ex102.htm


    Exhibit 10.2

     

    FORM
OF WARRANT

     

    NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE
SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, 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 OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL
(WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A FORM REASONABLY ACCEPTABLE
TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) 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. THE
SECURITIES REPRESENTED BY THIS WARRANT AND, ACCORDINGLY, THE SECURITIES ISSUABLE
UPON EXERCISE HEREOF MAY BE LESS THAN THE AMOUNTS SET FORTH ON THE FACE
HEREOF.

     

    AEOLUS
PHARMACEUTICALS, INC.

     

    Warrant
To Purchase Common Stock

     

    


    Warrant
No.: [ ]

    Number of
Shares of Common Stock: [   ]

    Date of
Issuance: March 30, 2009 (“Issuance Date”)

    


    AEOLUS
PHARMACEUTICALS, INC., a Delaware corporation (the “Company”), hereby certifies
that, for good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, [     ], the registered holder
hereof or its permitted assigns (the “Holder”), is entitled, subject
to the terms set forth below, to purchase from the Company, at the Exercise
Price (as defined below) then in effect, upon surrender of this Warrant to
Purchase Common Stock (including any Warrants to Purchase Common Stock issued in
exchange, transfer or replacement hereof, the “Warrant”), at any time or
times on or after the date hereof but not after 11:59 p.m., New York time, on
the Expiration Date (as defined below), up to [    ]
(   ) fully paid and nonassessable shares of Common Stock (as
defined below) (as
may be adjusted pursuant to Section 2 or
4 hereof (the
“Warrant Shares”). This
Warrant is one of the Warrants to purchase Common Stock (as may be amended or
restated from time to time, the “SPA Warrants”) issued pursuant
to Section 1 of that certain Securities Purchase Agreement (as may be
amended or restated from time to time, the “Securities Purchase
Agreement”), dated as of March 30, 2009 (the “Subscription Date”), by and
among the Company, as issuer, and the investors listed on the Schedule of Buyers
attached thereto (the “Buyers”). Except as otherwise
defined herein, capitalized terms in this Warrant shall have the meanings set
forth in Section 15.

     

    
      
        
        

      

      
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    1. EXERCISE OF
WARRANT.

     

    (a) Mechanics of
Exercise.  Subject to the terms and conditions hereof
(including, without limitation, the limitations set forth in Section 1(f)),
this Warrant may be exercised by the Holder on any day on or after the date
hereof, in whole or in part, by (i) delivery of a written notice, in the
form attached hereto as Exhibit A (the “Exercise Notice”), of the
Holder’s election to exercise this Warrant and (ii) (A) payment to the
Company of an amount equal to the applicable Exercise Price multiplied by the
number of Warrant Shares as to which this Warrant is being exercised (the “Aggregate Exercise Price”) in
cash or by wire transfer of immediately available funds to an account designated
by the Company in writing on the Subscription Date (or to such other account
designated by the Company in writing by notice to the Holder thereafter) or (B)
by notifying the Company that this Warrant is being exercised pursuant to a
Cashless Exercise (as defined in Section 1(d)), provided that
such Cashless Exercise is permitted pursuant to the terms hereof. The Holder
shall not be required to deliver the original Warrant in order to effect an
exercise hereunder. Execution and delivery of the Exercise Notice with respect
to less than all of the Warrant Shares shall have the same effect as
cancellation of the original Warrant and issuance of a new Warrant evidencing
the right to purchase the remaining number of Warrant Shares. On or before the
second (2nd)
Business Day following the date on which the Company has received each of the
fully completed and executed Exercise Notice and the Aggregate Exercise Price
(unless such Exercise Notice indicates exercise pursuant to a Cashless Exercise
and Cashless Exercise is then permitted under the terms hereof) (the “Exercise Delivery Documents”),
the Company shall transmit by email or facsimile an acknowledgment of
confirmation of receipt of the Exercise Delivery Documents to the Holder and the
Company’s transfer agent (the “Transfer Agent”). On or before
the fifth (5th) Trading Day following the date on which the Company has received
all of the Exercise Delivery Documents, the Company shall (X) provided that the
Transfer Agent is participating in The Depository Trust Company (“DTC”) Fast Automated
Securities Transfer Program, upon the request of the Holder, credit such
aggregate number of Warrant Shares to which the Holder is entitled pursuant to
such exercise to the Holder’s or its designee’s balance account with DTC through
its Deposit Withdrawal Agent Commission system, or (Y) if the Transfer Agent is
not participating in the DTC Fast Automated Securities Transfer Program, issue
and dispatch by overnight courier to the address as specified in the Exercise
Notice, a certificate, registered in the Company’s share register in the name of
the Holder or its designee, for the number of shares of Common Stock to which
the Holder is entitled pursuant to such exercise. Upon receipt by the Company of
the Exercise Delivery Documents, the Holder shall be deemed for all corporate
purposes to have become the holder of record of the Warrant Shares with respect
to which this Warrant has been exercised, irrespective of the date such Warrant
Shares are credited to the Holder’s DTC account or the date of delivery of the
certificates evidencing such Warrant Shares, as the case may be. If this Warrant
is submitted in connection with any exercise pursuant to this Section 1(a) and
the number of Warrant Shares represented by this Warrant submitted for exercise
is greater than the number of Warrant Shares being acquired upon an exercise,
then the Company shall as soon as practicable and in no event later than five
(5) Business Days after any exercise (and the receipt of such Warrant) and at
its own expense, issue a new Warrant (in accordance with Section 8(d)) representing the
right to purchase the number of Warrant Shares purchasable immediately prior to
such exercise under this Warrant, less the number of Warrant Shares with respect
to which this Warrant is exercised. No fractional shares of Common Stock are to
be issued upon the exercise of this Warrant, but rather the number of shares of
Common 

    
       

      
        
          
          

        

        
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      Stock to be issued shall be rounded down to the nearest whole
number. The Company shall pay any and all transfer taxes which may be payable
with respect to the issuance and delivery of Warrant Shares upon exercise of
this Warrant (for greater certainty not including any income taxes or capital gains of the Holder or exercising holder or
any liability of the Company to withhold tax).

    

     

    (b) Exercise
Price.  For purposes of this Warrant, “Exercise Price” means
Thirty-Five Cents ($0.35), subject to adjustment as provided
herein.

