EXHIBIT 2.7





                          AGREEMENT AND PLAN OF MERGER


                                      AMONG


                       INCARA PHARMACEUTICALS CORPORATION,


                         AEOLUS ACQUISITION CORPORATION,


                                       AND


                          AEOLUS PHARMACEUTICALS, INC.


                                 MARCH 24, 2000
<PAGE>
                          AGREEMENT AND PLAN OF MERGER

         Agreement and Plan of Merger (the "Agreement") entered into on March
24, 2000, by and among Incara Pharmaceuticals Corporation, a Delaware
corporation (the "Buyer"), Aeolus Acquisition Corporation, a Delaware
corporation and a wholly-owned subsidiary of the Buyer (the "Transitory
Subsidiary"), and Aeolus Pharmaceuticals, Inc., a Delaware corporation (the
"Target"). The Buyer, the Transitory Subsidiary, and the Target are referred to
collectively herein as the "Parties".

         This Agreement contemplates a tax-free merger of the Target Subsidiary
with and into the Target in a transaction qualifying as a reorganization
pursuant to Section 368(a)(2)(E) of the Internal Revenue Code of 1986, as
amended. The Target Stockholders will receive capital stock in the Buyer in
exchange for their capital stock in the Target.

         Now, therefore, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows.

         1. Definitions.

         "Agreement" has the meaning set forth in the preface above.

         "Buyer" has the meaning set forth in the preface above.

         "Buyer-owned Share" means any Target Share that the Buyer or the
Transitory Subsidiary owns beneficially.

         "Buyer Share" means any share of the Common Stock, $0.001 par value per
share, of the Buyer.

         "Certificate of Merger" has the meaning set forth in ss.2(c) below.

         "Closing" has the meaning set forth in ss.2(b) below.

         "Closing Date" has the meaning set forth in ss.2(b) below.

         "Definitive Target Proxy Materials" means the Definitive Target Proxy
Materials, if any, relating to the Special Meeting.

         "Delaware General Corporation Law" means the General Corporation Law of
the State of Delaware, as amended.
<PAGE>

         "Disclosure Schedule" has the meaning set forth in ss.3 below.

         "Dissenting Share" means any Target Share with respect to which any
Target Stockholder of record has exercised his or its appraisal rights under the
Delaware General Corporation Law.

         "Effective Time" has the meaning set forth in ss.2(d)(i) below.

         "GAAP" means United States generally accepted accounting principles as
in effect from time to time.

         "Joint Disclosure Document" means the disclosure document combining the
Prospectus and the Definitive Target Proxy Materials.

         "Knowledge" means actual knowledge after reasonable investigation.

         "Merger" has the meaning set forth in ss.2(a) below.

         "Merger Shares" means the Buyers Shares issued to the Target
Stockholders upon conversion of their Target Shares in accordance with ss.2(d)
and ss.2(e) below.

         "Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).

         "Outstanding Option" means stock options of the Target that are
outstanding at the Effective Time.

         "Party" has the meaning set forth in the preface above.

         "Person" means an individual, a partnership, a corporation, an
association, a joint stock Buyer, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or any department, agency, or political
subdivision thereof).

         "Prospectus" means the final prospectus relating to the registration of
the Merger Shares under the Securities Act.

         "Registration Period" has the meaning set forth in ss.2(f)(i) below.

         "Registration Statement" has the meaning set forth in ss.2(f)(i) below.

         "Requisite Target Stockholder Approval" means the affirmative vote of
the holders of at least a majority of the Target Shares in favor of this
Agreement and the Merger.

                                       2
<PAGE>

         "Requisite Transitory Subsidiary Stockholder Approval" means the
affirmative vote of the holders of at least a majority of the Transitory
Subsidiary Shares in favor of this Agreement and the Merger.

         "SEC" means the Securities and Exchange Commission.

         "Securities Act" means the Securities Act of 1933, as amended.

         "Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.

