Exhibit
        10.1

      PURCHASE
        AGREEMENT

      


      


      THIS
        PURCHASE AGREEMENT (“Agreement”)
        is
        made as of the 21st day of November,
        2005 by
        and among Aeolus Pharmaceuticals, Inc., a Delaware corporation (the
“Company”),
        the
        Investors set forth on the signature pages affixed hereto and any other
        Investors that may hereafter become a party to this Agreement in accordance
        with
        the terms hereof (each an “Investor”
        and
        collectively the “Investors”).
        

       

      Recitals

       

      A. The
        Company desires, pursuant to this Agreement, to raise up to $2,500,000 through
        the issuance and sale of the following to the Investors (the “Private
        Placement”):
        (i)
        up to 1,250,000 shares of a newly created series of the Company’s Preferred
        Stock, designated “Series A Convertible Preferred Stock”, par value $0.01 per
        share (the “Preferred
        Stock”),
        which
        Preferred Stock shall have the rights, preferences and privileges set forth
        in
        the Certificate of Designations, Preferences and Rights of Series A Preferred
        Stock of Aeolus Pharmaceuticals, Inc., in the form of Exhibit
        A
        annexed
        hereto and made a part hereof (the “Certificate
        of Designations”),
        and
        each share of Preferred Stock shall have a stated value of $2.00 and shall
        initially be convertible into shares of the Company's Common Stock, par value
        $0.01 per share (the “Common
        Stock”),
        at a
        price of $1.00 per share; and (ii) warrants, in the form of Exhibit
        B
        annexed
        hereto and made a part hereof (the “Warrants”),
        to
        acquire up to that number of shares of Common Stock initially issuable upon
        conversion of the number of shares of Preferred Stock sold by the Company
        to the
        Investors in the Private Placement; and

       

      B. The
        Private Placement is structured to occur in one
        closing,
        subject
        to the conditions hereinafter set forth, at
        which
        time
        the
        Investors will purchase an aggregate of 1,250,000 shares of Preferred Stock
        (the
“Closing
        Shares”),
        together with Warrants to acquire up to that number of shares of Common Stock
        initially issuable upon conversion of the Closing
        Shares (such Warrants, together with the Closing
        Shares, the “Securities”), for
        an
        aggregate purchase price of $2,500,000 (the “Purchase
        Price”);
        and

       

      C. Contemporaneous
        with the sale of the Securities,
        the Company and the Investors will execute and deliver a Registration Rights
        Agreement, in the form attached hereto as Exhibit
        C
        (the
“Registration
        Rights Agreement”),
        pursuant to which the Company will agree to provide certain registration
        rights
        to the Investors under the Securities Act of 1933, as amended, and the rules
        and
        regulations promulgated thereunder (the “1933
        Act”),
        and
        applicable state securities laws; and

       

      D. The
        Company and the Investors are executing and delivering this Agreement in
        reliance upon the exemption from securities registration afforded by the
        provisions of Regulation D (“Regulation
        D”),
        as
        promulgated by the U.S. Securities and Exchange Commission (the “SEC”)
        under
        the 1933 Act.

       

      In
        consideration of the mutual promises made herein and for other good and valuable
        consideration, the receipt and sufficiency of which are hereby acknowledged,
        the
        parties hereto agree as follows:

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      1.  Definitions.
        In
        addition to those terms defined above and elsewhere in this Agreement, for
        purposes of this Agreement, the following terms shall have the meanings set
        forth below:

       

      “Affiliate”
        means,
        with respect to any Person, any other Person which directly or indirectly
        through one or more intermediaries Controls, is Controlled by, or is under
        common Control with, such Person.

       

      “Business
        Day”
        means a
        day, other than a Saturday or Sunday, on which banks in New York City are
        open
        for the general transaction of business.

       

      “Company’s
        Knowledge”
        means
        the actual knowledge of the executive officers (as defined in Rule 405 under
        the
        1933 Act) of the Company, after due inquiry.

       

      “Confidential
        Information”
        means
        trade secrets, confidential information and know-how (including but not limited
        to ideas, formulae, compositions, processes, procedures and techniques, research
        and development information, computer program code, performance specifications,
        support documentation, drawings, specifications, designs, business and marketing
        plans, and customer and supplier lists and related information).

       

      “Control”
        (including the terms “controlling”, “controlled by” or “under common control
        with”) means the possession, direct or indirect, of the power to direct or cause
        the direction of the management and policies of a Person, whether through
        the
        ownership of voting securities, by contract or otherwise.

       

      “Conversion
        Shares”
        means
        the shares of Common Stock issuable upon conversion of the Shares.

       

      “Intellectual
        Property”
        means
        all of the following: (i) patents, patent applications, patent disclosures
        and
        inventions (whether or not patentable and whether or not reduced to practice);
        (ii) trademarks, service marks, trade dress, trade names, corporate names,
        logos, slogans and Internet domain names, together with all goodwill associated
        with each of the foregoing; (iii) copyrights and copyrightable works; (iv)
        registrations, applications and renewals for any of the foregoing; and (v)
        proprietary computer software (including but not limited to data, data bases
        and
        documentation).

       

      “Lead
        Investor”
        means
        Xmark Opportunity Fund, L.P. and Xmark Opportunity Fund, Ltd.

       

      “Material
        Adverse Effect”
        means a
        material adverse effect on (i) the assets, liabilities, results of operations,
        condition (financial or otherwise), business, or prospects of the Company
        and
        its Subsidiary taken as a whole, or (ii) the ability of the Company to perform
        its obligations under the Transaction Documents.

       

      “Person”
        means
        an individual, corporation, partnership, limited liability company, trust,
        business trust, association, joint stock company, joint venture, sole
        proprietorship, unincorporated organization, governmental authority or any
        other
        form of entity not specifically listed herein.

       

      
        
          
          

        

        
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      “Pro
        Rata Portion”
        means,
        with respect to a specific Investor, the “Pro
        Rata Portion”
        set
        forth opposite such Investor’s name on Schedule
        I
        attached
        hereto.

       

      “Securities”
        means
        the Shares, the Warrants, the Conversion Shares and the Warrant
        Shares.

       

      “Shares”
        means
        the shares of Preferred Stock purchased by the Investors hereunder
        at the
Closing.

       

      “Short
        Sales”
        means
        all “short sales” as defined in Rule 3b-3 of the 1934 Act and all types of
        direct and indirect stock pledges, forward sale contracts, options, puts,
        calls,
        short sales, swaps and similar arrangements (including on a total return
        basis),
        and sales and other transactions through non-US broker dealers or foreign
        regulated brokers having the effect of hedging the securities or investment
        made
        under this Agreement. 

       

      “Subsidiary”
        means
        Aeolus Sciences, Inc., a Delaware corporation.

       

      “Trading
        Activities”
        means
        any of the following: (a) any Short Sales involving the Company’s securities;
        (b) the establishment of or change in any “put equivalent position” with the
        meaning of Rule 16b-3 of the 1934 Act with respect to the Company’s securities;
        and (c) any other transactions in the securities of the Company.

       

      “Transaction
        Documents”
        means
        this Agreement, the Warrants and the Registration Rights Agreement.

       

      “Warrant
        Shares”
        means
        the shares of Common Stock issuable upon the exercise of the
        Warrants.

       

      “1934
        Act”
        means
        the Securities Exchange Act of 1934, as amended, or any successor statute,
        and
        the rules and regulations promulgated thereunder.

       

      2.  Purchase
        and Sale of the Shares and Warrants; Closing.

       

      2.1  Closing.
        Subject
        to the terms and conditions of this Agreement, at
        the
        closing
        (the “Closing”) at
        which
        the Company shall issue and sell to each Investor listed on Schedule
        I
        attached
        hereto, and each Investor listed on Schedule
        I
        attached
        hereto shall severally, and not jointly, purchase from the Company, the number
        of shares of Preferred Stock in the respective amounts set forth opposite
        its
        name on Schedule
        I
        affixed
        hereto, and Warrants to purchase that number of shares of Common Stock set
        forth
        opposite its name on Schedule
        I
        affixed
        hereto, in exchange for the cash consideration set forth as the “Purchase
        Price”
        opposite such Investor’s name on Schedule
        I
        affixed
        hereto, in immediately available funds, by wire transfer to an account
        designated by the Company for such purpose. 

       

      2.2  Time
        and Place of Closing.
        Subject
        to the terms and conditions contained in this Agreement, each Closing shall
        take
        place at the offices of Lowenstein Sandler PC, counsel to the Lead Investor,
        1251 Avenue of the Americas, 18th Floor, New York, New York 10020, at 10:00
        a.m.
        (New York Time), on
        the
        date (the “Closing
        Date”)
        that
        is no later than one (1) Business Day after satisfaction or waiver (if
        applicable) of all of the conditions set forth in Sections 5.1 and 5.2 that
        are
        applicable to the
        Closing,
        or at such other location and on such other date as the Company and the Lead
        Investor shall mutually agree in writing.

       

      
        
          
          

        

        
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      3.  Representations
        and Warranties of the Company.
        The
        Company hereby represents and warrants to the Investors that, except as set
        forth in the schedules delivered herewith, as such schedules may be revised,
        amended or updated prior to any Closing date (collectively, the “Disclosure
        Schedules”):

       

      3.1  Organization,
        Good Standing and Qualification.
        Each of
        the Company and the Subsidiary is a corporation duly organized, validly existing
        and in good standing under the laws of the jurisdiction of its incorporation
        and
        has all requisite corporate power and authority to carry on its business
        as now
        conducted and to own its properties. Each of the Company and the Subsidiary
        is
        duly qualified to do business as a foreign corporation and is in good standing
        in each jurisdiction in which the conduct of its business or its ownership
        or
        leasing of property makes such qualification necessary unless the failure
        to so
        qualify would not reasonably be expected to have a Material Adverse Effect.
        The
        Subsidiary is the only corporation for which the Company is required under
        GAAP
        to consolidate the income statements and balance sheets with its
        own.