     

    (c) Company’s Failure to Timely
Deliver Securities.  If within five (5) Trading Days after the
Company’s receipt of the Delivery Documents the Company shall fail to issue and
deliver a certificate to the Holder and register such shares of Common Stock on
the Company’s share register or credit the Holder’s balance account with DTC for
the number of shares of Common Stock to which the Holder is entitled upon the
Holder’s exercise hereunder, and if on or after such Trading Day the Holder
purchases (in an open market transaction or otherwise) shares of Common Stock in
a good faith transaction with an unaffiliated third party (a “Good Faith Purchase”) to
deliver in satisfaction of a sale by the Holder of shares of Common Stock
issuable upon such exercise that the Holder is actually entitled to receive from
the Company, then the Company shall, within five (5) Business Days after the
Holder’s request and in the Holder’s discretion, and after Holder provides the
Company with written evidence of such Good Faith Purchase either (i) pay cash to
the Holder in an amount equal to the Holder’s total purchase price (including
documented brokerage commissions and other out-of-pocket expenses, if any) for
the shares of Common Stock so purchased (the “Buy-In Price”), at which
point the Company’s obligation to deliver such certificate (and to issue such
Common Stock) shall terminate, or (ii) promptly honor its obligation to deliver
to the Holder a certificate or certificates representing such Warrant Shares and
pay cash to the Holder in an amount equal to the excess (if any) of the Buy-In
Price over the product of (A) such number of shares of Common Stock, times
(B) the Weighted Average Price on the date of exercise.

     

    (d) Cashless
Exercise.  Notwithstanding anything contained herein to the
contrary, at any time and from time to time on or after the 180-day anniversary
of the Issuance Date, the Holder may, in its sole discretion, exercise this
Warrant in whole or in part and, in lieu of making the cash payment otherwise
contemplated to be made to the Company upon such exercise in payment of the
Aggregate Exercise Price, elect instead to receive upon such exercise the “Net
Number” of shares of Common Stock determined according to the following formula
(a “Cashless
Exercise”):

     

    Net Number = (A x B) - (A x
C)

    B

    


    For purposes of the foregoing
formula:

     

    
      	
               
      

            	
              A=
      the total number of shares with respect to which this Warrant is then
      being exercised.

            


    

     

    
      	
               
      

            	
              B=
      the Weighted Average Price of the shares of Common Stock over the
      fifteen (15) consecutive Trading Day period ending on the fifth
      (5th)
      Trading Day immediately preceding the date the Exercise Notice is received
      by the Company (as reported by
Bloomberg).

            


    

     

    
      
        
        

      

      
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              C=
      the Exercise Price then in effect for the applicable Warrant Shares at the
      time of such exercise.

            


    

    


    (e) Disputes. In the case
of a dispute as to the determination of the Exercise Price or the arithmetic
calculation of the Warrant Shares, the Company shall promptly issue to the
Holder the number of Warrant Shares that are not disputed and resolve such
dispute in accordance with Section 13.

     

    (f) Limitations on Exercises;
Beneficial Ownership.  Notwithstanding anything herein to the
contrary, the Company shall not effect the exercise of this Warrant, and the
Holder shall not have the right to exercise this Warrant, to the extent that
after giving effect to such exercise, such Person (together with such Person’s
Affiliates) would beneficially own in excess of 9.99% (as may be adjusted, the
“Maximum Percentage”) of
the shares of Common Stock outstanding immediately after giving effect to such
exercise. For purposes of the foregoing sentence, the aggregate number of shares
of Common Stock beneficially owned by such Person and its Affiliates shall
include the number of shares of Common Stock issuable upon exercise of this
Warrant with respect to which the determination of such sentence is being made,
but shall exclude shares of Common Stock which would be issuable upon (x)
exercise of the remaining, unexercised portion of this Warrant beneficially
owned by such Person and its Affiliates and (y) exercise or conversion of the
unexercised or unconverted portion of any other securities of the Company
beneficially owned by such Person and its Affiliates (including, without
limitation, any convertible notes or convertible preferred stock or warrants)
subject to a limitation on conversion or exercise analogous to the limitation
contained herein. Except as set forth in the preceding sentence, for purposes of
this paragraph, beneficial ownership shall be calculated in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). For purposes
of this Warrant, in determining the number of outstanding shares of Common
Stock, the Holder may rely on the number of outstanding shares of Common Stock
as reflected in (1) the Company’s most recent Annual Report on Form 10-K,
Quarterly Report on Form 10-Q, Current Report on Form 8-K or other public
filing with the Securities and Exchange Commission (“SEC”) as the case may be, (2)
a more recent public announcement by the Company or (3) any other notice by the
Company or the Transfer Agent setting forth the number of shares of Common Stock
outstanding. For any reason at any time, upon the written request of the Holder,
the Company shall within two (2) Business Days confirm in writing to the Holder
the number of shares of Common Stock then outstanding. In any case, the number
of outstanding shares of Common Stock shall be determined after giving effect to
the conversion or exercise of securities of the Company by the Holder and its
Affiliates since the date as of which such number of outstanding shares of
Common Stock was reported. By written notice to the Company, the Holder may from
time to time increase or decrease the Maximum Percentage to any other percentage
specified in such notice; provided that any
such increase will not be effective until the sixty-first (61st) day
after such notice is delivered to the Company.

     

    (g) Insufficient Authorized
Shares.  If at any time while this Warrant remains outstanding
the Company does not have a sufficient number of authorized and unreserved
shares of Common Stock to satisfy its obligation to reserve for issuance upon
exercise of this Warrant at 

    
       

      
        
          
          

        

        
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      least a number of shares of Common Stock equal to 105% (the “Required Reserve Amount”) of
the number of shares of Common Stock as shall from time to time be necessary to
effect the exercise of all of this Warrant and the other SPA Warrants then
outstanding (an “Authorized
Share Failure”), then the Company shall immediately take all action
necessary to increase the Company’s authorized shares of Common Stock to an
amount sufficient to allow the Company to reserve the Required Reserve Amount
for this Warrant then outstanding. Without limiting the generality of the
foregoing sentence, as soon as practicable after the date of the occurrence of
an Authorized Share Failure, but in no event later than ninety (90) days after
the occurrence of such Authorized Share Failure, the Company shall hold a
meeting of its stockholders or otherwise obtain written consent from its
stockholders without a meeting for the approval of an increase in the number of
authorized shares of Common Stock. In connection with such meeting or written
consent, the Company shall provide each stockholder with a proxy statement or
written information statement (which such proxy or information statement shall
include all of the information specified in Schedule 14C in accordance with
Rule 14c-2 promulgated under the Exchange Act, in each case as may be
amended or restated from time to time), and shall use its best efforts to
solicit its stockholders’ approval of such increase in authorized shares of
Common Stock and to cause its board of directors to recommend to the
stockholders that they approve such proposal.