         "Security Interest" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, other than (a) mechanic's, materialman's,
and similar liens, (b) liens for taxes not yet due and payable or for taxes that
the taxpayer is contesting in good faith through appropriate proceedings, (c)
purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.

         "Special Meeting" has the meaning set forth in ss.5(c)(ii) below.

         "Surviving Corporation" has the meaning set forth in ss.2(a) below.

         "Target" has the meaning set forth in the preface above.

         "Target Share" means any share of the Common Stock, $0.001 par value
per share, of the Target.

         "Target Stockholder" means any Person who or which holds any Target
Shares.

         "Transitory Subsidiary" has the meaning set forth in the preface above.

         "Transitory Subsidiary Share" means any share of the Common Stock,
$0.001 par value per share, of the Transitory Subsidiary.

         "Transitory Subsidiary Stockholder" means the Buyer, which legally and
beneficially owns all of the Transitory Subsidiary Shares.


         2. Basic Transaction.

         (a) The Merger. On and subject to the terms and conditions of this
Agreement, the Transitory Subsidiary will merge with and into the Target (the
"Merger") at the Effective Time. The Target shall be the corporation surviving
the Merger (the "Surviving Corporation").

         (b) The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Wyrick Robbins
Yates & Ponton LLP in Raleigh, North

                                       3
<PAGE>

Carolina, commencing at 9:00 a.m. local time on the business day following the
satisfaction or waiver of all conditions to the obligations of the Parties to
consummate the transactions contemplated hereby (other than conditions with
respect to actions the respective Parties will take at the Closing itself) or
such other date as the Parties may mutually determine (the "Closing Date").

         (c) Actions at the Closing. At the Closing, (i) the Target will deliver
to the Buyer and the Transitory Subsidiary the various certificates,
instruments, and documents referred to in ss.6(a) below, (ii) the Buyer and the
Transitory Subsidiary will deliver to the Target the various certificates,
instruments, and documents referred to in ss.6(b) below, and (iii) the Target
and the Transitory Subsidiary will file with the Secretary of State of the State
of Delaware a Certificate of Merger in the form attached hereto as Exhibit A
(the "Certificate of Merger").

         (d) Effect of Merger.

                  (i) General. The Merger shall become effective at the time
         (the "Effective Time") the Target and the Transitory Subsidiary file
         the Certificate of Merger with the Secretary of State of the State of
         Delaware. The Merger shall have the effect set forth in the Delaware
         General Corporation Law. The Surviving Corporation may, at any time
         after the Effective Time, take any action (including executing and
         delivering any document) in the name and on behalf of either the Target
         or the Transitory Subsidiary in order to carry out and effectuate the
         transactions contemplated by this Agreement.

                  (ii) Certificate of Incorporation. The Certificate of
         Incorporation of the Transitory Subsidiary as of the Effective Time
         will remain the Certificate of Incorporation of the Surviving
         Corporation without any modification or amendment in the Merger.

                  (iii) Bylaws. The Bylaws of the Transitory Subsidiary as of
         the Effective Time will remain the Bylaws of the Surviving Corporation
         without any modification or amendment in the Merger.

                  (iv) Directors and Officers. The directors and officers of the
         Transitory Subsidiary as of the Effective Time will remain the
         directors and officers of the Surviving Corporation (retaining their
         respective positions and terms of office).

                  (v) Conversion of Target Shares. At and as of the Effective
         Time, (A) each Target Share (other than any Dissenting Share or
         Buyer-owned Share) shall be converted into the right to receive
         2.270572 Merger Shares (the ratio of 2.270572 Buyer Shares to one
         Target Share is referred to herein as the "Conversion Ratio"), (B) each
         Dissenting Share shall be converted into the right to receive payment
         from the Surviving Corporation with respect thereto in accordance with
         the provisions of the Delaware General Corporation Law, (C) each
         Outstanding Option shall be converted into the right to receive a
         replacement option to purchase the Buyer Shares ("Replacement Options")
         on terms as set forth below:

                           (I) Each Replacement Option will represent the right
                  to purchase a number of Buyer Shares (rounded to the nearest
                  whole share) equal to the number of

                                       4
<PAGE>

                  shares of stock issuable upon exercise of the corresponding
                  Outstanding Option multiplied by the Conversion Ratio.