       

      3.2  Authorization.
        The
        Company has full corporate power and authority and has taken or will take
        prior
        to the
        Closing
        all requisite action on the part of the Company, its officers, directors
        and
        stockholders necessary for (i) the authorization, execution and delivery
        of the
        Transaction Documents, (ii) the authorization of the performance of all
        obligations of the Company hereunder or thereunder, and (iii) the authorization,
        issuance (or reservation for issuance) and delivery of the
        Securities.
        The
        Transaction Documents constitute the legal, valid and binding obligations
        of the
        Company, enforceable against the Company in accordance with their terms,
        except
        (a) as limited by applicable bankruptcy, insolvency, fraudulent transfer,
        reorganization, moratorium and similar laws of general applicability, relating
        to or affecting creditors’ rights generally, (b) as limited by the laws relating
        to specific performance, injunctive relief or other equitable remedies, and
        (c)
        to the extent the indemnification provisions contained in this Agreement
        and the
        Registration Rights Agreement may be limited by applicable laws.

       

      3.3  Capitalization.
        Schedule
        3.3
        sets
        forth (a) the authorized capital stock of the Company on the date hereof;
        (b)
        the number of shares of capital stock issued and outstanding on the date
        hereof;
        (c) the number of shares of capital stock of the Company issuable pursuant
        to
        options outstanding and reserved for issuance, on the date hereof, under
        the
        Company’s stock plans on the date hereof (the “Options”);
        and
        (d) the number of shares of capital stock of the Company
        issuable
        and reserved for issuance, on the date hereof, pursuant to securities (other
        than the Shares, the Warrants, the Conversion Shares, the Warrant Shares
        and the
        Options) exercisable for, or convertible into or exchangeable for any shares
        of
        capital stock of the Company. All of the issued and outstanding shares of
        the
        Company’s capital stock have been duly authorized and validly issued and are
        fully paid, nonassessable and free of pre-emptive rights and were issued
        in full
        compliance with applicable state and federal securities law and any rights
        of
        third parties. Except as described on Schedule
        3.3,
        all of
        the issued and outstanding shares of capital stock of the Subsidiary have
        been
        duly authorized and validly issued and are fully paid, nonassessable and
        free of
        pre-emptive rights, were issued in full compliance with applicable state
        and
        federal securities law and any rights of third parties and are owned by the
        Company, beneficially and of record, subject to no lien, encumbrance or other
        adverse claim. Except as described on Schedule
        3.3,
        no
        Person is entitled to pre-emptive or similar statutory or contractual rights
        with respect to any securities of the Company. Except as described on
Schedule
        3.3,
        there
        are no outstanding warrants, options, convertible securities or other rights,
        agreements or arrangements of any character under which the Company or its
        Subsidiary is or may be obligated to issue any equity securities of any kind
        and
        except as contemplated by this Agreement, neither the Company nor its
        Subsidiary is
        currently in negotiations for the issuance of any equity securities of any
        kind.
        Except as described on Schedule
        3.3,
        there
        are no voting agreements, buy-sell agreements, option or right of first purchase
        agreements or other agreements of any kind among the Company and any of the
        securityholders of the Company relating to the securities of the Company
        held by
        them. Except as described on Schedule
        3.3,
        no
        Person has the right to require the Company to register any securities of
        the
        Company under the 1933 Act, whether on a demand basis or in connection with
        the
        registration of securities of the Company for its own account or for the
        account
        of any other Person other than pursuant to (i) the Registration Rights
        Agreement, (ii) that certain Registration Rights Agreement dated July 15,
        1999
        between Interneuron Pharmaceuticals, Inc. and the Company, (iii) that certain
        Amended and Restated Registration Rights Agreement dated as of May 15, 2002
        among the Company, Elan International Services, Ltd. and Elan
        Pharma International Limited, (iv) that certain Registration Rights Agreement
        dated September 16, 2003 among the Company, Incara, Inc. and Goodnow
        Capital,
        LLC, and (v) that certain Registration Rights Agreement dated April 19, 2004
        among the Company, certain investors and SCO Securities LLC.

       

      
        
          
          

        

        
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      The
        issuance and sale of the Securities hereunder will not obligate the Company
        to
        issue shares of Common Stock or other securities to any other Person (other
        than
        the Investors) and will not result in the adjustment of the exercise,
        conversion, exchange or reset price of any outstanding security of the
        Company.

       

      Except
        as
        described on Schedule
        3.3,
        the
        Company does not have outstanding stockholder purchase rights or “poison pill”
        or any similar arrangements in effect giving any Person the right to purchase
        any equity interest in the Company upon the occurrence of certain
        events.

       

      3.4  Valid
        Issuance.
        The
        Shares have been duly and validly authorized and, when issued and paid for
        pursuant to this Agreement, will be validly issued, fully paid and
        nonassessable, and shall be free and clear of all encumbrances and restrictions
        (other than those created by the Investors), except for restrictions on transfer
        set forth in the Transaction Documents or imposed by applicable securities
        laws. 
        The
        Warrants have been duly and validly authorized. Upon the due exercise of
        the
        Warrants or conversion of the Shares, the Warrant Shares or the Conversion
        Shares, as the case may be, will be validly issued, fully paid and
        non-assessable free and clear of all encumbrances and restrictions, except
        for
        restrictions on transfer set forth in the Transaction Documents or imposed
        by
        applicable securities laws and except for those created by the Investors.
        The
        Company has reserved a sufficient number of shares of Common Stock for issuance
        upon the exercise of the Warrants and conversion of the Shares, in each case,
        free and clear of all encumbrances and restrictions, except for restrictions
        on
        transfer set forth in the Transaction Documents or imposed by applicable
        securities laws and except for those created by the Investors.

       

      3.5  Consents.
        The
        execution, delivery and performance by the Company of the Transaction Documents
        and the offer, issuance and sale of the Securities require no consent of,
        action
        by or in respect of, or filing with, any Person, governmental body, agency,
        or
        official other than filings that have been made pursuant to applicable state
        securities laws and post-sale filings pursuant to applicable state and federal
        securities laws which the Company undertakes to file within the applicable
        time
        periods. Subject to the accuracy of the representations and warranties of
        each
        Investor set forth in Section 4 hereof, the Company has taken all action
        necessary to exempt (i) the issuance and sale of the Securities, (ii) the
        issuance of the Warrant Shares upon due exercise of the Warrants, (iii) the
        issuance of the Conversion Shares upon conversion of the Shares, and (iv)
        the
        other transactions contemplated by the Transaction Documents from the provisions
        of any shareholder rights plan or other “poison pill” arrangement, any
        anti-takeover, business combination or control share law or statute binding
        on
        the Company or to which the Company or any of its assets and properties may
        be
        subject and any provision of the Company’s Certificate of Incorporation or
        By-laws that is or could reasonably be expected to become applicable to the
        Investors as a result of the transactions contemplated hereby, including
        without
        limitation, the issuance of the Securities and the ownership, disposition
        or
        voting of the Securities by the Investors or the exercise of any right granted
        to the Investors pursuant to this Agreement or the other Transaction
        Documents.

       

      
        
          
          

        

        
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      3.6  Delivery
        of SEC Filings; Business.
        The
        Company has made available to the Investors through the SEC’s Electronic Data
        Gathering and Retrieval System (“EDGAR”),
        true
        and complete copies of the Company’s Annual Report on Form 10-K for the fiscal
        year ended September 30, 2004 (the “10-K”),
        and
        all other reports filed by the Company with the SEC pursuant to the 1934
        Act
        since the filing of the 10-K and prior to the date hereof and/or each applicable
        Closing date (collectively, the “SEC
        Filings”).
        The
        SEC Filings are the only filings required of the Company pursuant to the
        1934
        Act for such periods. The Company and the
        Subsidiary
        are
        engaged in all material respects only in the business described in the SEC
        Filings and the SEC Filings contain a complete and accurate description in
        all
        material respects of the business of the Company and the
        Subsidiary,
        taken
        as a whole.

       

      3.7  Use
        of
        Proceeds.
        The net
        proceeds from the sale of the Shares and the Warrants hereunder shall be
        used by
        the Company strictly in accordance with the budget approved by the Company’s
        Board of Directors on July 12, 2005, as may be amended by the Company’s Board of
        Directors from time to time following receipt of written consent of such
        amendment by the Lead Investor.

       

      3.8  No
        Material Adverse Change.
        Since
        December 31, 2004, except as disclosed in the SEC Filings or as described
        on
Schedule
        3.8,
        there
        has not been:

       

      (i)  any
        change in the consolidated assets, liabilities, financial condition or operating
        results of the Company from that reflected in the financial statements included
        in the 10-K, except for changes in the ordinary course of business or which
        have
        not and would not reasonably be expected to have a Material Adverse Effect,
        individually or in the aggregate;

       

      (ii)  any
        declaration or payment of any dividend, or any authorization or payment of
        any
        distribution, on any of the capital stock of the Company, or any redemption
        or
        repurchase of any securities of the Company;

       

      (iii)  any
        material damage, destruction or loss, whether or not covered by insurance,
        to
        any material assets or properties of the Company or its Subsidiary;

       

      
        
          
          

        

        
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      (iv)  any
        waiver, not in the ordinary course of business, by the Company or the Subsidiary
        of a material right or of a material debt owed to it;

       

      (v)  any
        satisfaction or discharge of any material lien, claim or encumbrance or payment
        of any material obligation by the Company or the Subsidiary, except in the
        ordinary course of business or which is not material to the assets, properties,
        financial condition, operating results or business of the Company and its
        Subsidiary taken as a whole (as such business is presently conducted and
        as it
        is currently proposed to be conducted);

       

      (vi)  except
        in
        connection with the Private Placement, any change or amendment to the Company's
        Certificate of Incorporation or by-laws, or material change to any material
        contract or arrangement by which the Company or the Subsidiary is bound or
        to
        which any of their respective assets or properties is subject;

       

      (vii)  any
        material labor difficulties or labor union organizing activities with respect
        to
        employees of the Company or the Subsidiary;

       

      (viii)  any
        material transaction entered into by the Company or the Subsidiary other
        than in
        the ordinary course of business (excluding the Private Placement); 

       

      (ix)  the
        loss
        of the services of any key employee, or material change in the composition
        or
        duties of the senior management of the Company or the Subsidiary;

       

      (x)  the
        loss
        or threatened loss of any customer which has had or would reasonably be expected
        to have a Material Adverse Effect; or

       

      (xi)  any
        other
        event or condition of any character that has had or would reasonably be expected
        to have a Material Adverse Effect.