    

     

    2. ADJUSTMENT OF EXERCISE PRICE
AND NUMBER OF WARRANT SHARES.  The Exercise Price and the
number of Warrant Shares shall be adjusted from time to time as
follows:

     

    (a) Adjustment upon Issuance of
shares of Common Stock. If and whenever the Company issues or sells,
or in accordance with this Section 2 is
deemed to have issued or sold, any shares of Common Stock (including the
issuance or sale of shares of Common Stock owned or held by or for the account
of the Company, but excluding shares of Common Stock issued or sold or deemed to
have been issued or sold by the Company in connection with any Excluded
Securities) for a consideration per share (the “Applicable Price”) less than
the Exercise Price in effect immediately prior to such issuance or sale or
deemed issuance or sale (the foregoing a “Dilutive Issuance”), then
immediately after such Dilutive Issuance, the Exercise Price in effect
immediately prior to such Dilutive Issuance shall be reduced to an amount equal
to the product of (A) the Exercise Price in effect immediately prior to such
Dilutive Issuance and (B) the quotient determined by dividing (1) the sum of (I)
the product derived by multiplying the lower of (x) the volume weighted average
Closing Sale Price for the ten (10) consecutive Trading Days immediately
preceding such Dilutive Issuance and (y) the Exercise Price in effect
immediately prior to such Dilutive Issuance (such lower amount, the “Adjustment Price”), by the
number of shares of Common Stock Deemed Outstanding immediately prior to such
Dilutive Issuance plus (II) the consideration, if any, received by the Company
upon such Dilutive Issuance, by (2) the product derived by multiplying (I) the
Adjustment Price by (II) the number of shares of Common Stock Deemed Outstanding
immediately after such Dilutive Issuance. Upon each such adjustment of the
Exercise Price pursuant to this Section 2(a), the number of
Warrant Shares shall be adjusted to the number of shares of Common Stock
determined by multiplying the Exercise Price in effect immediately prior to such
adjustment by the number of Warrant Shares acquirable upon exercise of this
Warrant immediately prior to such adjustment and dividing the product thereof by
the Exercise Price resulting from such adjustment. In the event an
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      then solely for purposes of determining the adjusted Exercise
Price under this Section 2(a), the following
shall be applicable:

    

     

    (i) Issuance of
Options.  If the Company grants any Options and the lowest
price per share for which one share of Common Stock is issuable upon the
exercise of any such Option or upon conversion, exercise or exchange of any
Convertible Securities issuable upon exercise of any such Option is less than
the Applicable Price, then such share of Common Stock shall be deemed to be
outstanding and to have been issued and sold by the Company at the time of the
granting or sale of such Option for such price per share. For purposes of this
Section 2(a)(i),
the “lowest price per share for which one share of Common Stock is issuable upon
exercise of such Options or upon conversion, exercise or exchange of such
Convertible Securities issuable upon exercise of any such Option” shall be equal
to the sum of the lowest amounts of consideration (if any) received or
receivable by the Company with respect to any one share of Common Stock upon the
granting or sale of the Option, upon exercise of the Option and upon conversion,
exercise or exchange of any Convertible Security issuable upon exercise of such
Option. No further adjustment of the Exercise Price or number of Warrant Shares
shall be made upon the actual issuance of such shares of Common Stock or of such
Convertible Securities upon the exercise of such Options or upon the actual
issuance of such shares of Common Stock upon conversion, exercise or exchange of
such Convertible Securities.

     

    (ii) Issuance of Convertible
Securities.  If the Company in any manner issues or sells any
Convertible Securities and the lowest price per share for which one share of
Common Stock is issuable upon the conversion, exercise or exchange thereof is
less than the Applicable Price, then such share of Common Stock shall be deemed
to be outstanding and to have been issued and sold by the Company at the time of
the issuance or sale of such Convertible Securities for such price per share.
For the purposes of this Section 2(a)(ii), the “lowest
price per share for which one share of Common Stock is issuable upon the
conversion, exercise or exchange thereof” shall be equal to the sum of the
lowest amounts of consideration (if any) received or receivable by the Company
with respect to one share of Common Stock upon the issuance or sale of the
Convertible Security and upon conversion, exercise or exchange of such
Convertible Security. No further adjustment of the Exercise Price or number of
Warrant Shares shall be made upon the actual issuance of such shares of Common
Stock upon conversion, exercise or exchange of such Convertible Securities, and
if any such issue or sale of such Convertible Securities is made upon exercise
of any Options for which adjustment of this Warrant has been or is to be made
pursuant to other provisions of this Section 2(a), no
further adjustment of the Exercise Price or number of Warrant Shares shall be
made by reason of such issue or sale.

     

    (iii) Change in Option Price or
Rate of Conversion. If the purchase price provided for in any Options,
the additional consideration, if any, payable upon the issue, conversion,
exercise or exchange of any Convertible Securities, or the rate at which any
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      exercisable or exchangeable for shares of Common Stock increases
or decreases at any time, the Exercise Price and the number of Warrant Shares in
effect at the time of such increase or decrease shall be adjusted to the
Exercise Price and the number of Warrant Shares which would have been in effect
at such time had such Options or Convertible Securities provided for such
increased or decreased purchase price, additional consideration or increased or
decreased conversion rate, as the case may be, at the time initially granted,
issued or sold. For purposes of this Section 2(a)(iii), if the
terms of any Option or Convertible Security that was outstanding as of the date
of issuance of this Warrant are increased or decreased in the manner described
in the immediately preceding sentence, then such Option or Convertible Security
and the shares of Common Stock deemed issuable upon exercise, conversion or
exchange thereof shall be deemed to have been issued as of the date of such
increase or decrease. No adjustment pursuant to this Section 2(a)
shall be made if such adjustment would result in an increase of the Exercise
Price then in effect or a decrease in the number of Warrant Shares.

    

     

    (iv) Calculation of Consideration
Received. In case any Option is issued in connection with the issue or
sale of other securities of the Company, together comprising one integrated
transaction in which no specific consideration is allocated to such Options by
the parties thereto, the Options will be deemed to have been issued for a
consideration of $0.01. If any shares of Common Stock, Options or Convertible
Securities are issued or sold or deemed to have been issued or sold for cash,
the consideration received therefor will be deemed to be the gross amount
received by the Company therefor. If any shares of Common Stock, Options or
Convertible Securities are issued or sold for a consideration other than cash,
the amount of such consideration received by the Company will be the fair value
of such consideration, except where such consideration consists of securities,
in which case the amount of consideration received by the Company will be the
Weighted Average Price of such security on the date of receipt. If any shares of
Common Stock, Options or Convertible Securities are issued to the owners of the
non-surviving entity in connection with any merger in which the Company is the
surviving entity, the amount of consideration therefor will be deemed to be the
fair value of such portion of the net assets and business of the non-surviving
entity as is attributable to such shares of Common Stock, Options or Convertible
Securities, as the case may be. The fair value of any consideration other than
cash or securities will be determined jointly by the Company and the Required
Holders in good faith. If such parties are unable to reach agreement within ten
(10) days after the occurrence of an event requiring valuation (the “Valuation Event”), the fair
value of such consideration will be determined within five (5) Business Days
after the tenth (10th) day
following the Valuation Event by an independent, reputable appraiser jointly
selected by the Company and the Required Holders. The determination of such
appraiser shall be final and binding upon all parties absent manifest error and
the fees and expenses of such appraiser shall be borne by the
Company.