                           (II) The exercise price of the Buyer Shares (rounded
                  to the nearest cent) of each Replacement Option will equal the
                  per share exercise price of the corresponding Outstanding
                  Option divided by the Conversion Ratio.

                           (III) The term of each Replacement Option will be the
                  same as the remaining term of the corresponding Outstanding
                  Option.

                           (IV) The vesting restrictions contained in each
                  Replacement Option will be the same as the vesting
                  restrictions contained in the corresponding Outstanding
                  Option, except as otherwise agreed.

         and (D) each Buyer-owned Share and each share of Preferred Stock of
         Target owned by Buyer shall be canceled; provided, however, that the
         Conversion Ratio shall be subject to equitable adjustment in the event
         of any stock split, stock dividend, reverse stock split, or other
         change in the number of Target Shares outstanding. No Target Share
         shall be deemed to be outstanding or to have any rights other than
         those set forth above in this ss.2(d)(v) after the Effective Time.

                  (vi) Conversion of Transitory Subsidiary Shares. At and as of
         the Effective Time, each share of Common Stock, $0.001 par value per
         share, of the Transitory Subsidiary shall be converted into one share
         of Common Stock, $0.001 par value per share, of the Surviving
         Corporation.

         (e) Procedure for Conversion.

                  (i) Immediately after the Effective Time, (A) the Buyer will
         mail a letter of transmittal (with instructions for its use) to each
         record holder of outstanding Target Shares and Outstanding Options for
         the holder to use in surrendering the certificates which represented
         his or its Target Shares and Outstanding Options in exchange for a
         certificate representing the number of Merger Shares or Replacement
         Options to which he or it is entitled, in lieu of issuing any
         fractional shares, the Buyer shall pay the Target Shareholder an amount
         in cash equal to such fraction multiplied by the closing stock price of
         the Buyer on the last trading day prior to the Closing Date; (B) the
         Buyer will furnish to a Target Shareholder upon his or its surrender of
         the certificates representing his or its Target Shares a stock
         certificate (issued in the name of the Target Shareholder or its
         nominee) representing that number of Merger Shares to which he or it is
         entitled, which shall be equal to the product of (I) the Conversion
         Ratio times (II) the number of outstanding Target Shares surrendered to
         the Buyer by the Target Stockholder; and (C) the Buyer will furnish to
         an Outstanding Option holder upon his surrender of the agreement
         representing the Outstanding Options a Replacement Option agreement
         representing that number of Buyer option shares to which he is
         entitled, which shall be equal to the product of (I) the

                                       5
<PAGE>

         Conversion Ratio times (II) the number of Outstanding Option shares
         surrendered to the Buyer.

                  (ii) The Buyer will not pay any dividend or make any
         distribution on Merger Shares (with a record date at or after the
         Effective Time) to any record holder of outstanding Target Shares until
         the holder surrenders for exchange his or its certificates that
         represented Target Shares. In no event, however, will any holder of
         outstanding Target Shares be entitled to any interest or earnings on
         the dividend or distribution pending receipt.

         (f) Registration of Merger Shares.

                  (i) Registration of Shares. The Buyer shall file with the SEC,
         as promptly as practicable following the Closing, a registration
         statement under the Securities Act covering the resale to the public of
         the Merger Shares (the "Registration Statement"). The Buyer shall use
         its best efforts to cause the Registration Statement to be declared
         effective by the SEC as soon as practicable within 120 days following
         the Closing. The Buyer shall use its best efforts to cause the
         Registration Statement to remain effective up until the Merger Shares
         can be sold under Rule 144 within a period of three (3) consecutive
         months, not to exceed two (2) years form the Closing Date (the
         "Registration Period").

