ex103warrant.htm


    
      EXHIBIT
10.3

       


      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: ________, 20__ (“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 3 hereof (the “Warrant
Shares”).  This Warrant is one of the Warrants to purchase
Common Stock (the “SPA
Warrants”) issued pursuant to Section 1 of that certain Securities
Purchase Agreement (the “Securities Purchase
Agreement”), dated as of ____________, 20___ (the

       


      
        
          
             

          

           


        

        
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      “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 14.

       

      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 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)).  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
Exercise Notice and the Aggregate Exercise Price (or notice of a Cashless
Exercise) (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 “Share
Delivery Date”), 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 at its
own expense, issue a new

       


      
        
          
             

          

           


        

        
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      Warrant
(in accordance with Section 7(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 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 Fifty
Cents ($0.50), 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 (a “Buy-In”), 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”):

       


      
        
          
             

          

           


        

        
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      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).

              


      

       

      
        	
                 
      

              	
                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 12.

       

      (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% (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.

       


      
        
          
             

          

           


        

        
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      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 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

       


      
        
          
             

          

           


        

        
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      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 adjustment is required under
this Section 2, 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

       


      
        
          
             

          

           


        

        
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      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 Convertible Securities are convertible into or 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

       


      
        
          
             

          

           


        

        
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      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 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.

       


      
        
          
             

          

           


        

        
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      (d)              De Minimis
Adjustments.  No adjustment in
the Conversion 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 Company’s Common
Stock.

       

      3.      RIGHTS UPON DISTRIBUTION OF
ASSETS.  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).

       

      4.      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 (4)(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

       


      
        
          
             

          

           


        

        
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      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 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) .

       


      
        
          
             

          

           


        

        
          -10-

          
            

          

        

        
           


        

      


      5.      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, (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).

       

      6.      WARRANT HOLDER NOT DEEMED A
STOCKHOLDER.  Except 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.

       

      7.      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 7(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 7(d)) to the Holder representing the
right to purchase the number of Warrant Shares not being
transferred.

       


      
        
          
             

          

           


        

        
          -11-

          
            

          

        

        
           


        

      


      (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 7(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 7(d)) representing in the aggregate the
right to purchase 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 7(a)
or Section 7(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.

       

      8.      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) immediately upon 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.

       

      9.      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

       


      
        
          
             

          

           


        

        
          -12-

          
            

          

        

        
           


        

      


      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 9; 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 9.  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.

       

      10.           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.

       

      11.           CONSTRUCTION;
HEADINGS.  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.

       

      12.           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.

       

      13.           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

       


      
        
          
             

          

           


        

        
          -13-

          
            

          

        

        
           


        

      


      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.

       

      14.           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.

       

      (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)              “Bloomberg” means Bloomberg
Financial Markets.

       

      (d)              “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.

       

      (e)              “Closing Sale Price” means, for
any security as of any date, the last closing trade price for such security 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 of such security on such date shall be the fair market value 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 such
security, then such dispute shall be resolved pursuant to Section
12.  All such determinations to be appropriately adjusted for any
stock dividend, stock split, stock combination or other similar transaction
during the applicable calculation period.

       


      
        
          
             

          

           


        

        
          -14-

          
            

          

        

        
           


        

      


      (f)              “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.

       

      (g)              “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) 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.

       

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

       

      (i)              “Eligible Market” means The New
York Stock Exchange, Inc., the American Stock Exchange, The NASDAQ Global
Market, The NASDAQ Global Select Market, The NASDAQ Capital Market or the OTC
Bulletin Board.

       

      (j)              “Excluded Securities” has the
meaning ascribed to such term in the SPA Securities.

       

      (k)              “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.

       

      (l)              “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

       


      
        
          
             

          

           


        

        
          -15-

          
            

          

        

        
           


        

      


      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.

       

      (m)              “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.

       

      (n)              “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.

       

      (o)              “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.

       

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

       

      (q)              “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.

       

      (r)              “SPA Securities” means the
Notes issued pursuant to the Securities Purchase Agreement.

       

      (s)              “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.

       

      (t)              “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

       


      
        
          
             

          

           


        

        
          -16-

          
            

          

        

        
           


        

      


      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).

       

      (u)              “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).

       

      (v)              “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 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 12 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.]


      
        
          
             

          

           


        

        
          -17-

          
            

          

        

        
           


        

      


      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:

              	 


      

       

      
        	
                 
      

              	
                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% 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:


      
        
          
            Signature
Page to Warrant to Purchase Common Stock

          

           


        

        
           


          
            

          

        

        
           


        

      


      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 August 1, 2008 from the
Company and acknowledged and agreed to by American Stock Transfer and Trust
Company.

      


      
        	
                 
      

              	
                AEOLUS
      PHARMACEUTICALS, INC.

              


      

       

      


       

      By:                      

      Name:

      Title:


      
        
          
            Signature
Page to Warrant to Purchase Common Stock