     

    (b) Adjustment upon Subdivision
or Combination of Common Stock.  If the Company at any time on
or after the Subscription Date subdivides (by any stock split, stock


    
       

      
        
          
          

        

        
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      dividend, recapitalization or otherwise) one or more classes of
its outstanding shares of Common Stock into a greater number of shares, the
Exercise Price in effect immediately prior to such subdivision will be
proportionately reduced and the number of Warrant Shares will be proportionately
increased. If the Company at any time on or after the Subscription Date combines
(by combination, reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the Exercise
Price in effect immediately prior to such combination will be proportionately
increased and the number of Warrant Shares will be proportionately decreased.
Any adjustment under this Section 2(b)
shall become effective at the close of business on the date the subdivision or
combination becomes effective.

    

     

    (c) Other
Events.  If any event occurs of the type contemplated by the
provisions of this Section 2 but
not expressly provided for by such provisions (including, without limitation,
the granting of stock appreciation rights, phantom stock rights or other rights
with equity features unless such rights qualify as Excluded Securities), then
the Company’s Board of Directors will make an appropriate adjustment in the
Exercise Price and the number of Warrant Shares so as to protect the rights of
the Holder under this Warrant; provided that no such
adjustment pursuant to this Section 2(c)
will increase the Exercise Price or decrease the number of Warrant Shares except
as otherwise determined pursuant to this Warrant.

     

    (d) De Minimis
Adjustments.  No adjustment in
the Exercise Price shall be required unless such adjustment would require an
increase or decrease of at least $0.01 in such price; provided, however, that any adjustment which by reason of this
Section 2(d) is not required to be made shall be carried forward and
taken into account in any subsequent adjustments under this Section 2. All calculations under this Section 2 shall be made by the Company in good faith and shall be
made to the nearest cent or to the nearest one hundredth of a share, as
applicable, provided that the
Company shall not be required to issue any fractional shares pursuant to this
Warrant. No adjustment need be made for a change
in the par value or no par value of the Common Stock.

     

    3. RIGHTS UPON CASH DIVIDENDS
AND DISTRIBUTIONS.  Notwithstanding anything contained herein
to the contrary, if the Company at any time on or after the Subscription Date
and prior to the termination, cancellation or full satisfaction of this Warrant,
pays a cash dividend, or makes any other cash distribution to its stockholders
(in each case other than in connection with the issuance, exercise, exchange or
conversion of Excluded Securities), then:

     

    (a) the
Exercise Price in effect immediately prior to such payment or dividend will be
reduced to $0.01 (there shall not be any adjustment of the number of Warrant
Shares in connection with an adjustment of the Exercise Price pursuant to this
Section 3;
provided; however, that upon the occurrence of an event described in Section 4, the
number of Warrant Shares shall be adjusted as set forth in Section 4);
and

     

    (b) the
Holder shall receive, for each Warrant Share that has not been issued under
this Warrant as of the record date for such payment or distribution or, in the
absence of a record date, as of immediately prior to such payment or
distribution (each, an “Unissued Warrant Share”), the
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      received had it exercised this Warrant in full for all such
Unissued Warrant Shares immediately prior to the record date for such payment or
distribution or, in the absence of a record date, as of immediately prior to
such payment or distribution.

    

     

    4. RIGHTS UPON DISTRIBUTION OF
ASSETS.  Except as set forth in Section 3 above,
if the Company shall make any dividend or other distribution of its assets (or
rights to acquire its assets) to holders of shares of Common Stock (other than
in connection with the issuance, exercise, exchange or conversion of Excluded
Securities), by way of return of capital or otherwise (including, without
limitation, any distribution of cash, stock or other securities, property or
options by way of a dividend, spin off, reclassification, corporate
rearrangement, scheme of arrangement or other similar transaction)
(a “Distribution”),
at any time prior to the termination, cancellation or full satisfaction of this
Warrant, then, in each such case:

     

    (a) any
Exercise Price in effect immediately prior to the close of business on the date
of Distribution shall be reduced, effective as of the close of business on the
date of Distribution, to a price determined by multiplying such Exercise Price
by a fraction of which (i) the numerator shall be the Weighted Average Price of
the shares of Common Stock on the Trading Day immediately preceding such date of
Distribution minus the value of the Distribution (as determined in good faith by
the Company’s Board of Directors) applicable to one share of Common Stock, and
(ii) the denominator shall be the Weighted Average Price of the shares of Common
Stock on the Trading Day immediately preceding such date of Distribution;
and

     

    (b) the
number of Warrant Shares shall be increased to a number of shares equal to the
number of shares of Common Stock obtainable immediately prior to the close of
business on the date of Distribution multiplied by the reciprocal of the
fraction set forth in the immediately preceding paragraph (a).

     

    5. FUNDAMENTAL
TRANSACTIONS.

     

    (a) Fundamental
Transactions.  The Company shall not enter into or be party to
a Fundamental Transaction unless (i) the Successor Entity assumes in writing all
of the obligations of the Company under this Warrant and the other Transaction
Documents (as defined in the Securities Purchase Agreement) in accordance with
the provisions of this Section 5(a)
pursuant to written agreements in form and substance reasonably satisfactory to
the Required Holders and approved by the Required Holders prior to such
Fundamental Transaction, including agreements to deliver to each holder of the
SPA Warrants in exchange for such Warrants a security of the Successor Entity
evidenced by a written instrument substantially similar in form and substance to
this Warrant, including, without limitation, an adjusted exercise price equal to
the value for the shares of Common Stock reflected by the terms of such
Fundamental Transaction, and exercisable for a corresponding number of shares of
capital stock equivalent to the shares of Common Stock acquirable and receivable
upon exercise of this Warrant (without regard to any limitations on the exercise
of this Warrant) prior to such Fundamental Transaction, and (ii) the
Successor Entity (including its Parent Entity) is a publicly traded corporation
whose common stock is quoted on or listed for trading on an Eligible Market.
Upon the occurrence of any Fundamental Transaction, the Successor Entity shall
succeed to, and be substituted for (so that from and after the date of such
Fundamental Transaction, the provisions of this Warrant 

    
       

      
        
          
          

        