       

      3.9  SEC
        Filings.

       

      (i)  At
        the
        time of filing thereof, the SEC Filings complied as to form in all material
        respects with the requirements of the 1934 Act and did not contain any untrue
        statement of a material fact or omit to state any material fact necessary
        in
        order to make the statements made therein, in the light of the circumstances
        under which they were made, not misleading.

       

      (ii)  Each
        (a)
        registration statement and any amendment thereto filed by the Company with
        the
        SEC since January 1, 2003 pursuant to the 1933 Act and the rules and regulations
        thereunder, as of the date such statement or amendment became effective,
        complied as to form in all material respects with the 1933 Act and did not
        contain any untrue statement of a material fact or omit to state any material
        fact required to be stated therein or necessary in order to make the statements
        made therein not misleading; and (b) prospectus filed by the Company with
        the
        SEC pursuant to Rule 424(b) under the 1933 Act, as of its issue date and
        as of
        the closing of any sale of securities pursuant thereto, did not contain any
        untrue statement of a material fact or omit to state any material fact required
        to be stated therein or necessary in order to make the statements made therein,
        in the light of the circumstances under which they were made, not
        misleading.

       

      
        
          
          

        

        
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      3.10  No
        Conflict, Breach, Violation or Default.
        The
        execution, delivery and performance of the Transaction Documents by the Company
        and the issuance and sale of the Securities will not conflict with or result
        in
        a breach or violation of any of the terms and provisions of, or constitute
        a
        default under (i) the Company’s Certificate of Incorporation or the Company’s
        Bylaws, both as in effect on the date hereof (true and complete copies of
        which
        have been made available to the Investors through EDGAR), or (ii)(a) any
        statute, rule, regulation or order of any governmental agency or body or
        any
        court, domestic or foreign, having jurisdiction over the Company, the Subsidiary
        or any of their respective assets or properties, or (b) any agreement or
        instrument to which the Company or the Subsidiary is a party or by which
        the
        Company or the Subsidiary is bound or to which any of their respective assets
        or
        properties is subject, except, in the case of clause (ii) hereof, as would
        not
        reasonably be expected to result in a material adverse effect upon the Company’s
        ability to perform its obligations under the Agreement. 

       

      3.11  Tax
        Matters.
        Each of
        the Company and the Subsidiary has timely prepared and filed all tax returns
        required to have been filed by the Company or the Subsidiary with all
        appropriate governmental agencies and timely paid all taxes shown as due
        thereon
        or otherwise owed by them. The charges, accruals and reserves on the books
        of
        the Company in respect of taxes for all fiscal periods are adequate in all
        material respects, and there are no material unpaid assessments against the
        Company or the Subsidiary nor, to the Company’s Knowledge, any basis for the
        assessment of any additional taxes, penalties or interest for any fiscal
        period
        or audits by any federal, state or local taxing authority except for any
        assessment which is not material to the Company and its Subsidiary, taken
        as a
        whole. All taxes and other assessments and levies that the Company or the
        Subsidiary is required to withhold or to collect for payment have been duly
        withheld and collected and paid to the proper governmental entity or third
        party
        when due, except for those taxes, assessments and levies contested by the
        Company or the Subsidiary in good faith. There are no tax liens or claims
        pending or, to the Company’s Knowledge, threatened against the Company or the
        Subsidiary or any of their respective assets or property. Except as described
        on
Schedule
        3.11,
        there
        are no outstanding tax sharing agreements or other such arrangements between
        the
        Company and the Subsidiary or other corporation or entity.

       

      3.12  Title
        to Properties.
        Except
        as disclosed in the SEC Filings or Schedule 3.12, each of the Company and
        the
        Subsidiary has good and marketable title to all real properties and all other
        properties and assets owned by it, in each case free from liens, encumbrances
        and defects that materially affect the value thereof or materially interfere
        with the use made or currently planned to be made thereof by them; and except
        as
        disclosed in the SEC Filings or Schedule 3.1, each of the Company and the
        Subsidiary holds any leased real or personal property under valid and
        enforceable leases with no exceptions that would materially interfere with
        the
        use made or currently planned to be made thereof by it, except (a) as limited
        by
        applicable bankruptcy, insolvency, fraudulent transfer, reorganization,
        moratorium and similar laws of general applicability, relating to or affecting
        creditors’ rights generally, (b) as limited by laws relating to specific
        performance, injunctive relief or other equitable remedies, and (c) to the
        extent any indemnification provisions contained in such leases may be limited
        by
        applicable laws.

       

      3.13  Certificates,
        Authorities and Permits.
        Each of
        the Company and the Subsidiary possesses adequate certificates, authorities
        or
        permits issued by appropriate governmental agencies or bodies necessary to
        conduct the business now operated by it, and neither the Company nor the
        Subsidiary has received any notice of proceedings relating to the revocation
        or
        modification of any such certificate, authority or permit that, if determined
        adversely to the Company or the Subsidiary, would reasonably be expected
        to have
        a Material Adverse Effect, individually or in the aggregate.

       

      
        
          
          

        

        
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      3.14  No
        Labor Disputes.
        No
        material labor dispute with the employees of the Company or the Subsidiary
        exists or, to the Company’s Knowledge, is imminent.

       

      3.15  Intellectual
        Property.

       

      (a)  To
        the
        Company’s Knowledge, all
        Intellectual Property of the Company and its Subsidiary is currently in
        compliance with all legal requirements (including timely filings, proofs
        and
        payments of fees) and is valid and enforceable. No Intellectual Property
        of the
        Company or its Subsidiary which is necessary for the conduct of Company’s and
        its Subsidiary’s respective businesses as currently conducted or as currently
        proposed to be conducted is now involved in any cancellation, dispute or
        litigation, and, to the Company’s Knowledge, no such action is threatened. No
        patent of the Company or its Subsidiary is now involved in any interference,
        reissue, re-examination or opposition proceeding.

       

      (b)  All
        of
        the licenses and sublicenses and consent, royalty or other agreements concerning
        Intellectual Property which are necessary for the conduct of the Company’s and
        the Subsidiary’s respective businesses as currently conducted or as currently
        proposed to be conducted to which the Company or the Subsidiary is a party
        or by
        which any of their assets are bound (other than generally commercially
        available, non-custom, off-the-shelf software application programs having
        a
        retail acquisition price of less than $10,000 per license) (collectively,
        “License
        Agreements”)
        are
        valid and binding obligations of the Company or its Subsidiary that is a
        party
        thereto and, to the Company’s Knowledge, the other parties thereto, enforceable
        in accordance with their terms, except (a) as limited by applicable bankruptcy,
        insolvency, fraudulent transfer, reorganization, moratorium and similar laws
        of
        general applicability, relating to or affecting creditors’ rights generally, (b)
        as limited by laws relating to specific performance, injunctive relief or
        other
        equitable remedies, and (c) to the extent any indemnification provisions
        contained in the License Agreements may be limited by applicable laws.
To
        the
        Company’s Knowledge, there
        exists no event or condition which will result in a material violation or
        breach
        of or constitute (with or without due notice or lapse of time or both) a
        default
        by the Company or the Subsidiary under any such License Agreement.

       

      (c)  To
        the
        Company’s Knowledge, the
        Company
        and its Subsidiary own or have the valid right to use all of the Intellectual
        Property that is necessary for the conduct of the Company’s and its Subsidiary’s
        respective businesses as currently conducted or as currently proposed to
        be
        conducted and for the ownership, maintenance and operation of the Company’s and
        its Subsidiary’s properties and assets, free and clear of all liens,
        encumbrances, adverse claims or obligations to license all such owned
        Intellectual Property and Confidential Information, other than licenses entered
        into in the ordinary course of the Company’s and its Subsidiary’s businesses.
        The Company and its Subsidiary have a valid and enforceable right to use
        all
        third party Intellectual Property and Confidential Information used or held
        for
        use in the respective businesses of the Company and its Subsidiary.

       

      
        
          
          

        

        
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      (d)  To
        the
        Company’s Knowledge, the
        conduct
        of the Company’s and its Subsidiary’s businesses as currently conducted does not
        infringe or otherwise violate (collectively, “Infringe”)
        any
        Intellectual Property rights of any third party or any confidentiality
        obligation owed to a third party, and, to the Company’s Knowledge, the
        Intellectual Property and Confidential Information of the Company and its
        Subsidiary which are necessary for the conduct of Company’s and the Subsidiary’s
        respective businesses as currently conducted or as currently proposed to
        be
        conducted are not being Infringed by any third party. There is no litigation
        or
        order pending or outstanding or, to the Company’s Knowledge, threatened or
        imminent, that seeks to limit or challenge the ownership, use, validity or
        enforceability of any Intellectual Property or Confidential Information of
        the
        Company and its Subsidiary and the Company’s or its Subsidiary’s use of any
        Intellectual Property or Confidential Information owned by a third party,
        and,
        to the Company’s Knowledge, there is no valid basis for the same.

       

      (e)  The
        consummation of the transactions contemplated hereby and by the other
        Transaction Documents will not result in the alteration, loss, impairment
        of or
        restriction on the Company’s or the Subsidiary’s ownership or right to use any
        of the Intellectual Property or Confidential Information which is necessary
        for
        the conduct of Company’s and the Subsidiary’s respective businesses as currently
        conducted or as currently proposed to be conducted.