                  (ii) Registration Procedures.

                           (1) In connection with the filing by the Buyer of the
                  Registration Statement, the Buyer shall furnish to each Target
                  Stockholder a copy of the prospectus, including a preliminary
                  prospectus, in conformity with the requirements of the
                  Securities Act and such additional copies as are reasonably
                  requested by the Target Stockholder.

                           (2) The Buyer shall use its best efforts to register
                  or qualify the Merger Shares covered by the Registration
                  Statement under the securities laws of such states as the
                  Target Stockholders shall reasonably request; provided,
                  however, that the Buyer shall not be required in connection
                  with this paragraph (2) to qualify as a foreign corporation or
                  execute a general consent to service of process in any
                  jurisdiction.

                           (3) If the Buyer has delivered final prospectuses to
                  the Target Stockholders and after having done so the
                  prospectus is amended to comply with the requirements of the
                  Securities Act, the Buyer shall promptly notify the Target
                  Stockholders and, if requested by the Buyer, the Target
                  Stockholders shall immediately cease making offers or sales of
                  shares under the Registration Statement and return all
                  prospectuses to the Buyer. The Buyer shall promptly provide
                  the Target Stockholders with revised prospectuses and,
                  following receipt of the revised prospectuses, the Target
                  Stockholders shall be free to resume making offers and sales
                  under the Registration Statement.

                                       6
<PAGE>

                           (4) The Buyer shall pay the expenses incurred by it
                  in complying with its obligations under this Section 2(f),
                  including all registration and filing fees, exchange listing
                  fees, fees and expenses of counsel for the Buyer, and fees and
                  expenses of accountants for the Buyer, but excluding (x) any
                  brokerage fees, selling commissions or underwriting discounts
                  incurred by the Target Stockholders in connection with sales
                  under the Registration Statement and (y) the fees and expenses
                  of any counsel retained by any Target Stockholder.

         (g) Closing of Transfer Records. After the close of business on the
Closing Date, transfers of Target Shares outstanding prior to the Effective Time
shall not be made on the stock transfer books of the Surviving Corporation.

         3. Representations and Warranties of the Target. The Target represents
and warrants to the Buyer and the Transitory Subsidiary that the statements
contained in this ss.3 are correct and complete as of the date of this Agreement
and will be correct and complete as of the Closing Date (as though made then and
as though the Closing Date were substituted for the date of this Agreement
throughout this ss.3), except as set forth in the disclosure schedule
accompanying this Agreement and initialed by the Parties (the "Disclosure
Schedule"). The Disclosure Schedule will be arranged in paragraphs corresponding
to the lettered and numbered paragraphs contained in this ss.3.

         (a) Organization, Qualification, and Corporate Power. The Target is a
corporation duly organized, validly existing, and in good standing under the
laws of the jurisdiction of its incorporation. The Target is duly authorized to
conduct business and is in good standing under the laws of each jurisdiction
where such qualification is required. The Target has full corporate power and
authority to carry on the businesses in which it is engaged and to own and use
the properties owned and used by it.

         (b) Capitalization. The entire authorized capital stock of the Target
consists of (i) 7,500,000 shares of common stock, par value $0.001 per share,
282,500 of which are issued and outstanding, (ii) 2,500,000 shares of preferred
stock, par value $0.001 per share, of which 500,000 have been designated Series
A Preferred Stock and are issued and outstanding, and of which 2,000,000 have
not been designated and remain unissued or held in treasury. All of the issued
and outstanding Target Shares have been duly authorized and are validly issued,
fully paid, and nonassessable. In addition, options to purchase 7,500 shares of
common stock are outstanding with an exercise price of $0.08 per share. There
are no other outstanding or authorized options, warrants, purchase rights,
subscription rights, conversion rights, exchange rights, or other contracts or
commitments that could require the Target to issue, sell, or otherwise cause to
become outstanding any of its capital stock. There are no outstanding or
authorized stock appreciation, phantom stock, profit participation, or similar
rights with respect to the Target.