        
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      referring to the “Company” shall refer instead to the Successor
Entity), and may exercise every right and power of the Company and shall
assume all of the obligations of the Company under this Warrant with the same
effect as if such Successor Entity had been named as the Company herein. Upon
consummation of the Fundamental Transaction, the Successor Entity shall deliver
to the Holder confirmation that there shall be issued upon exercise of this
Warrant at any time after the consummation of the Fundamental Transaction, in
lieu of the shares of the Common Stock (or other securities, cash, assets or
other property) issuable upon the exercise of the Warrant prior to such
Fundamental Transaction, such shares of the publicly traded Common Stock (or its
equivalent) of the Successor Entity (including its Parent Entity) which the
Holder would have been entitled to receive upon the happening of such
Fundamental Transaction had this Warrant been exercised immediately prior to
such Fundamental Transaction, as adjusted in accordance with the provisions of
this Warrant. In addition to and not in substitution for any other rights
hereunder, prior to the consummation of any Fundamental Transaction pursuant to
which holders of shares of Common Stock are entitled to receive securities or
other assets with respect to or in exchange for shares of Common Stock (a “Corporate Event”), the Company
shall make appropriate provision to insure that the Holder will thereafter have
the right to receive upon an exercise of this Warrant at any time after the
consummation of the Fundamental Transaction but prior to the Expiration Date, in
lieu of the shares of the Common Stock (or other securities, cash, assets or
other property) issuable upon the exercise of this Warrant prior to such
Fundamental Transaction, such shares of stock, securities, cash, assets or any
other property whatsoever (including warrants or other purchase or subscription
rights) which the Holder would have been entitled to receive upon the happening
of such Fundamental Transaction had this Warrant been exercised immediately
prior to such Fundamental Transaction. Provision made pursuant to the preceding
sentence shall be in a form and substance reasonably satisfactory to the Holder.
The provisions of this Section shall apply similarly and equally to successive
Fundamental Transactions and Corporate Events and shall be applied without
regard to any limitations on the exercise of this Warrant.

    

     

    (b) Black-Scholes Redemption
Offer.  Notwithstanding the foregoing, the Company may
enter into a Fundamental Transaction where the Successor Entity (including its
Parent Entity) is not a publicly traded corporation whose common stock is quoted
on or listed for trading on an Eligible Market if the Holder shall receive a
written offer from the Company to exchange for cancellation this Warrant for an
amount in cash determined in accordance with the Black-Scholes Option Pricing
Method (with volatility being determined, for purposes of such pricing method,
by reference to the trading prices of the Common Stock on the Principal Market
during the 100 trading days immediately preceding the date of the first public
announcement of the Fundamental Transaction).

     

    6. NONCIRCUMVENTION.  The
Company hereby covenants and agrees that the Company will not, by amendment of
its Certificate of Incorporation, Bylaws or through any reorganization, transfer
of assets, consolidation, merger, scheme of arrangement, dissolution, issue or
sale of securities, or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, and will at all
times in good faith carry out all the provisions of this Warrant and take all
action as it believes may be required to protect the rights of the Holder in
accordance with the terms of this Warrant. Without limiting the generality of
the foregoing, the Company (i) shall not increase the par value of any
shares of Common Stock receivable upon the exercise of this Warrant above the
Exercise Price then in effect, 

    
       

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

      (ii) shall take all such actions as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable shares of Common Stock upon the exercise of this Warrant and
(iii) shall, so long as any of the SPA Warrants are outstanding, take all action
necessary to reserve and keep available out of its authorized and unissued
shares of Common Stock, solely for the purpose of effecting the exercise of the
SPA Warrants, 105% of the number of shares of Common Stock as shall from time to
time be necessary to effect the exercise of the SPA Warrants then outstanding
(without regard to any limitations on exercise).

    

     

    7. WARRANT HOLDER NOT DEEMED A
STOCKHOLDER.  Except as set forth in Section 3 above
and as otherwise specifically provided herein, the Holder, solely in such
Person’s capacity as a holder of this Warrant, shall not be entitled to vote or
receive dividends or be deemed the holder of share capital of the Company for
any purpose, nor shall anything contained in this Warrant be construed to confer
upon the Holder, solely in such Person’s capacity as the Holder of this Warrant,
any of the rights of a stockholder of the Company or any right to vote, give or
withhold consent to any corporate action (whether any reorganization, issue of
stock, reclassification of stock, consolidation, merger, conveyance or
otherwise), receive notice of meetings, receive dividends or subscription
rights, or otherwise, prior to the issuance to the Holder of the Warrant Shares
which such Person is then entitled to receive upon the due exercise of this
Warrant. In addition, nothing contained in this Warrant shall be construed as
imposing any liabilities on the Holder to purchase any securities (upon exercise
of this Warrant or otherwise) or as a stockholder of the Company, whether such
liabilities are asserted by the Company or by creditors of the
Company.

     

    8. REISSUANCE OF
WARRANTS.

     

    (a) Transfer of
Warrant.  This Warrant may be offered for sale, sold,
transferred or assigned without the consent of the Company, except as may
otherwise be required by Section 2(f) of the Securities Purchase Agreement.
If this Warrant is to be transferred, the Holder shall surrender this Warrant to
the Company, whereupon the Company will forthwith issue and deliver upon the
order of the Holder a new Warrant (in accordance with Section 8(d)),
registered as the Holder may request, representing the right to purchase the
number of Warrant Shares being transferred by the Holder and, if less than the
total number of Warrant Shares then underlying this Warrant is being
transferred, a new Warrant (in accordance with Section 8(d)) to
the Holder representing the right to purchase the number of Warrant Shares not
being transferred.

     

    (b) Lost, Stolen or Mutilated
Warrant.  Upon receipt by the Company of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant, and, in the case of loss, theft or destruction, of any
indemnification undertaking by the Holder to the Company in customary form and,
in the case of mutilation, upon surrender and cancellation of this Warrant, the
Company shall execute and deliver to the Holder a new Warrant (in accordance
with Section 8(d))
representing the right to purchase the Warrant Shares then underlying this
Warrant.

     

    (c) Exchangeable for Multiple
Warrants. This Warrant is exchangeable, upon the surrender hereof by the
Holder at the principal office of the Company, for a new Warrant or Warrants (in
accordance with Section 8(d))
representing in the aggregate the right to purchase 

    
       

      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

      

      the number of Warrant Shares then underlying this Warrant, and
each such new Warrant will represent the right to purchase such portion of such
Warrant Shares as is designated by the Holder at the time of such surrender;
provided, however, that no
Warrants for fractional shares of Common Stock shall be given.

    

     

    (d) Issuance of New
Warrants.  Whenever the Company is required to issue a new
Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall be of
like tenor with this Warrant, (ii) shall represent, as indicated on the face of
such new Warrant, the right to purchase the Warrant Shares then underlying this
Warrant (or in the case of a new Warrant being issued pursuant to Section 8(a) or
Section 8(c),
the Warrant Shares designated by the Holder which, when added to the number of
shares of Common Stock underlying the other new Warrants issued in connection
with such issuance, does not exceed the number of Warrant Shares then underlying
this Warrant), (iii) shall have an issuance date, as indicated on the face of
such new Warrant which is the same as the Issuance Date, and (iv) shall have the
same rights and conditions as this Warrant.

