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5.13 Remedies.  In addition to being entitled to exercise all rights provided
herein or granted by law, including recovery of damages, each of the Purchasers
and the Company will be entitled to specific performance under this
Agreement.  The parties agree that monetary damages may not be adequate
compensation for any loss incurred by reason of any breach of obligations
contained in this Agreement and hereby agree to waive and not to assert in any
action for specific performance of any such obligation the defense that a remedy
at law would be adequate.
 
5.14 Construction.  The parties agree that each of them and/or their respective
counsel has reviewed and had an opportunity to revise this Agreement and,
therefore, the normal rule of construction to the effect that any ambiguities
are to be resolved against the drafting party shall not be employed in the
interpretation of this Agreement or any amendments hereto.  In addition, each
and every reference to share prices and shares of capital stock in this
Agreement shall be subject to adjustment for reverse and forward stock splits,
stock dividends, stock combinations and other similar transactions of the Common
Stock that occur after the date of this Agreement.
 
5.15 WAIVER OF JURY TRIAL.  IN ANY ACTION, SUIT, OR PROCEEDING IN ANY
JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH
KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW,
HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVES FOREVER
TRIAL BY JURY.
 
5.16 Survival of Representations, Warranties and Agreements. All representations
and warranties made by the Company and each of the Purchasers herein will
survive the execution of this Agreement, the Closing and the delivery to the
Purchasers of the Units being purchased and the payment therefor until the first
anniversary of the Closing Date, except for those representations and warranties
which speak as of a specific date.  All covenants and other agreements set forth
in this Agreement shall survive the Closing for the respective periods set forth
therein and if no such period is specified until the first anniversary of the
Closing Date.  Notwithstanding anything to the contrary contained herein,
Sections 4.1, 4.4, and 5.5 shall survive for the applicable statute of
limitations.
 
5.17 Saturdays, Sundays, Holidays, etc. If the last or appointed day for the
taking of any action or the expiration of any right required or granted herein
shall not be a Trading Day, then such action may be taken or such right may be
exercised on the next succeeding Trading Day.
 
5.18 Independent Nature of Purchasers’ Obligations and Rights.  The obligations
of each Purchaser under any Transaction Document are several and not joint with
the obligations of any other Purchaser, and no Purchaser shall be responsible in
any way for the performance or non-performance of the obligations of any other
Purchaser under any Transaction Document.  Nothing contained herein or in any
other Transaction Document, and no action taken by any Purchaser pursuant
thereto, shall be deemed to constitute the Purchasers as a partnership, an
association, a joint venture or any other kind of entity, or create a
presumption that the Purchasers are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated by the
Transaction Documents.  Each Purchaser shall be entitled to independently
protect and enforce its rights, including, without limitation, the rights
arising out of this Agreement or out of the other Transaction Documents, and it
shall not be necessary for any other Purchaser to be joined as an additional
party in any proceeding for such purpose.  Each Purchaser has been represented
by its own separate legal counsel in their review and negotiation of the
Transaction Documents.
 
[Signature Page Follows]
 

 
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IN WITNESS WHEREOF, the undersigned has caused this Securities Purchase
Agreement to be duly executed by its authorized signatory as of the date first
indicated above.
 

 AEOLUS PHARAMACEUTICALS, INC.
Address for Notice:
26361 Crown Valley Parkway,
Suite 150
Mission Viejo, California 92691
Attn:  President
By:         
John McManus
President and Chief Executive Officer
    With a copy to (which shall not constitute notice):  
K&L Gates LLP
1 Park Plaza
Twelfth Floor
Irvine, CA 92614
Attn: Michael A. Hedge, Esq.
Fax: (949) 623-4454

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
 
 
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IN WITNESS WHEREOF, the undersigned has caused this Securities Purchase
Agreement to be duly executed by its authorized signatories as of the date first
indicated above.
 

Name of Purchaser:      

 

Signature of Authorized Signatory of Purchaser:        

 

Name of Authorized Signatory:    

 

Title of Authorized Signatory:        

 

Email Address of Authorized Signatory:          

 

Facsimile Number of Authorized Signatory:     

 

Address for Notices to Purchaser:                   

 
Address for Delivery of certificated Securities for Purchaser (if not same as
address for notices):

   

 

Subscription Amount: $          

 

No. of Units Purchased:     , comprised of:

                                                          

  No. of Common Shares:    

  No. of Common Stock Warrants:    

 

EIN Number:     

 

[Purchaser Signature Page to Aeolus Pharmaceuticals, Inc. Securities Purchase
Agreement]
 
 
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EXHIBIT A

REGISTRATION RIGHTS AGREEMENT

 

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