       

      (f)  The
        Company and the Subsidiary have taken reasonable steps to protect the Company’s
        and the Subsidiary’s rights in their Intellectual Property and Confidential
        Information. Each employee, consultant and contractor of the Company and
        the
        Subsidiary who has had access to Confidential Information which is necessary
        for
        the conduct of Company’s and the Subsidiary’s respective businesses as currently
        conducted or as currently proposed to be conducted has executed an agreement
        to
        maintain the confidentiality of such Confidential Information and has executed
        appropriate agreements that are substantially consistent with the Company’s
        standard forms thereof. Except under confidentiality obligations, there has
        been
        no material disclosure of any of the Company’s or the Subsidiary’s Confidential
        Information to any third party.

       

      3.16  Environmental
        Matters.
        Neither
        the Company nor the Subsidiary (a) is in violation of any statute, rule,
        regulation, decision or order of any governmental agency or body or any court,
        domestic or foreign, relating to the use, disposal or release of hazardous
        or
        toxic substances or relating to the protection or restoration of the environment
        or human exposure to hazardous or toxic substances (collectively, “Environmental
        Laws”),
        (b)
        owns or operates any real property contaminated with any substance that is
        subject to any Environmental Laws, (c) is liable for any off-site disposal
        or
        contamination pursuant to any Environmental Laws, or (d) is subject to any
        claim
        relating to any Environmental Laws, which violation, contamination, liability
        or
        claim has had or would reasonably be expected to have a Material Adverse
        Effect,
        individually or in the aggregate; and there is no pending or, to the Company’s
        Knowledge, threatened investigation that might lead to such a
        claim.

       

      3.17  Litigation.
        Except
        as described on Schedule
        3.17,
        there
        are no pending actions, suits or proceedings against the Company or its
        Subsidiary, or to which the Company or the Subsidiary is a party, or directly
        affecting any of their properties; and to the Company’s Knowledge, no such
        actions, suits or proceedings are threatened or contemplated.

       

      
        
          
          

        

        
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      3.18  Financial
        Statements.
        The
        financial statements included in each SEC Filing present fairly, in all material
        respects, the consolidated financial position of the Company as of the dates
        shown and its consolidated results of operations and cash flows for the periods
        shown, and such financial statements have been prepared in conformity with
        United States generally accepted accounting principles applied on a consistent
        basis (“GAAP”)
        (except as may be disclosed therein or in the notes thereto, and, in the
        case of
        quarterly financial statements, as permitted by Form 10-Q under the 1934
        Act).
        Except as set forth in the financial statements of the Company included in
        the
        SEC Filings filed prior to the date hereof or as described on Schedule
        3.18,
        neither
        the Company nor the Subsidiary has incurred any material liabilities, contingent
        or otherwise, except those incurred in the ordinary course of business,
        consistent (as to amount and nature) with past practices since the date of
        such
        financial statements, none of which, individually or in the aggregate, have
        had
        or would reasonably be expected to have a Material Adverse Effect.

       

      3.19  Insurance
        Coverage.
        The
        Company and the Subsidiary maintain in full force and effect insurance coverage
        that is customary for comparably situated companies for the business being
        conducted and properties owned or leased by the Company and the Subsidiary,
        and
        the Company reasonably believes such insurance coverage to be adequate
        against such liabilities, claims and risks against which it is customary
        for
        comparably situated companies to insure.

       

      3.20  Brokers
        and Finders.
        No
        Person will have, as a result of the transactions contemplated by the
        Transaction Documents, any valid right, interest or claim against or upon
        the
        Company, any Subsidiary or an Investor for any commission, fee or other
        compensation pursuant to any agreement, arrangement or understanding entered
        into by or on behalf of the Company, other than as described in Schedule
        3.20.

       

      3.21  No
        Directed Selling Efforts or General Solicitation.
        Neither
        the Company nor any Person acting on its behalf has conducted any general
        solicitation or general advertising (as those terms are used in Regulation
        D) in
        connection with the offer or sale of any of the Securities.

       

      3.22  No
        Integrated Offering.
        Neither
        the Company nor any of its Affiliates, nor any Person acting on its or their
        behalf has, directly or indirectly, made any offers or sales of any Company
        security or solicited any offers to buy any security, under circumstances
        that
        would adversely affect reliance by the Company on Section 4(2) for the exemption
        from registration for the transactions contemplated hereby or would require
        registration of the Securities under the 1933 Act.

       

      3.23  Private
        Placement.
        As of
        the date hereof, in reliance on the Investors’ representations and warranties
        set forth in Section 4, the offer and sale of the Securities to the Investors
        as
        contemplated hereby is exempt from the registration requirements of the 1933
        Act.

       

      3.24  Questionable
        Payments.
        Neither
        the Company nor the Subsidiary nor, to the Company’s Knowledge, any of their
        respective current or former stockholders, directors, officers, employees,
        agents or other Persons acting on behalf of the Company or the Subsidiary,
        has
        on behalf of the Company or the Subsidiary or in connection with their
        respective businesses: (a) used any corporate funds for unlawful contributions,
        gifts, entertainment or other unlawful expenses relating to political activity;
        (b) made any direct or indirect unlawful payments to any governmental officials
        or employees from corporate funds; (c) established or maintained any unlawful
        or
        unrecorded fund of corporate monies or other assets; (d) made any false or
        fictitious entries on the books and records of the Company or the Subsidiary;
        or
        (e) made any unlawful bribe, rebate, payoff, influence payment, kickback
        or
        other unlawful payment of any nature.

       

      
        
          
          

        

        
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      3.25  Transactions
        with Affiliates.
        Except
        as disclosed in the SEC Filings or as disclosed on Schedule
        3.25,
        none of
        the officers or directors of the Company and, to the Company’s Knowledge, none
        of the employees of the Company is presently a party to any transaction with
        the
        Company or the Subsidiary (other than as holders of stock options and/or
        warrants, and for services as employees, officers and directors), including
        any
        contract, agreement or other arrangement providing for the furnishing of
        services to or by, providing for rental of real or personal property to or
        from,
        or otherwise requiring payments to or from any officer, director or such
        employee or, to the Company’s Knowledge, any entity in which any officer,
        director, or any such employee has a substantial interest or is an officer,
        director, trustee or partner.

       

      3.26  Internal
        Controls.
        The
        Company is
        in
        material compliance with the provisions of the Sarbanes-Oxley Act of 2002
        currently applicable to the Company. The Company and
        the
        Subsidiary maintain a system of internal accounting
        controls sufficient to provide reasonable assurance that (i) transactions
        are
        executed in accordance with management's general or specific authorizations,
        (ii) transactions are recorded as necessary to permit preparation of financial
        statements in conformity with GAAP and to maintain asset accountability,
        (iii)
        access to assets is permitted only in accordance with management's general
        or
        specific authorization, and (iv) the recorded accountability for assets is
        compared with the existing assets at reasonable intervals and appropriate
        action
        is taken with respect to any differences. The Company has established disclosure
        controls and procedures (as defined in 1934 Act Rules 13a-14 and 15d-14)
        for the
        Company and designed such disclosure controls and procedures to ensure that
        material information relating to the Company, including its Subsidiary, is
        made
        known to the certifying officers by others within those entities, particularly
        during the period in which the Company’s most recently filed period report under
        the 1934 Act, as the case may be, is being prepared. The Company's certifying
        officers have evaluated the effectiveness of the Company's controls and
        procedures as of the
        end of
        the
        period
        covered by the Company’s
        most
        recently filed periodic report under the 1934 Act (such date, the “Evaluation
        Date”).
        The
        Company presented in its most recently filed periodic report under the 1934
        Act
        the conclusions of the certifying officers about the effectiveness of the
        disclosure controls and procedures based on their evaluations as of the
        Evaluation Date. Since the Evaluation Date, there have been no significant
        changes in the Company's internal controls (as such term is defined in Item
        307(b) of Regulation S-K) or, to the Company's Knowledge, in other factors
        that
        could significantly affect the Company's internal controls. The Company
        maintains and will continue to maintain a standard system of accounting
        established and administered in accordance with GAAP and the applicable
        requirements of the 1934 Act.

       

      3.27  Listing.
        The
        Common Stock is quoted on the Over the Counter Bulletin Board (the “OTCBB”).
        The
        Company has not received any oral or written notice that its Common Stock
        is not
        eligible nor will become ineligible for quotation on the OTCBB nor that its
        Common Stock does not meet all requirements for the continuation of such
        quotation. The Company satisfies all the requirements for the continued
        quotation of its Common Stock on the OTCBB.

       

      
        
          
          

        

        
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      3.28  Disclosures.
        Neither
        the Company nor any Person acting on its behalf has provided the Investors
        or
        their agents or counsel with any information that constitutes or might
        constitute material, non-public information. The written materials delivered
        to
        the Investors in connection with the transactions contemplated by the
        Transaction Documents do not contain any untrue statement of a material fact
        or
        omit to state a material fact necessary in order to make the statements
        contained therein, in light of the circumstances under which they were made,
        not
        misleading.

       

      4.  Representations
        and Warranties of the Investors.
        Each of
        the Investors hereby severally, and not jointly, represents and warrants
        to the
        Company that:

       

      4.1  Organization
        and Existence.
        Such
        Investor is a validly existing corporation, limited partnership or limited
        liability company and has all requisite corporate, partnership or limited
        liability company power and authority to invest in the Securities pursuant
        to
        this Agreement. 