     

    9. NOTICES.  Whenever
notice is required to be given under this Warrant, unless otherwise provided
herein, such notice shall be given in accordance with Section 9(f) of the
Securities Purchase Agreement. The Company shall provide the Holder with prompt
written notice of all actions taken pursuant to this Warrant, including in
reasonable detail a description of such action and the reason therefore. Without
limiting the generality of the foregoing, the Company will give written notice
to the Holder (i) within three (3) Business Days following any adjustment of the
Exercise Price, setting forth in reasonable detail, and certifying, the
calculation of such adjustment and (ii) at least ten (10) days prior to the date
on which the Company closes its books or takes a record (A) with respect to any
dividend or distribution upon the shares of Common Stock, (B) with respect to
any grants, issuances or sales of any Options, Convertible Securities or rights
to purchase stock, warrants, securities or other property to all holders of
shares of Common Stock (other than Excluded Securities) or (C) for determining
rights to vote with respect to any Fundamental Transaction, dissolution or
liquidation, provided in each case
that such information has been made known to the public prior to or in
conjunction with such notice being provided to the Holder.

     

    10. AMENDMENT AND
WAIVER.  Except as otherwise provided herein, the provisions of
this Warrant may be amended and the Company may take any action herein
prohibited, or omit to perform any act herein required to be performed by it,
only if the Company has obtained the written consent of the Required Holders;
provided, however, that without
the prior written consent of the Holder, no such action may be taken that (x)
would increase the exercise price of any SPA Warrant or decrease the number of
shares or class of stock obtainable upon exercise of any SPA Warrant (except in
connection with recapitalizations, reclassifications, stock dividends, stock
splits and the like), (y) has or would reasonably be expected to have a material
adverse effect upon the rights of the Holder under this Warrant or (z) would
modify this Section 10; provided that,
notwithstanding the foregoing, none of a Dilutive Issuance, a Distribution or a
Fundamental Transaction shall require the prior written consent of the Holder
(solely in its capacity as a holder of this Warrant) under this Section 10. No
such amendment shall be effective to the extent that it applies to less than all
of the holders of the SPA Warrants then outstanding unless consented to in
writing by the Holder and each other holder of the SPA Warrants then
outstanding.

     

    
      
        
        

      

      
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    11. GOVERNING
LAW.  This Warrant shall be governed by and construed and
enforced in accordance with, and all questions concerning the construction,
validity, interpretation and performance of this Warrant shall be governed by,
the internal laws of the State of New York, without giving effect to any choice
of law or conflict of law provision or rule (whether of the State of New York or
any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York.

     

    12. CONSTRUCTION; HEADINGS;
REFERENCES.  This Warrant shall be deemed to be jointly drafted
by the Company and all the Buyers and shall not be construed against any person
as the drafter hereof. The headings of this Warrant are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Warrant. Unless otherwise provided, each reference to a “Section” herein shall
be deemed a reference to such section of this Warrant.

     

    13. DISPUTE
RESOLUTION.  In the case of a dispute as to the determination
of the Exercise Price or the arithmetic calculation of the Warrant Shares, the
Company shall submit the disputed determinations or arithmetic calculations via
facsimile within five (5) Business Days of receipt of the Exercise Notice giving
rise to such dispute, as the case may be, to the Holder. If the Holder and the
Company are unable to agree upon such determination or calculation of the
Exercise Price or the Warrant Shares within three Business Days of such disputed
determination or arithmetic calculation being submitted to the Holder, then the
Company shall, within two (2) Business Days submit via facsimile (a) the
disputed determination of the Exercise Price to an independent, reputable
investment bank selected by the Company and approved by the Holder, which
approval shall not be unreasonably withheld, conditioned or delayed, or (b) the
disputed arithmetic calculation of the Warrant Shares to the Company’s
independent, outside accountant. The Company shall use its best efforts to cause
at its expense the investment bank or the accountant, as the case may be, to
perform the determinations or calculations and notify the Company and the Holder
of the results no later than ten Business Days from the time it receives the
disputed determinations or calculations. Such investment bank’s or accountant’s
determination or calculation, as the case may be, shall be binding upon all
parties absent demonstrable error.

     

    14. REMEDIES, OTHER OBLIGATIONS,
BREACHES AND INJUNCTIVE RELIEF.  The remedies provided in this
Warrant shall be cumulative and in addition to all other remedies available
under this Warrant and the other Transaction Documents, at law or in equity
(including a decree of specific performance and/or other injunctive relief), and
nothing herein shall limit the right of the Holder right to pursue actual
damages for any failure by the Company to comply with the terms of this Warrant.
The Company acknowledges that a breach by it of its obligations hereunder may
cause irreparable harm to the Holder and that the remedy at law for any such
breach may be inadequate. The Company therefore agrees that, in the event of any
such breach or threatened breach, the Holder shall be entitled, in addition to
all other available remedies, to an injunction restraining any breach, without
the necessity of showing economic loss and without any bond or other security
being required.

     

    15. CERTAIN
DEFINITIONS.  For purposes of this Warrant, the following terms
shall have the following meanings:

     

    (a) “1933 Act” means the Securities
Act of 1933, as amended.

     

    
      
        
        

      

      
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    (b) “Affiliate” means with
respect to a specified Person, any other Person who or which is (a) directly or
indirectly controlling, controlled by or under common control with the specified
Person, or (b) any member, stockholder, director, officer, manager, or
comparable principal of, or relative or spouse of, the specified Person. For
purposes of this definition, “control”, “controlling”, and “controlled” mean the
right to exercise, directly or indirectly, more than fifty percent of the voting
power of the stockholders, members or owners and, with respect to any
individual, partnership, trust or other entity or association, the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of the controlled entity.

     

    (c) “Approved Stock Plan” means
any employee benefit plan which has been or hereafter is approved by the board
of directors of the Company, pursuant to which the Company’s securities may be
issued to any employee, consultant, officer or director for services provided to
the Company.

     

    (d) “Bloomberg” means Bloomberg
Financial Markets.

     

    (e) “Business Day” means any day
other than Saturday, Sunday or other day on which commercial banks in The City
of New York are authorized or required by law to remain closed.

     

    (f) “Closing Sale Price” means, as
of any date, the last closing trade price for the Common Stock on the Principal
Market, as reported by Bloomberg, or, if the Principal Market begins to operate
on an extended hours basis and does not designate the closing trade price then
the last trade price of such security prior to 4:00:00 p.m., New York time, as
reported by Bloomberg, or, if the Principal Market is not the principal
securities exchange or trading market for such security, the last trade price of
such security on the principal securities exchange or trading market where such
security is listed or traded as reported by Bloomberg, or if the foregoing do
not apply, the last trade price of such security in the over-the-counter market
on the electronic bulletin board for such security as reported by Bloomberg, or,
if no last trade price is reported for such security by Bloomberg, the average
of the highest closing bid price and the lowest closing ask price of any of the
market makers for such security as reported in the “pink sheets”. If the Closing
Sale Price cannot be calculated for a security on a particular date on any of
the foregoing bases, the Closing Sale Price on such date shall be the fair
market value of the Common Stock as mutually determined by the Company and the
Holder in good faith. If the Company and the Holder are unable to agree upon the
fair market value of the Common Stock, then such dispute shall be resolved
pursuant to Section 13. All
such determinations shall be appropriately adjusted for any stock dividend,
stock split, stock combination or other similar transaction during the
applicable calculation period.