         (c) Authorization of Transaction. The Target has full power and
authority (including full corporate power and authority) to execute and deliver
this Agreement and to perform its obligations hereunder; provided, however, that
the Target cannot consummate the Merger unless and until it receives the
Requisite Target Stockholder Approval and approval of this Agreement by

                                       7
<PAGE>

its Board of Directors. This Agreement constitutes the valid and legally binding
obligation of the Target, enforceable in accordance with its terms and
conditions.

         (d) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Target is subject or any provision of
the charter or bylaws of any of the Target or (ii) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument, or other
arrangement to which the Target is a party or by which it is bound or to which
any of its assets is subject (or result in the imposition of any Security
Interest upon any of its assets). Other than in connection with the provisions
of the Delaware General Corporation Law, the Securities Exchange Act, the
Securities Act, and the state securities laws, the Target need not give any
notice to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order for the Parties to
consummate the transactions contemplated by this Agreement.

         (e) Brokers' Fees. The Target has no liability or obligation to pay any
fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement.

         (f) Disclosure. The Definitive Target Proxy Materials will not contain
any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made therein, in the light of the
circumstances under which they will be made, not misleading. None of the
information that the Target will supply specifically for use in the Registration
Statement or the Prospectus will contain any untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements made
therein, in the light of the circumstances under which they will be made, not
misleading.

         (g) Continuity of Business Enterprise. The Target operates at least one
significant historic business line, or owns at least a significant portion of
its historic business assets, in each case within the meaning of
Reg.ss.1.368-1(d).

         4. Representations and Warranties of the Buyer and the Transitory
Subsidiary. Each of the Buyer and the Transitory Subsidiary represents and
warrants to the Target that the statements contained in this ss.4 are correct
and complete as of the date of this Agreement and will be correct and complete
as of the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this ss.4), except as set
forth in the Disclosure Schedule. The Disclosure Schedule will be arranged in
paragraphs corresponding to the numbered and lettered paragraphs contained in
this ss.4.

         (a) Organization. Each of the Buyer and the Transitory Subsidiary is a
corporation duly organized, validly existing, and in good standing under the
laws of the jurisdiction of its incorporation.

                                       8
<PAGE>

         (b) Capitalization. The Buyer's Certificate of Incorporation authorizes
the issuance of up to 3,000,000 shares of Preferred Stock, at a par value of
$.01 per share. The Board of Directors has the authority to issue Preferred
Stock in one or more series, to fix the designation and number of shares of each
such series, and to determine or change the designation, relative rights,
preferences, and limitations of any series of Preferred Stock, without any
further vote or action by the stockholders. No shares of Preferred Stock are
currently outstanding. The entire authorized common stock of the Buyer consists
of 40,000,000 Buyer Shares, par value $0.001 per share, of which 5,864,430 Buyer
Shares are issued and outstanding and 34,135,570 Buyer Shares remain unissued or
held in treasury. Under the 1994 Stock Option Plan, options to purchase a total
of 2,500,000 shares of common stock may be granted to employees, directors and
consultants. Options and warrants to purchase 925,116 and 66,816 shares are
outstanding, respectively, at exercise prices ranging from $0.36 to $20.50. In
addition, 289,702 shares are reserved for issuance pursuant to the Buyer's
Employee Stock Purchase Plan. Buyer also intends to complete another merger, at
the same time as this Merger, with Renaissance Cell Technologies, Inc., which
merger is expected to result in the issuance of approximately 579,058 additional
Buyer Shares. All of the Merger Shares to be issued in the Merger have been duly
authorized and, upon consummation of the Merger, will be validly issued, fully
paid and nonassessable.