       

      4.2  Authorization.
        The
        execution, delivery and performance by such Investor of the Transaction
        Documents to which such Investor is a party have been duly authorized and
        will
        each constitute the valid and legally binding obligation of such Investor,
        enforceable against such Investor in accordance with their respective terms,
        except (a) as limited by applicable bankruptcy, insolvency, fraudulent transfer,
        reorganization, moratorium and similar laws of general applicability, relating
        to or affecting creditors’ rights generally, (b) as limited by the laws relating
        to specific performance, injunctive relief or other equitable remedies, and
        (c)
        to the extent the indemnification provisions contained in the Agreement and
        Registration Rights Agreement may be limited by applicable laws.

       

      4.3  Purchase
        Entirely for Own Account.
        The
        Securities to be purchased by such Investor hereunder will be acquired for
        such
        Investor’s own account, not as nominee or agent, and not with a view to the
        resale or distribution of any part thereof in violation of the 1933 Act,
        and
        such Investor has no present intention of selling, granting any participation
        in, or otherwise distributing the same in violation of the 1933 Act
        without
        prejudice, however, to such Investor’s right at all times to sell or otherwise
        dispose of all or any part of such Securities in compliance with applicable
        federal and state securities laws.
        Nothing
        contained herein shall be deemed a representation or warranty by such Investor
        to hold the Securities for any period of time. 

       

      4.4  Investment
        Experience.
        Such
        Investor acknowledges that it can bear the economic risk and complete loss
        of
        its investment in the Securities and has such knowledge and experience in
        financial and business matters that it is capable of evaluating the merits
        and
        risks of the investment contemplated hereby.

       

      4.5  Disclosure
        of Information.
        Such
        Investor has had an opportunity to receive all information related to the
        Company requested by it and to ask questions of and receive answers from
        the
        Company regarding the Company, its business and the terms and conditions
        of the
        offering of the Securities. Such Investor acknowledges that it has access
        to the
        SEC Filings via EDGAR. Neither such inquiries nor any other due diligence
        investigation conducted by such Investor shall modify, amend or affect such
        Investor’s right to rely on the Company’s representations and warranties
        contained in this Agreement.

       

      
        
          
          

        

        
          -13-

          
            

          

        

        
          
          

        

      

      4.6  Restricted
        Securities.
        Such
        Investor understands that the Securities are characterized as “restricted
        securities” under the U.S. federal securities laws inasmuch as they are being
        acquired from the Company in a transaction not involving a public offering
        and
        that under such laws and applicable regulations such Securities may be resold
        without registration under the 1933 Act only in certain limited circumstances.
        Such Investor agrees to resell such Securities only pursuant to registration
        under the 1933 Act or an available exemption from registration, and agrees
        not
        to engage in hedging transactions with regard to such Securities unless in
        compliance with the 1933 Act.

       

      4.7  Legends.
        It is
        understood that, except as provided below, certificates evidencing the
        Securities may bear the following or any similar legend:

       

      (a)  “The
        securities represented hereby may not be transferred unless (i) such securities
        have been registered for sale pursuant to the Securities Act of 1933, as
        amended, (ii) such securities may be sold pursuant to Rule 144(k)
        of such
        Act,
        or
        (iii) the Company has received an opinion of counsel reasonably satisfactory
        to
        it that such transfer may lawfully be made without registration under the
        Securities Act of 1933 or qualification under applicable state securities
        laws.”

       

      (b)  If
        required by the authorities of any state in connection with the issuance
        of sale
        of the Securities, the legend required by such state authority.

       

      4.8       
        Accredited
        Investor.
        Such
        Investor is an accredited investor as defined in Rule 501(a) of Regulation
        D.

       

      4.9       
        No
        General Solicitation.
        Such
        Investor did not learn of the investment in the Securities as a result of
        any
        public advertising or general solicitation.

       

      4.10 
Brokers
        and Finders.
        No
        Person will have, as a result of the transactions contemplated by the
        Transaction Documents, any valid right, interest or claim against or upon
        the
        Company, the Subsidiary or an Investor for any commission, fee or other
        compensation pursuant to any agreement, arrangement or understanding entered
        into by or on behalf of such Investor.

       

      4.11  Certain
        Trading Activities.
        Such
        Investor has not directly or indirectly, nor has any Person acting on behalf
        of
        or pursuant to any understanding with such Investor, engaged in any Trading
        Activities since the time that such Investor was first contacted by the Company
        regarding the Private Placement. Except for the Private Placement, such Investor
        covenants that neither it nor any Person acting on its behalf or pursuant
        to any
        understanding with it will engage in any Trading Activities prior to the
        time
        that the Private Placement (including all material terms thereof) is publicly
        disclosed.

       

      5.        
        Conditions
        to Closing.

       

      5.1  Conditions
        to the Investors’ Obligations to Effect the Closing.
        The
        obligation of each Investor to purchase the Securities
        at the Closing
        is subject to the fulfillment to the Lead Investor’s satisfaction, on or prior
        to the Closing
        Date, of the following conditions, any of which may be waived by the Lead
        Investor on behalf of all Investors, in the Lead Investor’s sole discretion:


       

      
        
          
          

        

        
          -14-

          
            

          

        

        
          
          

        

      

       

      (a)  The
        representations and warranties made by the Company in Section 3 hereof qualified
        as to materiality shall be true and correct at all times from the date of
        this
        Agreement to and on the Closing
        Date, except to the extent any such representation or warranty expressly
        speaks
        as of an earlier date, in which case such representation or warranty shall
        be
        true and correct as of such earlier date, and, the representations and
        warranties made by the Company in Section 3 hereof not qualified as to
        materiality shall be true and correct in all material respects at all times
        from
        the date of this Agreement to and on the Closing
        Date, except to the extent any such representation or warranty expressly
        speaks
        as of an earlier date, in which case such representation or warranty shall
        be
        true and correct in all material respects as of such earlier date. The Company
        shall have performed in all material respects all obligations and conditions
        herein required to be performed or observed by it on or prior to the
Closing
        Date.

       

      (b)  The
        Company shall have obtained any and all consents, permits, approvals,
        registrations and waivers required to be obtained in connection with and
        on or
        prior to the Closing
        for consummation of the purchase and sale of the Securities
        and the consummation of the other transactions contemplated by the Transaction
        Documents (including any requisite waivers from the holders of the Company’s
        Series B Preferred Stock), all of which shall be in full force and
        effect.

       

      (c)  The
        Company shall have executed and delivered to Investors the Registration Rights
        Agreement.

       

      (d)  No
        judgment, writ, order, injunction, award or decree of or by any court, or
        judge,
        justice or magistrate, including any bankruptcy court or judge, or any order
        of
        or by any governmental authority, shall have been issued, and no action or
        proceeding shall have been instituted by any governmental authority, enjoining
        or preventing the consummation of the transactions contemplated hereby or
        in the
        other Transaction Documents.

       

      (e)  The
        Company shall have delivered a Certificate, executed on behalf of the Company
        by
        its Chief Executive Officer or its Chief Financial Officer, dated as of the
        Closing
        Date, certifying to the fulfillment of the conditions specified in subsections
        (a), (b), (d) and (h) of this Section 5.1.

       

      (f)     
        The
        Company shall have delivered a Certificate, executed on behalf of the Company
        by
        its Secretary, dated as of the Closing
        Date, certifying the resolutions adopted by the Board of Directors of the
        Company approving the transactions contemplated by this Agreement and the
        other
        Transaction Documents and the issuance of the Securities, certifying the
        current
        versions of the Certificate of Incorporation and Bylaws of the Company and
        certifying as to the signatures and authority of persons signing the Transaction
        Documents and related documents on behalf of the Company.

       

      (g)     
        The
        Investors shall have received an opinion from Paul, Hastings, Janofsky &
        Walker LLP, the Company's counsel, dated as of the Closing
        Date, in form and substance reasonably acceptable to the Investors and such
        counsel and addressing such legal matters as the Investors may reasonably
        request.

       

      
        
          
          

        

        
          -15-

          
            

          

        

        
          
          

        

      

       

      (h)     
        No
        stop
        order or suspension of trading shall have been imposed by the SEC or any
        other
        governmental or regulatory body with respect to public trading in the Common
        Stock. 

       

      (i)     
        The
        Company shall have executed and delivered to the Lead Investor a filed copy
        of
        the Certificate of Designations certified by the Secretary of State of
        Delaware.

       

      (j)   
          No
        event
        or events shall have occurred from and after the date of this Agreement that,
        individually or in the aggregate, is reasonably likely, in the reasonable
        judgment of the Lead Investor, to result in a Material Adverse
        Effect.

       

      5.2  Conditions
        to Obligations of the Company to Effect the Closing.
        The
        Company's obligation to sell and issue the Securities
        at the Closing
        is subject to the fulfillment to the satisfaction of the Company on or prior
        to
        the Closing
        Date of the following conditions, any of which may be waived by the
        Company:

       

      (a)     
        The
        representations and warranties made by the Investors in Section 4 hereof,
        other
        than the representations and warranties contained in Sections 4.3, 4.4, 4.5,
        4.6, 4.7, 4.8 and 4.9 (the “Investment
        Representations”),
        shall
        be true and correct in all respects when made, and shall be true and correct
        in
        all material respects on the Closing
        Date with the same force and effect as if they had been made on and as of
        said
        date. The Investment Representations shall be true and correct in all respects
        when made, and shall be true and correct in all respects on the Closing
        Date with the same force and effect as if they had been made on and as of
        said
        date. The Investors shall have performed in all material respects all
        obligations and conditions herein required to be performed or observed by
        them
        on or prior to the Closing
        Date.

       

      (b)    
         The
        Investors shall have executed and delivered to the Company the Registration
        Rights Agreement.

       

      (c)    
         The
        Investors shall have delivered the Purchase
        Price to the Company.

       

      5.3  Termination;
        Effects.

       

      (a)     
        The
        obligations of the Company, on the one hand, and the Investors, on the other
        hand, to effect the Closing
        shall terminate as follows:

       

      (i)     
        Upon
        the
        mutual written consent of the Company and the Lead Investor;

       

      (ii)     
        By
        the
        Company if any of the conditions set forth in Section 5.2 shall have become
        incapable of fulfillment, and shall not have been waived by the
        Company;

       

      (iii)     
        By
        the
        Lead Investor (with respect to all of the Investors) if any of the conditions
        set forth in Section 5.1 shall have become incapable of fulfillment, and
        shall
        not have been waived by the Lead Investor; or

       

      
        
          
          

        

        
          -16-

          
            

          

        

        
          
          

        

      

      (iv)  By
        either
        the Company or any Investor (with respect to itself only) if the Closing
        has not occurred on or prior to November 15, 2005;

       

      provided,
        however, that, except in the case of clause (i) above, the party seeking
        to
        terminate its obligation to effect the Closing
        shall not then be in breach of any of its representations, warranties, covenants
        or agreements contained in this Agreement or the other Transaction Documents
        if
        such breach has resulted in the circumstances giving rise to such party’s
        seeking to terminate its obligation to effect the Closing.

       

      (b)     
        In
        the
        event of termination by the Company or any Investor of its obligations to
        effect
        the Closing
        ,
        as
        applicable, pursuant to this Section 5.5, written notice thereof shall forthwith
        be given to the Company and the other Investors and, in the case of any
        termination by an Investor of its obligations to effect the Closing,
        pursuant to Section 5.5(a)(iv) or Section 5.5(b)(iv) (an “Investor
        Termination”),
        the
        other Investors shall have the right to terminate their obligations to effect
        the Closing
        upon
        written notice to the Company and the other Investors delivered within 10
        Business Days of the notice of the Investor Termination. Nothing in this
        Section
        5.5 shall be deemed to release any party from any liability for any breach
        by
        such party of the terms and provisions of this Agreement or the other
        Transaction Documents or to impair the right of any party to compel specific
        performance by any other party of its obligations under this Agreement or
        the
        other Transaction Documents.

       

      6.  Covenants
        and Agreements of the Company.

       

      6.1  Reservation
        of Common Stock.
        The
        Company shall at all times reserve and keep available out of its authorized
        but
        unissued shares of Common Stock, solely for the purpose of providing for
        the
        exercise of the Warrants, the conversion of the Shares and the issuance of
        payment-in-kind dividends pursuant to Section 3 of the Certificate of
        Designations, such number of shares of Common Stock as shall from time to
        time
        equal the number of shares sufficient to permit the exercise of the Warrants,
        the conversion of the Shares and the issuance of the payment-in-kind dividends,
        in each case, issued or issuable pursuant to this Agreement or, in the case
        of
        the payment-in-kind dividends, the Certificate of Designations in accordance
        with their respective terms. 

       

      6.2  Reports.
        The
        Company will furnish to such Investors and/or their assignees such information
        relating to the Company and its Subsidiary as from time to time may reasonably
        be requested by such Investors and/or their assignees; provided, however,
        that
        the Company shall not disclose material nonpublic information to the Investors,
        or to advisors to or representatives of the Investors, unless prior to
        disclosure of such information the Company identifies such information as
        being
        material nonpublic information and provides the Investors, such advisors
        and
        representatives with the opportunity to accept or refuse to accept such material
        nonpublic information for review and any Investor wishing to obtain such
        information enters into an appropriate confidentiality agreement with the
        Company with respect thereto.

       

      6.3  No
        Conflicting Agreements.
        The
        Company will not take any action, enter into any agreement or make any
        commitment that would conflict or interfere in any material respect with
        the
        Company’s obligations to the Investors under the Transaction
        Documents.

       

      6.4  Insurance.
        The
        Company shall not materially reduce the insurance coverages described in
        Section
        3.19.

       

      
        
          
          

        

        
          -17-

          
            

          

        

        
          
          

        

      

      6.5  Compliance
        with Laws.
        The
        Company will comply in all material respects with all applicable laws, rules,
        regulations, orders and decrees of all governmental authorities.

       

      6.6  Listing
        of Underlying Shares and Related Matters.
        For so
        long as the Common Stock or other securities of the Company are traded on
        the
        OTCBB, the Company will use its best efforts to cause the Conversion Shares
        and
        the Warrant Shares to be tradeable on the OTCBB. If the Company applies to
        have
        its Common Stock or other securities traded on any principal stock exchange
        or
        market, it shall include in such application the Conversion Shares and the
        Warrant Shares and will take such other action as is necessary to cause such
        Common Stock to be so listed.

       

      6.7  Termination
        of Covenants.
        The
        provisions of Sections 6.2 through 6.5 shall terminate and be of no further
        force and effect on the date on which the Company’s obligations under the
        Registration Rights Agreement to register the Registrable Securities (as
        such
        term is defined in the Registration Rights Agreement) shall
        terminate.

       

      6.8  Removal
        of Legends.
        Upon
        the earlier of (i) the registration of an Investor’s Securities for resale
        pursuant to the Registration Rights Agreement and receipt by the Company
        of the
        Investor’s written confirmation that such Securities will not be disposed of
        except in compliance with the prospectus delivery requirements of the 1933
        Act,
        or (ii) the date on which an Investor’s Securities become available for sale
        pursuant to Rule 144(k) of the 1933 Act (“Rule
        144(k)”),
        the
        Company shall, upon an Investor’s written request, promptly cause certificates
        evidencing the Investor’s Securities to be replaced with certificates which do
        not bear such restrictive legends, and Warrant Shares subsequently issued
        upon
        due exercise of the Warrants and Conversion Shares subsequently issued upon
        conversion of the Shares shall not bear such restrictive legends provided
        the
        provisions of either clause (i) or clause (ii) above, as applicable, are
        satisfied with respect to such Warrant Shares or Conversion Shares. When
        the
        Company is required to cause unlegended certificates to replace previously
        issued legended certificates, if unlegended certificates are not delivered
        to an
        Investor within three
        (3)
        Business
        Days
        of
        submission by that Investor of legended certificate(s) to the Company’s transfer
        agent together with a representation letter in customary form, the Company
        shall
        be liable to the Investor for liquidated damages in an amount equal to 1.5%
        of
        the aggregate purchase price of the Securities evidenced by such certificate(s)
        for each thirty (30) day period (or portion thereof) beyond such three
        (3)
        Business
        Day-period
        that the unlegended certificates have not been so delivered.

       

      7.  Survival
        and Indemnification.

       

      7.1  Survival.
        The
        representations, warranties, covenants and agreements contained in this
        Agreement shall survive the Closing of the transactions contemplated by this
        Agreement.

       

      7.2  Indemnification.
        The
        Company agrees to indemnify and hold harmless each Investor and its Affiliates
        and their respective directors, officers, employees and agents from and against
        any and all losses, claims, damages, liabilities and expenses (including
        without
        limitation reasonable attorney fees and disbursements and other expenses
        incurred in connection with investigating, preparing or defending any action,
        claim or proceeding, pending or threatened and the costs of enforcement thereof)
        to which such Person may become subject as a result of any breach of a
        representation, warranty, covenant or agreement made by or to be performed
        on
        the part of the Company under the Transaction Documents, and will reimburse
        any
        such Person for all such amounts as they are incurred by such
        Person.

       

      
        
          
          

        

        
          -18-

          
            

          

        

        
          
          

        

      

      7.3     
        Conduct
        of Indemnification Proceedings.
        Promptly
        after receipt by any Person (the “Indemnified
        Person”)
        of
        notice of any demand, claim or circumstances which would or might give rise
        to a
        claim or the commencement of any action, proceeding or investigation in respect
        of which indemnity may be sought pursuant to Section 7.2, such Indemnified
        Person shall promptly notify the Company in writing and the Company shall
        assume
        the defense thereof, including the employment of counsel reasonably satisfactory
        to such Indemnified Person, and shall assume the payment of all fees and
        expenses; provided,
        however, that
        the
        failure of any Indemnified Person so to notify the Company shall not relieve
        the
        Company of its obligations hereunder except to the extent that the Company
        is
        materially prejudiced by such failure to notify. In any such proceeding,
        any
        Indemnified Person shall have the right to retain its own counsel, but the
        fees
        and expenses of such counsel shall be at the expense of such Indemnified
        Person
        unless: (i) the Company and the Indemnified Person shall have mutually agreed
        to
        the retention of such counsel; or (ii) in the reasonable judgment of counsel
        to
        such Indemnified Person representation of both parties by the same counsel
        would
        be inappropriate due to actual or potential differing interests between them.
        The Company shall not be liable for any settlement of any proceeding effected
        without its written consent, which consent shall not be unreasonably withheld,
        but if settled with such consent, or if there be a final judgment for the
        plaintiff, the Company shall indemnify and hold harmless such Indemnified
        Person
        from and against any loss or liability (to the extent stated above) by reason
        of
        such settlement or judgment. Without the prior written consent of the
        Indemnified Person, which consent shall not be unreasonably withheld, the
        Company shall not effect any settlement of any pending or threatened proceeding
        in respect of which any Indemnified Person is or could have been a party
        and
        indemnity could have been sought hereunder by such Indemnified Party, unless
        such settlement includes an unconditional release of such Indemnified Person
        from all liability arising out of such proceeding.

       

      8.      
        Miscellaneous.

       

      8.1     
        Successors
        and Assigns.
        This
        Agreement may not be assigned by a party hereto without the prior written
        consent of the Company or the Investors, as applicable, provided, however,
        that
        an Investor may assign its rights and delegate its duties hereunder in whole
        or
        in part to an Affiliate without the prior written consent of the Company
        or the
        other Investors, after notice duly given by such Investor to the Company
        and the
        other Investors, provided, that (i) such Affiliate or third party makes the
        representations and warranties to the Company set forth in Section 4 and
        if such
        securities are legended at the time of such assignment and delegation, and
        (ii)
        no such assignment or obligation shall affect the obligations of such Investor
        hereunder. The provisions of this Agreement shall inure to the benefit of
        and be
        binding upon the respective permitted successors and assigns of the parties.
        Nothing in this Agreement, express or implied, is intended to confer upon
        any
        party other than the parties hereto or their respective successors and assigns
        any rights, remedies, obligations, or liabilities under or by reason of this
        Agreement, except as expressly provided in this Agreement.

       

      8.2  Counterparts;
        Faxes.
        This
        Agreement may be executed in two or more counterparts, each of which shall
        be
        deemed an original, but all of which together shall constitute one and the
        same
        instrument. This Agreement may also be executed via facsimile, which shall
        be
        deemed an original.

       

      
        
          
          

        

        
          -19-

          
            

          

        

        
          
          

        

      

      8.3  Titles
        and Subtitles.
        The
        titles and subtitles used in this Agreement are used for convenience only
        and
        are not to be considered in construing or interpreting this
        Agreement.

       

      8.4  Notices.
        Unless
        otherwise provided, any notice required or permitted under this Agreement
        shall
        be given in writing and shall be deemed effectively given as hereinafter
        described (i) if given by personal delivery, then such notice shall be deemed
        given upon such delivery, (ii) if given by telex or telecopier, then such
        notice
        shall be deemed given upon receipt of confirmation of complete transmittal,
        (A)
        if sent during normal business hours of the recipient; or (B) if not, then
        on
        the next Business Day after such receipt, (iii) if given by mail, then such
        notice shall be deemed given upon the earlier of (A) receipt of such notice
        by
        the recipient or (B) three (3) days after such notice is deposited in first
        class mail, postage prepaid, and (iv) if given by an internationally recognized
        overnight air courier, specifying two day delivery, then such notice shall
        be
        deemed given the second Business Day after delivery to such carrier. All
        notices
        shall be addressed to the party to be notified at the address as follows,
        or at
        such other address as such party may designate by ten (10) days’ advance written
        notice to the other party:

       

      If
        to the
        Company:

      


      Aeolus
        Pharmaceuticals, Inc.

      23811
        Inverness Place

      Laguna
        Niguel, CA 92677

      Attention: 

      Fax: 

      


      With
        a
        copy (which shall not constitute notice to the Company) to:

      


      Paul,
        Hastings, Janofsky & Walker LLP

      3579
        Valley Centre Drive 

      San
        Diego, CA 92130

      Attention:
        Leigh P. Ryan

      Fax:
        (858) 720-2555

      


      If
        to the
        Investors:

      


      to
        the
        addresses set forth on the signature pages hereto.

       

      8.5  Expenses.
        The
        parties hereto shall pay their own costs and expenses in connection herewith,
        except that the Company shall pay the reasonable and customary third party
        expenses incurred by the Investors in connection with the negotiation,
        preparation and execution of the Transaction Documents, including the reasonable
        fees and expenses of Lowenstein Sandler PC, as counsel to the Lead Investor,
        not
        to exceed $50,000 without the prior written approval of the Company. Such
        expenses shall be paid not later than, in the case of fees and expenses
        associated with the Closing,
        ten (10) Business Days following the Closing.
        The Company shall reimburse the Investors upon demand for all reasonable
        out-of-pocket expenses incurred by the Investors, including without limitation
        reimbursement of attorneys’ fees and disbursements, in connection with any
        amendment, modification or waiver of this Agreement or the other Transaction
        Documents. In the event that legal proceedings are commenced by any party
        to
        this Agreement against another party to this Agreement in connection with
        this
        Agreement or the other Transaction Documents, the party or parties which
        do not
        prevail in such proceedings shall severally, but not jointly, pay their pro
        rata
        share of the reasonable attorneys’ fees and other reasonable out-of-pocket costs
        and expenses incurred by the prevailing party in such proceedings.

       

      
        
          
          

        

        
          -20-

          
            

          

        

        
          
          

        

      

      8.6  Amendments
        and Waivers.
        Any
        term of this Agreement may be amended and the observance of any term of this
        Agreement may be waived (either generally or in a particular instance and
        either
        retroactively or prospectively), only with the written consent of the Company
        and the Lead Investor on behalf of all Investors. Any amendment or waiver
        effected in accordance with this paragraph shall be binding upon each holder
        of
        any Securities purchased under this Agreement at the time outstanding, each
        future holder of all such Securities, and the Company.

       

      8.7  Publicity.
        Except
        as set forth below, no public release or announcement concerning the
        transactions contemplated hereby shall be issued by the Company or the Investors
        without the prior consent of the Company (in the case of a release or
        announcement by the Investors) or the Lead Investor (in the case of a release
        or
        announcement by the Company) (which consents shall not be unreasonably withheld,
        conditioned or delayed), except as such release or announcement may be required
        by law or the applicable rules or regulations of any securities exchange
        or
        securities market, in which case the Company or the Investors, as the case
        may
        be, shall allow the Lead Investor or the Company, as applicable, to the extent
        reasonably practicable in the circumstances, reasonable time to comment on
        such
        release or announcement in advance of such issuance. By 8:30 a.m. (New York
        City
        time) on the trading day immediately following the Closing
        Date, the Company shall issue a press release disclosing the consummation
        of the
        transactions contemplated by this Agreement. The Company will file a Current
        Report on Form 8-K attaching the press release described in the foregoing
        sentence as well as copies of the Transaction Documents, as required under
        applicable law. In addition, the Company will make such other filings and
        notices related to the Private Placement as required
        by the
        SEC. 

       

      8.8  Severability.
        Any
        provision of this Agreement that is prohibited or unenforceable in any
        jurisdiction shall, as to such jurisdiction, be ineffective to the extent
        of
        such prohibition or unenforceability without invalidating the remaining
        provisions hereof but shall be interpreted as if it were written so as to
        be
        enforceable to the maximum extent permitted by applicable law, and any such
        prohibition or unenforceability in any jurisdiction shall not invalidate
        or
        render unenforceable such provision in any other jurisdiction. To the extent
        permitted by applicable law, the parties hereby waive any provision of law
        which
        renders any provision hereof prohibited or unenforceable in any
        respect.

       

      8.9  Entire
        Agreement.
        This
        Agreement, including the Exhibits and the Disclosure Schedules, and the other
        Transaction Documents constitute the entire agreement among the parties hereof
        with respect to the subject matter hereof and thereof and supersede all prior
        agreements and understandings, both oral and written, between the parties
        with
        respect to the subject matter hereof and thereof.

       

      
        
          
          

        

        
          -21-

          
            

          

        

        
          
          

        

      

      8.10  Further
        Assurances.
        The
        parties shall execute and deliver all such further instruments and documents
        and
        take all such other actions as may reasonably be required to carry out the
        transactions contemplated hereby and to evidence the fulfillment of the
        agreements herein contained.

       

      8.11  Governing
        Law; Consent to Jurisdiction; Waiver of Jury Trial.
        This
        Agreement shall be governed by, and construed in accordance with, the internal
        laws of the State of New York without regard to the choice of law principles
        thereof. Each of the parties hereto irrevocably submits to the jurisdiction
        of
        the courts of the State of New York located in New York County and the United
        States District Court for the Southern District of New York for the purpose
        of
        any suit, action, proceeding or judgment relating to or arising out of this
        Agreement and the transactions contemplated hereby. Service of process in
        connection with any such suit, action or proceeding may be served on each
        party
        hereto anywhere in the world by the same methods as are specified for the
        giving
        of notices under this Agreement. Each of the parties hereto irrevocably consents
        to the jurisdiction of any such court in any such suit, action or proceeding
        and
        to the laying of venue in such court. Each party hereto irrevocably waives
        any
        objection to the laying of venue of any such suit, action or proceeding brought
        in such courts and irrevocably waives any claim that any such suit, action
        or
        proceeding brought in any such court has been brought in an inconvenient
        forum.
EACH
        OF THE PARTIES HERETO WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY
        LITIGATION WITH RESPECT TO THIS AGREEMENT AND REPRESENTS THAT COUNSEL HAS
        BEEN
        CONSULTED SPECIFICALLY AS TO THIS WAIVER.

       

      8.12  Independent
        Nature of Investors' Obligations and Rights.
        The
        obligations of each Investor under any Transaction Document are several and
        not
        joint with the obligations of any other Investor, and no Investor shall be
        responsible in any way for the performance of the obligations of any other
        Investor under any Transaction Document. The decision of each Investor to
        purchase Securities pursuant to the Transaction Documents has been made by
        such
        Investor independently of any other Investor. Nothing contained herein or
        in any
        Transaction Document, and no action taken by any Investor pursuant thereto,
        shall be deemed to constitute the Investors as a partnership, an association,
        a
        joint venture or any other kind of entity, or create a presumption that the
        Investors are in any way acting in concert or as a group with respect to
        such
        obligations or the transactions contemplated by the Transaction Documents.
        Each
        Investor acknowledges that no other Investor has acted as agent for such
        Investor in connection with making its investment hereunder and that no Investor
        will be acting as agent of such Investor in connection with monitoring its
        investment in the Securities or enforcing its rights under the Transaction
        Documents. Each Investor shall be entitled to independently protect and enforce
        its rights, including, without limitation, the rights arising out of this
        Agreement or out of the other Transaction Documents, and it shall not be
        necessary for any other Investor to be joined as an additional party in any
        proceeding for such purpose. The Company acknowledges that each of the Investors
        has been provided with the same Transaction Documents for the purpose of
        closing
        a transaction with multiple Investors and not because it was required or
        requested to do so by any Investor.

       

      [signature
        page follows]

       

      
        
          
          

        

        
          -22-

          
            

          

        

        
          
          

        

      

       

      IN
        WITNESS WHEREOF, the parties have executed this Agreement or caused their
        duly
        authorized officers to execute this Agreement as of the date first above
        written.

       

      
        	 	 	COMPANY:
	 	 
	 
 	 
 	
                 

                Aeolus
                  Pharmaceuticals, Inc.
 

              
	 	 	By:
                /s/ Richard P. Burgoon, Jr.
	 	
                

                Name: Richard
                  P. Burgoon, Jr.

                
                  

                

                Title:     
                  Chief
                  Executive Officer

                
                  

                

              
	 	 


      

       

      
        	 	 	INVESTORS:
	 	 
	 
 	 
 	
                 

                Xmark
                  Opportunity Fund, L.P. 

              
	 	 	 
	 	 	By:
                /s/ Mitchell D. Kaye
	 	
                

                Name:
                  Mitchell D. Kaye 

                
                  

                

                Title: C.I.O.

                
                  

                   

                
                  
                    Address
                      for Notice:

                    301
                      Tresser Boulevard, Suite 1320

                    Stamford,
                      CT 06901

                    Attn:
                      Mitchell Kaye

                    Telephone:
                      203.653.2500

                    Facsimile:
                      203.653.2501

                     

                  

                  
                    With
                      a Copy To:

                     

                    Lowenstein
                      Sandler PC

                    65
                      Livingston Avenue

                    Roseland,
                      NJ 07068

                    Attn:
                      Steven Siesser, Esq.

                    Telephone:
                      973.597.2500

                    Facsimile:
                      973.597.2400

                  

                

              
	 	 


      

       

      [SIGNATURE
        PAGE TO PURCHASE AGREEMENT]

       

      
        
          
          

        

        
          -23-

          
            

          

        

        
          
          

        

      

      
         

        
          	 	 	Xmark
                  Opportunity Fund, Ltd.
	 	 
	  	 	
                   

                
	 	 	By:
                  /s/ Mitchell D. Kaye
	 	
                  

                  Name:
                    Mitchell D. Kaye

                  
                    

                  

                  Title: C.I.O.

                  
                    

                     

                  
                    Address
                      for Notice:

                    301
                      Tresser Boulevard, Suite 1320

                    Stamford,
                      CT 06901

                    Attn:
                      Mitchell Kaye

                    Telephone:
                      203.653.2500

                    Facsimile:
                      203.653.2501

                     

                    With
                      a Copy To:

                     

                    Lowenstein
                      Sandler PC

                    65
                      Livingston Avenue

                    Roseland,
                      NJ 07068

                    Attn:
                      Steven Siesser, Esq.

                    Telephone:
                      973.597.2500

                    Facsimile:
                      973.597.2400

                  

                    

                
	 	 


        

         

      

       

      [SIGNATURE
        PAGE TO PURCHASE AGREEMENT]

       

      
        
          
          

        

        
          -24-

          
            

          

        

        
          
          

        

      

       

       

      
        
           

          
            	 	 	Xmark
                    JV Investment Partners, LLC
	 	 
	 	 	
                     

                  
	 	 	By:
                    /s/ Mitchell D. Kaye
	 	
                    

                    Name:
                      Mitchell D. Kaye

                    
                      

                    

                    Title: C.I.O.

                    
                      

                       

                    
                      
                        Address
                          for Notice:

                        301
                          Tresser Boulevard, Suite 1320

                        Stamford,
                          CT 06901

                        Attn:
                          Mitchell Kaye

                        Telephone:
                          203.653.2500

                        Facsimile:
                          203.653.2501

                         

                        With
                          a Copy To:

                         

                        Lowenstein
                          Sandler PC

                        65
                          Livingston Avenue

                        Roseland,
                          NJ 07068

                        Attn:
                          Steven Siesser, Esq.

                        Telephone:
                          973.597.2500

                        Facsimile:
                          973.597.2400

                      

                    

                  
	 	 


          

           

        

      

      [SIGNATURE
        PAGE TO PURCHASE AGREEMENT]

       

      
        
          
          

        

        
          -25-

          
            

          

        

        
          
          

        

      

       

      
        
          
             

            
              	 	 	Biotechnology
                      Value Fund, L.P. 
	 	 
	 	 	
                       

                    
	 	 	
                      By: 
                        BVF Partners L.P. 

                         Its:
                        General Partner 

                    
	 	
                       

                      
                        By: 
                          BVF Partners L.P. 

                        Its:
                          General Partner 
    

                      By: 
                        /s/ Mark Lampert 

                      
                        

                      

                      Name:
                        Mark Lampert

                      Title:
                        President

                       

                      
                        
                          Address
                            for Notice:

                          
                            
                              900
                                N. Michigan Ave, Suite 1100

                              Chicago
                                IL 60611

                              Telephone:
                                312.506.6813

                              Facsimile:
                                312.506.6888

                            

                          

                        

                      

                    
	 	 


            

             

            
               

              
                
                  
                    
                      	 	 	Biotechnology
                              Value Fund II, L.P. 
	 	 
	 	 	
                               

                            
	 	 	
                              By: 
                                BVF Partners L.P. 

                                 Its:
                                General Partner 

                            
	 	
                               

                              
                                By: 
                                  BVF Partners L.P. 

                                Its:
                                  General Partner 
    

                              By: 
                                /s/ Mark Lampert 

                              
                                

                              

                              Name:
                                Mark Lampert

                              Title:
                                President

                               

                              
                                
                                  Address
                                    for Notice:

                                  
                                    
                                      900
                                        N. Michigan Ave, Suite 1100

                                      Chicago
                                        IL 60611

                                      Telephone:
                                        312.506.6813

                                      Facsimile:
                                        312.506.6888

                                    

                                  

                                

                              

                            
	 	 


                    

                     

                  

                

              

            

          

        

      

      [SIGNATURE
        PAGE TO PURCHASE AGREEMENT]

       

       

      
        
          
          

        

        
          -26-

          
            

          

        

        
          
          

        

      

       

      
        
          
            
              
                
                  	 	 	BVF
                          Investments, L.L.C. 
	 	 
	 	 	
                           

                        
	 	 	
                          By: 
                            BVF Partners L.P. 

                             Its:
                            Managing Partner 

                        
	 	
                           

                          
                            By: 
                              BVF, Inc. 

                            Its:
                              General Partner 
    

                          By:
                             /s/ Mark Lampert 

                          
                            

                          

                          Name:
                            Mark Lampert

                          Title:
                            President

                           

                          
                            
                              Address
                                for Notice:

                              
                                
                                  900
                                    N. Michigan Ave, Suite 1100

                                  Chicago
                                    IL 60611

                                  Telephone:
                                    312.506.6813

                                  Facsimile:
                                    312.506.6888

                                

                              

                            

                          

                        
	 	 


                

                 

              

            

          

        

      

      
        
          
            
              
                
                  
                    	 	 	Investment
                            10 L.L.C. 
	 	 
	 	 	
                             

                          
	 	 	
                            By: 
                              BVF Partners L.P. 

                               Its:
                              Managing Partner 

                          
	 	
                             

                            
                              By: 
                                BVF, Inc. 

                              Its: 
                                Attorney-in-fact
    

                            By: 
                              /s/ Mark Lampert   

                            
                              

                            

                            Name:
                              Mark Lampert

                            Title:
                              President

                             

                            
                              
                                Address
                                  for Notice:

                                
                                  
                                    900
                                      N. Michigan Ave, Suite 1100

                                    Chicago
                                      IL 60611

                                    Telephone:
                                      312.506.6813

                                    Facsimile:
                                      312.506.6888

                                  

                                

                              

                            

                          
	 	 


                  

                   

                

              

            

          

        

      

      


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                        	 	 	Biomedical
                                Offshore Value Fund, Ltd.
	 	 
	 	 	
                                 

                              
	 	 	
                                 

                              
	 	
                                By: 
                                  /s/ David P. Gerber    

                                
                                  

                                

                                Name:
                                  David P. Gerber   

                                Title:
                                  Chief Financial Officer

                                 

                                
                                  
                                    Address
                                      for Notice:

                                    
                                      
                                        
                                          2
                                            Pickwick Plaza, Suite 450

                                          Greenwich,
                                            CT 06830

                                          Telephone:
                                            203.971.3300

                                          Facsimile:
                                            203.971.3320

                                        

                                      

                                    

                                  

                                

                              
	 	 


                      

                       

                    

                  

                

              

            

          

        

      

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          -28-

          
            

          

        

        
          
          

        

      

      SCHEDULE
        I

      
        
          

        

      

       

      INVESTORS

       

      
        

      

      


      
        	
                 

                 

                Name

                of
                  Investor

              	
                 

                 

                Closing

                Purchase
                  Price

              	
                 

                Number
                  of

                Shares
                  of

                Preferred
                  Stock

              	
                Warrants

                to
                  Acquire

                Shares
                  of

                Common
                  Stock

              	
                 

                 

                Pro
                  Rata 

                Portion

              
	
                Xmark
                  Opportunity Fund, L.P.

              	
                $660,000.00

              	
                330,000

              	
                660,000

              	
                26.40%

              
	
                Xmark
                  Opportunity Fund, Ltd.

              	
                $990,000.00

              	
                495,000

              	
                990,000

              	
                39.60%

              
	
                Xmark
                  JV Investment Partners, LLC

              	
                $500,000.00

              	
                250,000

              	
                500,000

              	
                20.00%

              
	
                Biotechnology
                  Value Fund, L.P.

              	
                $74,000.00

              	
                37,000

              	
                74,000

              	
                2.96%

              
	
                Biotechnology
                  Value Fund II, L.P.

              	
                $48,000.00

              	
                24,000

              	
                48,000

              	
                1.92%

              
	
                Investment
                  10, LLC

              	
                $12,336.00

              	
                6,168

              	
                12,336

              	
                0.49%

              
	
                BVF
                  Investments, LLC

              	
                $115,664.00

              	
                57,832

              	
                115,664

              	
                4.63%

              
	
                Biomedical
                  Offshore Value Fund, Ltd.

              	
                $100,000.00

              	
                50,000

              	
                100,000

              	
                4.00%

              
	 	 	 	 	 
	
                TOTAL

              	
                $2,500,000.00

              	
                1,250,000

              	
                2,500,000

              	
                100.00%

              


      

      


      


      
        
          
          

        

        
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