     

    (g) “Common Stock” means
(i) the Company’s shares of common stock, par value $0.01 per share, and
(ii) any share capital into which such common stock shall have been changed
or any share capital resulting from a reclassification of such common
stock.

     

    (h) “Common Stock Deemed
Outstanding” means, at any given time, the number of shares of Common
Stock actually outstanding at such time, plus the number of shares of Common
Stock deemed to be outstanding pursuant to Sections 2(a)(i) and 2(a)(ii)


    
       

      
        
          
          

        

        
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      hereof regardless of whether the Options or Convertible Securities
are actually exercisable at such time, but excluding any shares of Common Stock
owned or held by or for the account of the Company or issuable upon exercise of
the SPA Warrants.

    

     

    (i) “Convertible Securities” means
any stock or securities (other than Options) directly or indirectly convertible
into or exercisable or exchangeable for shares of Common Stock.

     

    (j) “Eligible Market” means The New
York Stock Exchange, Inc., NYSE Alternext US LLC, The NASDAQ Global Market, The
NASDAQ Global Select Market, The NASDAQ Capital Market or the OTC Bulletin
Board.

     

    (k) “Excluded Securities” means any
(I) Common Stock issued or issuable, directly or indirectly: (i) in
connection with any Approved Stock Plan or with respect to any shares of Common
Stock reserved as employee shares (or for consultants, officers or directors of
the Company and its Subsidiaries) as of the date immediately preceding the
Issuance Date; (ii) upon conversion or exercise of any senior convertible
note (each a “Note”) or
warrant (each a “Prior
Warrant”) issued or issuable pursuant to that certain Securities Purchase
Agreement, dated as of August 1, 2008, by and among the Company and the
investors listed on the Schedule of Buyers attached thereto, as may be amended
or restated from time to time (the “Prior Purchase Agreement”);
(iii) pursuant to a bona fide firm commitment underwritten public offering
with a nationally recognized underwriter which generates gross proceeds to the
Company in excess of $10,000,000 (other than an
“at-the-market offering” as defined in Rule 415(a)(4) under the 1933 Act,
and “equity lines”); (iv) upon conversion of any Options or Convertible
Securities which are outstanding on the day immediately preceding the Issuance
Date, provided that the exercise or conversion price of such Options or
Convertible Securities are not reduced on or after the Issuance Date (except in
connection with recapitalizations, reclassifications, stock dividends, stock
splits and the like); (v) in connection with any merger, consolidation,
acquisition, or similar business combination approved by the board of directors
of the Company; (vi) pursuant to any equipment loan or leasing arrangement,
real property leasing arrangement or debt financing from a bank or similar
financial institution approved by the board of directors of the Company;
(vii) pursuant to Section 4(m) of the Prior Purchase Agreement;
(viii) in connection with the payment of interest, penalties, premiums or
other liquidated damages on the Notes or under any registration rights agreement
of the Company in effect prior to the Issuance Date (provided that such
registration rights agreement was disclosed to the Buyers on or prior to the
Issuance Date or an exhibit to a Current Report, Quarterly Report or Annual
Report of the Company filed with the SEC at least two (2) Business Days prior to
the Issuance Date); (ix) upon conversion of any Series B nonredeemable
convertible preferred stock, par value $0.01 per share, of the Company (“Series B Preferred”),
outstanding as of the Issuance Date; or (x) under the Securities Purchase
Agreement or under any SPA Warrants, including this Warrant; (II) any Series B
preferred issued or issuable upon conversion of the convertible promissory note
originally issued on February 8, 2007 by the Company to Elan Pharma
International Limited and any replacements thereof (the “Elan Note”) (provided,
however, that the terms relating to the conversion of such note shall not be
materially modified and the principal amount of such note, after deducting for
amounts converted, repaid, redeemed or prepaid, shall not have been increased)
(the “Elan Note Series B
Preferred”); (III) any Common Stock issued or issuable upon conversion of
any of the Elan Note Series B Preferred; 

    
       

      
        
          
          

        

        
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      (IV) any warrant issued or issuable pursuant to the terms of the
Elan Note (an “Elan
Warrant”); (V) any Series B Preferred issued or issuable upon exercise of
any Elan Warrant (the “Elan
Warrant Series B”); (VI) any Common Stock issued or issuable upon
conversion of any Elan Warrant Series B; (VII) any Note and any Prior
Warrant; and (VIII) any Common Stock issued or issuable pursuant to a stock
split, stock dividend, recapitalization, exchange or similar event or otherwise
relating to any of the securities referred to in clauses (I) through (VII)
hereof.

    

     

    (l) “Expiration Date” means the
date five (5) years after the Issuance Date or, if such date falls on a day
other than a Business Day or on which trading does not take place on the
Principal Market (a “Holiday”), the first date
thereafter that is not a Holiday.

     

    (m) “Fundamental Transaction”
means any of the following transactions, in which the Company shall,
directly or indirectly, in one or more related transactions, (i) consolidate or
merge with or into (whether or not the Company is the surviving corporation)
another Person or Persons, and the holders of the Voting Stock (not
including any shares of Voting Stock held by the Person or Persons making or
party to, or associated or affiliated with the Persons making or party to, such
consolidation or merger) immediately prior to such consolidation or merger
hold or have the right to direct the voting of less than 50% of the Voting Stock
or such voting securities of such other surviving Person immediately following
such transaction, or (ii) sell, assign, transfer, convey or otherwise dispose of
all or substantially all of the properties or assets of the Company to another
Person, or (iii) be the subject of a purchase, tender or exchange offer
that is accepted by the holders of more than 50% of the outstanding shares of
Voting Stock (not including any shares of Voting Stock held by the Person or
Persons making or party to, or associated or affiliated with the Persons making
or party to, such purchase, tender or exchange offer), or (iv) consummate a
stock purchase agreement or other business combination (including, without
limitation, a reorganization, recapitalization, spin-off or scheme of
arrangement) with another Person other than Goodnow Capital, L.L.C., Xmark
Opportunity Partners, LLC or an Affiliate of either of the foregoing whereby
such other Person acquires more than 50% of the outstanding shares of Voting
Stock (not including any shares of Voting Stock held by the other Person or
other Persons making or party to, or associated or affiliated with the other
Persons making or party to, such stock purchase agreement or other business
combination), or (v) be the subject of a change in ownership such that any
“person” or “group” (as these terms are used for purposes of Sections 13(d) and
14(d) of the Exchange Act) other than Goodnow Capital, L.L.C., Xmark Opportunity
Partners, LLC or an Affiliate of either of the foregoing is or shall become the
“beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of 50% of the aggregate ordinary voting power represented by
issued and outstanding Common Stock.

     

    (n) “Options” means any rights,
warrants or options to subscribe for or purchase shares of Common Stock or
securities convertible into or exercisable or exchangeable for Common
Stock.