         (c) Authorization of Transaction. Each of the Buyer and the Transitory
Subsidiary has full power and authority (including full corporate power and
authority) to execute and deliver this Agreement and to perform its obligations
hereunder; provided, however, that the Transitory Subsidiary cannot consummate
the Merger unless and until it receives the Requisite Transitory Subsidiary
Stockholder Approval and this Agreement has been approved by its Board of
Directors. This Agreement constitutes the valid and legally binding obligation
of each of the Buyer and the Transitory Subsidiary, enforceable in accordance
with its terms and conditions.

         (d) Noncontravention. To the Knowledge of any director or officer of
the Buyer, neither the execution and the delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, will (i) violate any
constitution, statute, regulation, rule, injunction, judgment, order, decree,
ruling, charge, or other restriction of any government, governmental agency, or
court to which either the Buyer or the Transitory Subsidiary is subject or any
provision of the charter or bylaws of either the Buyer or the Transitory
Subsidiary or (ii) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
either the Buyer or the Transitory Subsidiary is a party or by which it is bound
or to which any of its assets is subject, except where the violation, conflict,
breach, default, acceleration, termination, modification, cancellation, or
failure to give notice would not have a material adverse effect on the ability
of the Parties to consummate the transactions contemplated by this Agreement. To
the Knowledge of any director or officer of the Buyer, and other than in
connection with the provisions of the Delaware General Corporation Law, the
Securities Exchange Act, the Securities Act, and the state securities laws,
neither the Buyer nor the Transitory Subsidiary needs to give any notice to,
make any filing with, or obtain any authorization, consent, or approval of any
government or governmental agency in order for the Parties to consummate the
transactions contemplated by this Agreement, except where the failure to give

                                       9
<PAGE>

notice, to file, or to obtain any authorization, consent, or approval would not
have a material adverse effect on the ability of the Parties to consummate the
transactions contemplated by this Agreement.

         (e) Brokers' Fees. Neither the Buyer nor the Transitory Subsidiary has
any liability or obligation to pay any fees or commissions to any broker,
finder, or agent with respect to the transactions contemplated by this Agreement
for which any of the Target and its Subsidiaries could become liable or
obligated.

         (f) Disclosure. The Registration Statement and the Prospectus will
comply with the Securities Act in all material respects. The Registration
Statement and the Prospectus will not contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
made therein, in the light of the circumstances under which they will be made,
not misleading; provided, however, that the Buyer and the Transitory Subsidiary
make no representation or warranty with respect to any information that the
Target will supply specifically for use in the Registration Statement and the
Prospectus. None of the information that the Buyer and the Transitory Subsidiary
will supply specifically for use in the Definitive Target Proxy Materials will
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made therein, in the light of the
circumstances under which they will be made, not misleading.

         (g) Continuity of Business Enterprise. It is the present intention of
the Buyer to continue at least one significant historic business line of the
Target, or to use at least a significant portion of the Target's historic
business assets in a business, in each case within the meaning of
Reg.ss.1.368-1(d).

         5. Covenants. The Parties agree as follows with respect to the period
from and after the execution of this Agreement.

         (a) General. Each of the Parties will use its reasonable best efforts
to take all action and to do all things necessary, proper, or advisable in order
to consummate and make effective the transactions contemplated by this Agreement
(including satisfaction, but not waiver, of the closing conditions set forth in
ss.6 below).

         (b) Notices and Consents. The Target will give any notices to third
parties, and will use its best efforts to obtain any third party consents, that
the Buyer may request in connection with the matters referred to in ss.3(d)
above.

         (c) Regulatory Matters and Approvals. Each of the Parties will give any
notices to, make any filings with, and use its reasonable best efforts to obtain
any authorizations, consents, and approvals of governments and governmental
agencies in connection with the matters referred to in ss.3(d) and ss.4(d)
above. Without limiting the generality of the foregoing:

                  (i) Securities Act, Securities Exchange Act, and State
         Securities Laws. The Buyer will prepare and file with SEC the
         Registration Statement. The Buyer will use its

                                       10
<PAGE>

         reasonable best efforts to respond to the comments of the SEC thereon
         and will make any further filings (including amendments and
         supplements) in connection therewith that may be necessary, proper, or
         advisable. The Target will provide the Buyer with whatever information
         and assistance in connection with the foregoing filings that the Buyer
         reasonably may request. The Buyer will take all actions that may be
         necessary, proper, or advisable under state securities laws in
         connection with the offering and issuance of the Buyer Stock.

                  (ii) Delaware General Corporation Law. The Target will call a
         special meeting of its stockholders (the "Special Meeting"), as soon as
         practicable in order that the Target Stockholders may consider and vote
         upon the adoption of this Agreement and the approval of the Merger in
         accordance with the Delaware General Corporation Law. The Target will
         mail the Joint Disclosure Document to its stockholders as soon as
         practicable. The Joint Disclosure Document will contain the affirmative
         recommendation of the board of directors of the Target in favor of the
         adoption of this Agreement and the approval of the Merger; provided,
         however, that no director or officer of the Target shall be required to
         violate any fiduciary duty or other requirement imposed by law in
         connection therewith.

         6. Conditions to Obligation to Close.

         (a) Conditions to Obligation of the Buyer and the Transitory
Subsidiary. The obligation of each of the Buyer and the Transitory Subsidiary to
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions:

                  (i) this Agreement and the Merger shall have received the
         Requisite Target Stockholder Approval and the number of Dissenting
         Shares shall not exceed 20% of the number of outstanding Target Shares;

                  (ii) the Target shall have procured any third party consents
         specified inss.5(b) above;

                  (iii) the representations and warranties set forth inss.3
         above shall be true and correct in all material respects at and as of
         the Closing Date;

                  (iv) the Target shall have performed and complied with all of
         its covenants hereunder in all material respects through the Closing;

                  (v) the Parties shall have received all other authorizations,
         consents, and approvals of governments and governmental agencies
         referred to inss.3(d) andss.4(d) above; and

                  (vi) all actions to be taken by the Target in connection with
         consummation of the transactions contemplated hereby and all
         certificates, opinions, instruments, and other documents required to
         effect the transactions contemplated hereby will be reasonably
         satisfactory in form and substance to the Buyer and the Transitory
         Subsidiary.

                                       11
<PAGE>

The Buyer and the Transitory Subsidiary may waive any condition specified in
this ss.6(a) if they execute a writing so stating at or prior to the Closing.

         (b) Conditions to Obligation of the Target. The obligation of the
Target to consummate the transactions to be performed by it in connection with
the Closing is subject to satisfaction of the following conditions:

                  (i) the representations and warranties set forth inss.4 above
         shall be true and correct in all material respects at and as of the
         Closing Date;

                  (ii) each of the Buyer and the Transitory Subsidiary shall
         have performed and complied with all of its covenants hereunder in all
         material respects through the Closing;

                  (iii) this Agreement and the Merger shall have received the
         Requisite Transitory Subsidiary Stockholder Approval;

                  (iv) the Parties shall have received all other authorizations,
         consents, and approvals of governments and governmental agencies
         referred to inss.3(d) andss.4(d) above; and

                  (v) all actions to be taken by the Buyer and the Transitory
         Subsidiary in connection with consummation of the transactions
         contemplated hereby and all certificates, opinions, instruments, and
         other documents required to effect the transactions contemplated hereby
         will be reasonably satisfactory in form and substance to the Target.

The Target may waive any condition specified in this ss.6(b) if it executes a
writing so stating at or prior to the Closing.

         7. Termination.

         (a) Termination of Agreement. Any of the Parties may terminate this
Agreement with the prior authorization of its board of directors before
stockholder approval by giving written notice to of such termination to the
other party.

         (b) Effect of Termination. If any Party terminates this Agreement
pursuant to ss.7(a) above, all rights and obligations of the Parties hereunder
shall terminate without any liability of any Party to any other Party (except
for any liability of any Party then in breach).

         8. Miscellaneous.

         (a) Survival. None of the representations, warranties, and covenants of
the Parties (other than the provisions in ss.2 above concerning conversion of
Target Shares into, and subsequent registration of, the Merger Shares) will
survive the Effective Time.

                                       12
<PAGE>

         (b) No Third-Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns; provided, however, that the provisions in ss.2
above regarding conversion of the Target Shares into, and subsequent
registration of, the Merger Shares are intended for the benefit of the Target
Stockholders are intended for the benefit of the individuals specified therein
and their respective legal representatives.

         (c) Entire Agreement. This Agreement (including the documents referred
to herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements, or representations by or among the Parties,
written or oral, to the extent they related in any way to the subject matter
hereof.

         (d) Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other Parties.

         (e) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.

         (f) Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.

         (g) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:

         If to the Target:
         -----------------

         Aeolus Pharmaceuticals, Inc.
         P.O. Box 14287
         3200 East Highway 54
         Cape Fear Building, Suite 300
         Research Triangle Park, North Carolina 27709

                                       13
<PAGE>

         If to the Buyer:
         ----------------

         Incara Pharmaceuticals Corporation
         P.O. Box 14287
         3200 East Highway 54
         Cape Fear Building, Suite 300
         Research Triangle Park, North Carolina 27709

         If to the Transitory Subsidiary:
         --------------------------------

         Aeolus Acquisition Corporation
         P.O. Box 14287
         3200 East Highway 54
         Cape Fear Building, Suite 300
         Research Triangle Park, North Carolina 27709

Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.

         (h) Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Delaware without giving effect
to any choice or conflict of law provision or rule (whether of the State of
Delaware or any other jurisdiction) that would cause the application of the laws
of any jurisdiction other than the State of Delaware.

         (i) Amendments and Waivers. The Parties may mutually amend any
provision of this Agreement at any time prior to the Effective Time with the
prior authorization of their respective boards of directors; provided, however,
that any amendment effected subsequent to stockholder approval will be subject
to the restrictions contained in the Delaware General Corporation Law. No
amendment of any provision of this Agreement shall be valid unless the same
shall be in writing and signed by all of the Parties. No waiver by any Party of
any default, misrepresentation, or breach of warranty or covenant hereunder,
whether intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.

         (j) Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.

                                       14
<PAGE>

         (k) Expenses. Each of the Parties will bear its own costs and expenses
(including legal fees and expenses) incurred in connection with this Agreement
and the transactions contemplated hereby.

         (l) Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context otherwise requires. The
word "including" shall mean including without limitation.

         (m) Incorporation of Exhibits and Schedules. All Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.

                            [SIGNATURE PAGE FOLLOWS.]

                                       15
<PAGE>

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

                                           INCARA PHARMACEUTICALS CORPORATION

ATTEST:                                    By: /s/ Clayton I. Duncan
                                              ----------------------
 /s/ Rich Reichow                          Name:   Clayton I. Duncan
--------------------------------------          --------------------
Secretary                                  Title:  President & CEO
                                                 -------------------

                                           AEOLUS ACQUISITION CORPORATION

ATTEST:                                    By: /s/ Clayton I. Duncan
                                              ----------------------
 /s/ Rich Reichow                          Name:   Clayton I. Duncan
--------------------------------------          --------------------
Secretary                                  Title:  President & CEO
                                                 -------------------

                                           AEOLUS PHARMACEUTICALS, INC.

ATTEST:                                    By: /s/ Clayton I. Duncan
                                              ----------------------
 /s/ Rich Reichow                          Name:   Clayton I. Duncan
--------------------------------------          --------------------
Secretary                                  Title:  President & CEO
                                                 -------------------