     

    (o) “Parent Entity” of a Person
means an entity that, directly or indirectly, controls the applicable Person and
whose common stock or equivalent equity security is quoted or listed on an
Eligible Market, or, if there is more than one such Person or Parent Entity, the
Person or Parent Entity with the largest public market capitalization as of the
date of consummation of the Fundamental Transaction.

     

    
      
        
        

      

      
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    (p) “Person” means an individual, a
limited liability company, a partnership, a joint venture, a corporation, a
trust, an unincorporated organization, any other entity and a government or any
department or agency thereof.

     

    (q) “Principal Market” means the
Eligible Market the Common Stock is then listed on.

     

    (r) “Required Holders” means the
holders of the SPA Warrants representing at least fifty and one-tenth percent
(50.1%) of the shares of Common Stock underlying the SPA Warrants then
outstanding.

     

    (s) “Subsidiary” means each
“Significant Subsidiary” (as such term is defined in Rule 1-02 of Regulation S-X
of the 1933 Act) of the Company.

     

    (t) “Successor Entity” means the
Person, which may be the Company, formed by, resulting from or surviving any
Fundamental Transaction or the Person with which such Fundamental Transaction
shall have been made, provided that if such
Person is not a publicly traded entity whose common stock or equivalent equity
security is quoted or listed for trading on an Eligible Market, Successor Entity
shall mean such Person’s Parent Entity.

     

    (u) “Trading Day” means any day on
which the Common Stock are traded on the Principal Market, or, if the Principal
Market is not the principal trading market for the Common Stock, then on the
principal securities exchange or securities market on which the Common Stock are
then traded; provided that
“Trading Day” shall not include any day on which the Common Stock are scheduled
to trade on such exchange or market for less than 4.5 hours or any day that the
Common Stock are suspended from trading during the final hour of trading on such
exchange or market (or if such exchange or market does not designate in advance
the closing time of trading on such exchange or market, then during the hour
ending at 4:00:00 p.m., New York time).

     

    (v) “Voting Stock” of a Person
means capital stock of such Person of the class or classes pursuant to which the
holders thereof have the general voting power to elect, or the general power to
appoint, at least a majority of the board of directors, managers or trustees of
such Person (irrespective of whether or not at the time capital stock of any
other class or classes shall have or might have voting power by reason of the
happening of any contingency).

     

    (w) “Weighted Average Price” means,
for any security as of any date, the dollar volume-weighted average price for
such security on the Principal Market during the period beginning at 9:30:01
a.m., New York City time, and ending at 4:00:00 p.m., New York City time, as
reported by Bloomberg through its “Volume at Price” function or, if the
foregoing does not apply, the dollar volume-weighted average price of such
security in the over-the-counter market on the electronic bulletin board for
such security during the period beginning at 9:30:01 a.m., New York City time,
and ending at 4:00:00 p.m., New York City time, as reported by Bloomberg, or, if
no dollar volume-weighted average price is reported for such security by
Bloomberg for such hours, the average of the highest closing bid price and the
lowest closing ask price of any of the market makers for such security as
reported in the “pink sheets”. If the Weighted Average Price cannot be
calculated for such security on such date on any of the 

    
       

      
        
          
          

        

        
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      foregoing bases, the Weighted Average Price of such security on
such date shall be the fair market value as mutually determined by the Company
and the Required Holders in good faith; provided that if the
Company and the Required Holders are unable to agree upon the fair market value
of such security, then such dispute shall be resolved pursuant to Section 13 with
the term “Weighted Average Price” being substituted for the term “Exercise
Price.” All such determinations shall be appropriately adjusted for any share
dividend, share split or other similar transaction during such
period.

    

     

    [Signature Page Follows.]

    


    
      
        
          
             

          

           


        

        
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    IN WITNESS WHEREOF, the
Company has caused this Warrant to Purchase Common Stock to be duly executed as
of the Issuance Date set out above.

     

    


    AEOLUS
PHARMACEUTICALS, INC.

    


    


    


    By:           /s/ Michael P.
McManus                                                      

    Name:                      Michael
P. McManus

    Title:                      Chief
Financial Officer

    


    
      
        
          
            Signature
Page to Warrant to Purchase Common Stock 

          

           


        

        
           


          
            

          

        

        
           


          
            EXHIBIT
A 

            


          

        

      

    

    


    EXERCISE
NOTICE

    TO
BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

    WARRANT
TO PURCHASE COMMON STOCK

    


    AEOLUS
PHARMACEUTICALS, INC.

    The
undersigned holder hereby exercises the right to purchase _________________ of
the shares of Common Stock (“Warrant Shares”) of Aeolus
Pharmaceuticals, Inc., a Delaware corporation (the “Company”), evidenced by the
attached Warrant to Purchase Common Stock (the “Warrant”). Capitalized terms
used herein and not otherwise defined shall have the respective meanings set
forth in the Warrant.

     

    1.           Form of Exercise
Price.  The Holder intends that payment of the Exercise Price
shall be made as:

     

    
      	
               
      

            	
              ____________

            	
              a
      “Cash
      Exercise” with respect to _________________ Warrant Shares;
      and/or

            


    

     

    
      	
               
      

            	
              ____________

            	
              a
      “Cashless
      Exercise” with respect to _______________ Warrant
      Shares.

            


    

     

    2.           Payment of Exercise
Price.  In the event that the holder has elected a Cash
Exercise with respect to some or all of the Warrant Shares to be issued pursuant
hereto, the holder shall pay the Aggregate Exercise Price in the sum of
$___________________ to the Company in accordance with the terms of the
Warrant.

     

    3.           Maximum Exercise
Percentage.  The Holder represents and warrants to the Company
that the Holder, together with the Holder’s affiliates, will not beneficially
own in excess of [9.99]%1 of the shares of Common Stock of the Company
outstanding immediately after giving effect to the exercise of the Warrant for
the number of Warrant Shares to be issued pursuant to this Exercise
Notice.

     

    4.           Delivery of Warrant
Shares.  The Company shall deliver to the holder __________
Warrant Shares in accordance with the terms of the Warrant.

     

    


    Date:
_______________ __, ______

    


    


    


     Name
of Registered Holder

    


    


    By:           

    Name:

    Title:

    

      

    

      
      1 Such
amount to be the Maximum Percentages.

       

    

    


    
      
        
           


        

        
           


          
            

          

        

        
           


        

      

    

    


    ACKNOWLEDGMENT

    


    


    The
Company hereby acknowledges this Exercise Notice and hereby directs American
Stock Transfer and Trust Company to issue the above indicated number of shares
of Common Stock in accordance with the Irrevocable Transfer Agent Instructions
dated March 30, 2009 from the Company and acknowledged and agreed to by American
Stock Transfer and Trust Company.

     

    


    AEOLUS
PHARMACEUTICALS, INC.

    


    


    


    By:                                                                

    Name:

    Title: