Document:

may2007rra.htm

               EXHIBIT
      4.1

    

    REGISTRATION
      RIGHTS AGREEMENT

    

    This
      Registration Rights Agreement
      (this “Agreement”) is made and entered into as of May 22, 2007, between
      Aeolus Pharmaceuticals, Inc., a Delaware corporation (the “Company”) and
      each of the several purchasers signatory hereto (each such purchaser, a
“Purchaser” and, collectively, the “Purchasers”).

    

                   This
      Agreement is made pursuant to the Securities Purchase Agreement, dated as of
      the
      date hereof, between the Company and each Purchaser (the “Purchase
      Agreement”).

    

                   The
      Company and each Purchaser hereby agrees as follows:

    

    1.           Definitions.  Capitalized
      terms used and not otherwise defined herein that are defined in the Purchase
      Agreement shall have the meanings given such terms in the Purchase
      Agreement. As used in this Agreement, the following terms shall have
      the following meanings:

    

                “Advice”
      shall have the meaning set forth in Section 6(d).

    

    “Effectiveness
      Period” shall mean the Initial Effectiveness Period or Subsequent
      Effectiveness Period, as applicable.

    

    “Event”
      shall have the meaning set forth in Section 2(b).

    

    “Event
      Date” shall have the meaning set forth in Section 2(b).

    

    “Holder”
      or “Holders” means the holder or holders, as the case may be, from time
      to time of Registrable Securities.

    

    “Indemnified
      Party” shall have the meaning set forth in Section 5(c).

    

    “Indemnifying
      Party” shall have the meaning set forth in Section 5(c).

    

    “Initial
      Filing Date” means, with respect to the Initial Registration Statement
      required hereunder, the 30th calendar
      day
      following the date hereof.

    

    “Initial
      Registration Statement” shall have the meaning set forth in Section
      2(a).

    

    “Initial
      Registration Statement Effectiveness Date” means, with respect to the
      Initial Registration Statement required to be filed hereunder, the 60th calendar
      day
      following the Initial Filing Date (or, in the event of a “full review” by the
      Commission, the 90th calendar
      day
      following the Initial Filing Date).

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    “Initial
      Registration Statement Effectiveness Period” shall have the meaning set
      forth in Section 2(a).

    

    “Initial
      Shares” means a number of Registrable Securities equal to the lesser of (i)
      the total number of Registrable Securities and (ii) one-third of the number
      of
      issued and outstanding shares of Common Stock that are held by non-affiliates
      of
      the Company on the day immediately prior to the filing date of the Initial
      Registration Statement.

    

    “Losses”
      shall have the meaning set forth in Section 5(a).

    

    “Plan
      of Distribution” shall have the meaning set forth in Section
      2(a).

    

    “Prospectus”
      means the prospectus included in a Registration Statement (including, without
      limitation, a prospectus that includes any information previously omitted from
      a
      prospectus filed as part of an effective registration statement in reliance
      upon
      Rule 430A promulgated by the Commission pursuant to the Securities Act), as
      amended or supplemented by any prospectus supplement, with respect to the terms
      of the offering of any portion of the Registrable Securities covered by a
      Registration Statement, and all other amendments and supplements to the
      Prospectus, including post-effective amendments, and all material incorporated
      by reference or deemed to be incorporated by reference in such
      Prospectus.

    

    “Registrable
      Securities” means (i) all Shares, (ii) all Warrant Shares (assuming on the
      date of determination the Warrants are exercised in full without regard to
      any
      exercise limitations therein), (iii) any additional shares of Common Stock
      issuable in connection with any anti-dilution provisions in the Warrants (in
      each case, without giving effect to any limitations on exercise set forth in
      the
      Warrants) and (iv) any securities issued or issuable upon any stock split,
      dividend or other distribution,  recapitalization or similar event
      with respect to the foregoing.

    

    “Registration
      Statement” means a registration statement on Form S-3 (unless the Company is
      not then eligible to register for resale the Registrable Securities on Form
      S-3
      in which case such registration statement shall be on any form selected by
      the
      Company for which it then qualifies) which permits the sale thereunder of the
      number and type of Registrable Securities (and any other securities of the
      Company) to be included therein in accordance with this Agreement by the
      applicable sellers in the manner described therein, including the Prospectus,
      amendments and supplements to such registration statement or Prospectus,
      including pre- and post-effective amendments, all exhibits thereto, and all
      material incorporated by reference or deemed to be incorporated by reference
      in
      such registration statement.

    

     “Rule
      415” means Rule 415 promulgated by the Commission pursuant to the Securities
      Act, as such Rule may be amended or interpreted from time to time, or any
      similar rule or regulation hereafter adopted by the Commission having
      substantially the same purpose and effect as such Rule.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    “Rule
      424” means Rule 424 promulgated by the Commission pursuant to the Securities
      Act, as such Rule may be amended or interpreted from time to time, or any
      similar rule or regulation hereafter adopted by the Commission having
      substantially the same purpose and effect as such Rule.

    

    “Selling
      Shareholder Questionnaire” shall have the meaning set forth in Section
      3(a).

    

    “SEC
      Guidance” means (i) any publicly-available written guidance, comments,
      requirements or requests of the Commission staff and (ii) the Securities
      Act.

    

    “Subsequent
      Filing Date” means, with respect to the Subsequent Registration Statement
      required hereunder, November 21, 2007.

    

    “Subsequent
      Registration Statement” shall have the meaning set forth in
      Section 2(a).

    

    “Subsequent
      Registration Statement Effectiveness Date” means, with respect to the
      Subsequent Registration Statement required to be filed hereunder, the 60th calendar
      day
      following the Subsequent Filing Date (or, in the event of a “full review” by the
      Commission, the 90th calendar
      day
      following the Subsequent Filing Date).

    

    “Subsequent
      Registration Statement Effectiveness Period” shall have the meaning set
      forth in Section 2(b).

    

    2.           Shelf
      Registration.

    

    (a)  On
      or
      prior to the Initial Filing Date, the Company shall prepare and file with the
      Commission an initial Registration Statement (the “Initial Registration
      Statement”) covering the resale of all or such maximum portion of the
      Registrable Securities as permitted by SEC Guidance that are not then registered
      on an effective Registration Statement for an offering to be made on a
      continuous basis pursuant to Rule 415; provided, however, the
      Company shall use diligent efforts to advocate with the Commission for the
      registration of all of the Registrable Securities in accordance with the SEC
      Guidance, including without limitation, the Manual of Publicly Available
      Telephone Interpretations D.29.  Except as provided in the foregoing
      sentence, the Initial Registration Statement shall contain (unless otherwise
      directed by at least an 85% majority in interest of the Holders) substantially
      the “Plan of Distribution” attached hereto as Annex
      A.  Subject to the terms of this Agreement, the Company shall use
      its best efforts to cause the Initial Registration Statement to be declared
      effective under the Securities Act as promptly as possible after the filing
      thereof, but in any event prior to the Initial Registration Statement
      Effectiveness Date, and shall use its best efforts to keep such Initial
      Registration Statement continuously effective under the Securities Act until
      all
      Registrable Securities covered by such Initial Registration Statement have
      been
      sold, or may be sold without volume restrictions pursuant to Rule 144(k), as
      determined by the counsel to the Company pursuant to a written opinion letter
      to
      such effect, addressed and acceptable to the Company’s transfer agent and the
      affected Holders (the “Initial Registration Statement Effectiveness
      Period”).  The Company shall telephonically request effectiveness
      of the Initial Registration Statement, and the Company shall notify the Holders
      via facsimile or by e-mail of the effectiveness of the Initial Registration
      Statement within one (1) Trading Day of the date upon which the Company
      telephonically confirms effectiveness with the Commission which notice shall
      be
      made simultaneously with all selling shareholders on the Initial Registration
      Statement.  The Company shall, by 3:00 p.m. New York City time on the
      first Trading Day after the effective date of such Initial Registration
      Statement, file a final Prospectus with the Commission as required by Rule
      424.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (b)  On
      or
      prior to the Subsequent Filing Date, if any Registrable Securities are not
      then
      registered on an effective Registration Statement, the Company shall prepare
      and
      file with the Commission a subsequent Registration Statement (the “Subsequent
      Registration Statement”) covering the resale of all or such maximum portion
      of such Registrable Securities as permitted by SEC Guidance for an offering
      to
      be made on a continuous basis pursuant to Rule 415; provided,
however, provided that the Company shall use diligent efforts to advocate
      with the Commission for the registration of all of the Registrable Securities
      in
      accordance with the SEC Guidance, including without limitation, the Manual
      of
      Publicly Available Telephone Interpretations D.29 .  Except as
      provided in the foregoing sentence, the Subsequent Registration Statement shall
      contain (unless otherwise directed by at least an 85% majority in interest
      of
      the Holders) substantially the Plan of Distribution.  Subject to the
      terms of this Agreement, the Company shall use its best efforts to cause the
      Subsequent Registration Statement to be declared effective under the Securities
      Act as promptly as possible after the filing thereof, but in any event prior
      to
      the Subsequent Registration Statement Effectiveness Date, and shall use its
      best
      efforts to keep such Subsequent Registration Statement continuously effective
      under the Securities Act for the until all Registrable Securities covered by
      such Subsequent Registration Statement have been sold, or may be sold without
      volume restrictions pursuant to Rule 144(k), as determined by the counsel to
      the
      Company pursuant to a written opinion letter to such effect, addressed and
      acceptable to the Company’s transfer agent and the affected Holders (the
“Subsequent Registration Statement Effectiveness Period”).  The
      Company shall telephonically request effectiveness of the Initial Registration
      Statement, and the Company shall notify the Holders via facsimile or by e-mail
      of the effectiveness of the Initial Registration Statement within two (2)
      Trading Days of the date upon which the Company telephonically confirms
      effectiveness with the Commission.  The Company shall, by 3:00 p.m.
      New York City time on the second Trading Day after the effective date of such
      Initial Registration Statement, file a final Prospectus with the Commission
      as
      required by Rule 424.

    

    (c)  Notwithstanding
      any other provision of this Agreement, if any SEC Guidance sets forth a
      limitation on the number of Registrable Securities permitted to be registered
      on
      a particular Registration Statement, unless otherwise directed in writing by
      a
      Holder as to its Registrable Securities, the number of Registrable Securities
      to
      be registered on such Registration Statement will first be reduced by
      Registrable Securities represented by Warrant Shares (applied, in the case
      that
      some Warrant Shares may be registered, to the Holders on a pro rata basis based
      on the total number of unregistered Warrant Shares held by such Holders), and
      second by Registrable Securities represented by the Shares (applied, in the
      case
      that some Shares may be registered, to the Holders on a pro rata basis based
      on
      the total number of unregistered Shares held by such Holders); provided,
however, prior to any reduction as set forth in this sentence in the
      number of Registrable Securities included in a Registration Statement, the
      number of shares of Common Stock set forth on Schedule 6(b) hereto which shall
      have been included on such Registration Statement shall be reduced by up to
      100%.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (d)  If:
      (i)
      the Initial Registration Statement is not filed on or prior to the Initial
      Filing Date or the Subsequent Registration Statement is not filed on or prior
      to
      the Subsequent Filing Date (if the Company files the Initial Registration
      Statement without affording the Holders the opportunity to review and comment
      on
      the same as required by Section 3(a) herein, the Company shall be deemed to
      have
      not satisfied this clause (i)), or (ii) the Company fails to file with the
      Commission a request for acceleration of a Registration Statement in accordance
      with Rule 461 promulgated by the Commission pursuant to the Securities Act,
      within five Trading Days of the date that the Company is notified (orally or
      in
      writing, whichever is earlier) by the Commission that such Registration
      Statement will not be “reviewed” or will not be subject to further review, or,
      or (iii) as to, in the aggregate among all Holders on a pro-rata basis based
      on
      their purchase of the Securities pursuant to the Purchase Agreement, a
      Registration Statement registering for resale all of the Initial Shares is
      not
      declared effective by the Commission by the Initial Effectiveness Date of the
      Initial Registration Statement, or (iv) all of the Registrable Securities are
      not registered for resale pursuant to one or more effective Registration
      Statements on or before February 28, 2008, or (v) after the effective date
      of a
      Registration Statement, such Registration Statement ceases for any reason to
      remain continuously effective as to all Registrable Securities included in
      such
      Registration Statement, or the Holders are otherwise not permitted to utilize
      the Prospectus therein to resell such Registrable Securities, for more than
      15
      consecutive calendar days or more than an aggregate of 25 calendar days (which
      need not be consecutive calendar days) during any 12-month period (any such
      failure or breach being referred to as an “Event”, and for purposes of
      clause (i), (iii) and (iv) the date on which such Event occurs, and for purpose
      of clause (ii) the date on which such five Trading Day period is exceeded,
      and
      for purpose of clause (v) the date on which such 15 or 25 calendar day period,
      as applicable, is exceeded being referred to as “Event Date”), then, in
      addition to any other rights the Holders may have hereunder or under applicable
      law, on each such Event Date and on each monthly anniversary of each such Event
      Date (if the applicable Event shall not have been cured by such date) until
      the
      applicable Event is cured, the Company shall pay to each Holder an amount in
      cash, as partial liquidated damages and not as a penalty, equal to 1.5% of
      the
      aggregate purchase price paid by such Holder pursuant to the Purchase Agreement
      for any unregistered Registrable Securities then held by such
      Holder.  The parties agree that the Company shall not be liable for
      liquidated damages under this Agreement with respect to any Warrants or Warrant
      Shares.  If the Company fails to pay any partial liquidated damages
      pursuant to this Section in full within seven days after the date payable,
      the
      Company will pay interest thereon at a rate of 18% per annum (or such lesser
      maximum amount that is permitted to be paid by applicable law) to the Holder,
      accruing daily from the date such partial liquidated damages are due until
      such
      amounts, plus all such interest thereon, are paid in full. The partial
      liquidated damages pursuant to the terms hereof shall apply on a daily pro
      rata
      basis for any portion of a month prior to the cure of an Event.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (e)  Subject
      to SEC Guidance, if during the Effectiveness Period and after the Subsequent
      Filing Date the number of Registrable Securities at any time exceeds 100% of
      the
      number of shares of Common Stock then registered in a Registration Statement,
      then the Company shall file as soon as reasonably practicable an additional
      Registration Statement covering the resale by the Holders of not less than
      the
      number of such Registrable Securities.

    

    3.           Registration
      Procedures.

    

                   In
      connection with the Company’s registration obligations under Section 2, the
      Company shall:

    

    (a)  Not
      less
      than 3 Trading Days prior to the filing of each Registration Statement and
      not
      less than one Trading Day prior to the filing of any related Prospectus or
      any
      amendment or supplement thereto, the Company shall furnish to each Holder for
      review copies of all such documents proposed to be filed (other than those
      incorporated or deemed to be incorporated by reference) and consider in good
      faith any reasonable comments proposed by any such Holder. The Company shall
      not
      file a Registration Statement or any such Prospectus or any amendments or
      supplements thereto to which the Holders of a majority of the Registrable
      Securities covered by such Registration Statement shall reasonably object in
      good faith, provided that the Company is notified of such objection in writing
      no later than 3 Trading Days after the Holders have been so furnished copies
      of
      a Registration Statement or 1 Trading Day after the Holders have been so
      furnished copies of any related Prospectus or amendments or supplements thereto;
      provided, however, that if a Holder does not respond to the
      Company upon delivery of such documents within 3 or 1 Trading Day(s), as
      applicable, such Holder shall be deemed to have consented to the information
      included therein. Each Holder agrees to furnish to the Company a completed
      questionnaire in the form attached to this Agreement as Annex B (a
“Selling Shareholder Questionnaire”) not less than two Trading Days prior
      to the Filing Date or by the end of the second Trading Day following the date
      on
      which such Holder receives draft materials in accordance with this
      Section.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (b)  (i)
      Prepare and file with the Commission such amendments, including post-effective
      amendments, to a Registration Statement and the Prospectus used in connection
      therewith as may be necessary to keep a Registration Statement continuously
      effective as to the applicable Registrable Securities for the Effectiveness
      Period and prepare and file with the Commission such additional Registration
      Statements in order to register for resale under the Securities Act all of
      the
      Registrable Securities; (ii) cause the related Prospectus to be amended or
      supplemented by any required Prospectus supplement (subject to the terms of
      this
      Agreement), and, as so supplemented or amended, to be filed pursuant to Rule
      424; (iii) respond as promptly as reasonably possible to any comments received
      from the Commission with respect to a Registration Statement or any amendment
      thereto and provide as promptly as reasonably possible to the Holders via
      facsimile or e-mail true and complete copies of all correspondence from and
      to
      the Commission relating to a Registration Statement (provided that the Company
      may excise any information contained therein which would constitute material
      non-public information as to any Holder which has not executed a confidentiality
      agreement with the Company); and (iv) comply in all material respects with
      the
      provisions of the Securities Act and the Exchange Act with respect to the
      disposition of all Registrable Securities covered by a Registration Statement
      during the applicable period in accordance (subject to the terms of this
      Agreement) with the intended methods of disposition by the Holders thereof
      set
      forth in such Registration Statement as so amended or in such Prospectus as
      so
      supplemented.

    

    (c)  Notify
      the Holders of Registrable Securities to be sold (which notice shall, pursuant
      to clauses (iii) through (v) hereof, be accompanied by an instruction to suspend
      the use of the Prospectus until the requisite changes have been made) as
      promptly as reasonably possible (and, in the case of (i)(A) below, not less
      than
      one Trading Day prior to such filing) and (if requested by any such Person)
      confirm such notice in writing no later than one Trading Day following the
      day
      (i)(A) when a Prospectus or any Prospectus supplement or post-effective
      amendment to a Registration Statement is proposed to be filed; (B) when the
      Commission notifies the Company whether there will be a “review” of such
      Registration Statement and whenever the Commission comments in writing on such
      Registration Statement; and (C) with respect to a Registration Statement or
      any
      post-effective amendment, when the same has become effective; (ii) of any
      request by the Commission or any other federal or state governmental authority
      for amendments or supplements to a Registration Statement or Prospectus or
      for
      additional information; (iii) of the issuance by the Commission or any other
      federal or state governmental authority of any stop order suspending the
      effectiveness of a Registration Statement covering any or all of the Registrable
      Securities or the initiation of any Proceedings for that purpose; (iv) of the
      receipt by the Company of any notification with respect to the suspension of
      the
      qualification or exemption from qualification of any of the Registrable
      Securities for sale in any jurisdiction, or the initiation or threatening of
      any
      Proceeding for such purpose; and (v) of the occurrence of any event or passage
      of time that makes the financial statements included in a Registration Statement
      ineligible for inclusion therein or any statement made in a Registration
      Statement or Prospectus or any document incorporated or deemed to be
      incorporated therein by reference untrue in any material respect or that
      requires any revisions to a Registration Statement, Prospectus or other
      documents so that, in the case of a Registration Statement or the Prospectus,
      as
      the case may be, it will not contain any untrue statement of a material fact
      or
      omit to state any material fact required to be stated therein or necessary
      to
      make the statements therein, in light of the circumstances under which they
      were
      made, not misleading; provided, further, that notwithstanding each
      Holder’s agreement to keep such information confidential, each such Holder makes
      no acknowledgement that any such information is material, non-public
      information.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (d)  Use
      its
      best efforts to avoid the issuance of, or, if issued, obtain the withdrawal
      of
      (i) any order stopping or suspending the effectiveness of a Registration
      Statement, or (ii) any suspension of the qualification (or exemption from
      qualification) of any of the Registrable Securities for sale in any
      jurisdiction, at the earliest practicable moment.

    

    (e)  Furnish
      to each Holder, without charge, at least one conformed copy of each such
      Registration Statement and each amendment thereto, including financial
      statements and schedules, all documents incorporated or deemed to be
      incorporated therein by reference to the extent requested by such Person, and
      all exhibits to the extent requested by such Person (including those previously
      furnished or incorporated by reference) promptly after the filing of such
      documents with the Commission; provided, that any such item which is available
      on the EDGAR system need not be furnished in physical form.

    

    (f)  Subject
      to the terms of this Agreement, the Company hereby consents to the use of such
      Prospectus and each amendment or supplement thereto by each of the selling
      Holders in connection with the offering and sale of the Registrable Securities
      covered by such Prospectus and any amendment or supplement thereto, except
      after
      the giving of any notice pursuant to Section 3(c).

    

    (g)  The
      Company shall effect a filing with respect to the public offering contemplated
      by each Registration Statement (an “Issuer Filing”) with the National
      Association of Securities Dealers, Inc. (“NASD”) Corporate Financing
      Department pursuant to NASD Rule 2710 as described in proposed NASD Rule
      2710(b)(10)(A)(i) within one Trading Day of the date that the Registration
      Statement is first filed with the Commission and pay the filing fee required
      by
      such Issuer Filing.  The Company shall use commercially reasonable
      efforts to pursue the Issuer Filing until the NASD issues a letter confirming
      that it does not object to the terms of the offering contemplated by the
      Registration Statement as described in the Plan of Distribution attached hereto
      as Annex A.  A copy of the Issuer Filing and all related
      correspondence to or from the NASD with respect thereto shall be provided to
      FWS.

    

    (h)  Prior
      to
      any resale of Registrable Securities by a Holder, use its commercially
      reasonable efforts to register or qualify or cooperate with the selling Holders
      in connection with the registration or qualification (or exemption from the
      Registration or qualification) of such Registrable Securities for the resale
      by
      the Holder under the securities or Blue Sky laws of such jurisdictions within
      the United States as any Holder reasonably requests in writing, to keep each
      registration or qualification (or exemption therefrom) effective during the
      Effectiveness Period and to do any and all other acts or things reasonably
      necessary to enable the disposition in such jurisdictions of the Registrable
      Securities covered by each Registration Statement; provided, that the Company
      shall not be required to qualify generally to do business in any jurisdiction
      where it is not then so qualified, subject the Company to any material tax
      in
      any such jurisdiction where it is not then so subject or file a general consent
      to service of process in any such jurisdiction.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (i)  If
      requested by a Holder, cooperate with such Holders to facilitate the timely
      preparation and delivery of certificates representing Registrable Securities
      to
      be delivered to a transferee pursuant to a Registration Statement, which
      certificates shall be free, to the extent permitted by the Purchase Agreement,
      of all restrictive legends, and to enable such Registrable Securities to be
      in
      such denominations and registered in such names as any such Holder may
      request.

    

    (j)  Upon
      the
      occurrence of any event contemplated by Section 3(d), as promptly as reasonably
      possible under the circumstances taking into account the Company’s good faith
      assessment of any adverse consequences to the Company and its stockholders
      of
      the premature disclosure of such event, prepare a supplement or amendment,
      including a post-effective amendment, to a Registration Statement or a
      supplement to the related Prospectus or any document incorporated or deemed
      to
      be incorporated therein by reference, and file any other required document
      so
      that, as thereafter delivered, neither a Registration Statement nor such
      Prospectus will contain an untrue statement of a material fact or omit to state
      a material fact required to be stated therein or necessary to make the
      statements therein, in light of the circumstances under which they were made,
      not misleading. If the Company notifies the Holders in accordance with
      clauses (iii) through (v) of Section 3(c) above to suspend the use of any
      Prospectus until the requisite changes to such Prospectus have been made, then
      the Holders shall suspend use of such Prospectus.  The Company will
      use its best efforts to ensure that the use of the Prospectus may be resumed
      as
      promptly as is practicable.  The Company shall be entitled to exercise
      its right under this Section 3(k) to suspend the availability of a Registration
      Statement and Prospectus, subject to the payment of partial liquidated damages
      otherwise required pursuant to Section 2(b), for a period not to exceed 60
      calendar days (which need not be consecutive days) in any 12 month
      period.

    

    (k)  Comply
      with all applicable rules and regulations of the Commission.

    

    (l)  The
      Company may require each selling Holder to furnish to the Company a certified
      statement as to the number of shares of Common Stock beneficially owned by
      such
      Holder and the natural persons thereof that have voting and dispositive control
      over the shares. During any periods that the Company is unable to meet its
      obligations hereunder with respect to the registration of the Registrable
      Securities solely because any Holder fails to furnish such information within
      three Trading Days of the Company’s request, any liquidated damages that are
      accruing at such time as to such Holder only shall be tolled and any Event
      that
      may otherwise occur solely because of such delay shall be suspended, until
      such
      information is delivered to the Company and the Company may exclude such Holder
      from such Registration Statement until such time as the information is provided;
      provided, however, if the information is provided prior to 10 days
      prior to the Effective Date of such Registration Statement, the Company shall
      use commercially reasonable effort to include such Holder in such Registration
      Statement.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (m)  Notwithstanding
      anything in this Agreement to the contrary, the Company and the Holders
      expressly acknowledge and agree that in no event shall the Company be required
      to deliver to any Holder, prior to the filing thereof, any copies of any
      Registration Statement, Prospectus, Prospectus supplement or amendment,
      amendment to a Registration Statement or post-effective amendment to a
      Registration Statement unless such Registration Statement, Prospectus,
      Prospectus supplement or amendment, amendment to a Registration Statement or
      post-effective amendment to a Registration Statement contains a “Selling
      Stockholders” section, “Plan of Distribution” section or risk factor that
      addresses specifically this transaction or the Holders, in which case the
      Company shall only be required to deliver to the Holders, prior to the filing
      thereof and in accordance with the provisions of this Section 3, such portion
      of
      such Registration Statement, Prospectus, Prospectus supplement or amendment,
      amendment to a Registration Statement or post-effective amendment to a
      Registration Statement; provided, further, notwithstanding the
      above, the Company shall promptly notify the Holders via e-mail as soon as
      any
      such filings are made.

    

    4.           Registration
      Expenses. All fees and expenses incident to the performance of or compliance
      with this Agreement by the Company shall be borne by the Company whether or
      not
      any Registrable Securities are sold pursuant to a Registration Statement. The
      fees and expenses referred to in the foregoing sentence shall include, without
      limitation, (i) all registration and filing fees (including, without limitation,
      fees and expenses of the Company’s counsel and auditors) (A) with respect to
      filings made with the Commission, (B) with respect to filings required to be
      made with any Trading Market on which the Common Stock is then listed for
      trading, and (C) in compliance with applicable state securities or Blue Sky
      laws
      reasonably agreed to by the Company in writing (including, without limitation,
      fees and disbursements of counsel for the Company in connection with Blue Sky
      qualifications or exemptions of the Registrable Securities) and (D) if not
      previously paid by the Company in connection with an Issuer Filing, with respect
      to any filing that may be required to be made by any broker through which a
      Holder intends to make sales of Registrable Securities with the NASD pursuant
      to
      NASD Rule 2710, so long as the broker is receiving no more than a customary
      brokerage commission in connection with such sale, (ii) printing expenses
      (including, without limitation, expenses of printing certificates for
      Registrable Securities), (iii) messenger, telephone and delivery expenses
      incurred by the Company, (iv) fees and disbursements of counsel for the Company,
      (v) Securities Act liability insurance, if the Company so desires such
      insurance, and (vi) fees and expenses of all other Persons retained by the
      Company in connection with the consummation of the transactions contemplated
      by
      this Agreement.  In addition, the Company shall be responsible for all
      of its internal expenses incurred in connection with the consummation of the
      transactions contemplated by this Agreement (including, without limitation,
      all
      salaries and expenses of its officers and employees performing legal or
      accounting duties), the expense of any annual audit and the fees and expenses
      incurred in connection with the listing of the Registrable Securities on any
      securities exchange as required hereunder.  In no event shall the
      Company be responsible for any broker or similar commissions of any Holder
      or
      any legal fees or other costs of the Holders.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    5.           Indemnification.

    

    (a)  Indemnification
      by the Company. The Company shall, notwithstanding any termination of this
      Agreement, indemnify and hold harmless each Holder, the officers, directors,
      members, partners, agents, investment advisors and employees (and any other
      Persons with a functionally equivalent role of a Person holding such titles,
      notwithstanding a lack of such title or any other title) of each of them, each
      Person who controls any such Holder (within the meaning of Section 15 of the
      Securities Act or Section 20 of the Exchange Act) and the officers, directors,
      members, shareholders, partners, agents and employees (and any other Persons
      with a functionally equivalent role of a Person holding such titles,
      notwithstanding a lack of such title or any other title) of each such
      controlling Person, to the fullest extent permitted by applicable law, from
      and
      against any and all losses, claims, damages, liabilities, costs (including,
      without limitation, reasonable attorneys’ fees) and expenses (collectively,
“Losses”), as incurred, arising out of or relating to (1) any untrue or
      alleged untrue statement of a material fact contained in a Registration
      Statement, any Prospectus or any form of prospectus or in any amendment or
      supplement thereto or in any preliminary prospectus, or arising out of or
      relating to any omission or alleged omission of a material fact required to
      be
      stated therein or necessary to make the statements therein (in the case of
      any
      Prospectus or supplement thereto, in light of the circumstances under which
      they
      were made) not misleading or (2) any violation or alleged violation by the
      Company of the Securities Act, the Exchange Act or any state securities law,
      or
      any rule or regulation thereunder, in connection with the performance of its
      obligations under this Agreement, except to the extent, but only to the extent,
      that (i) such untrue statements or omissions are based solely upon information
      regarding such Holder furnished in writing to the Company by such Holder
      expressly for use therein, or to the extent that such information relates to
      such Holder or such Holder’s proposed method of distribution of Registrable
      Securities and was reviewed and expressly approved in writing by such Holder
      expressly for use in a Registration Statement, such Prospectus or in any
      amendment or supplement thereto (it being understood that the Holder has
      approved Annex A hereto for this purpose) or (ii) in the case of an occurrence
      of an event of the type specified in Section 3(c), the use by such Holder of
      an
      outdated or defective Prospectus after the Company has notified such Holder
      in
      writing that the Prospectus is outdated or defective and prior to the receipt
      by
      such Holder of the Advice contemplated in Section 6(d).  The Company
      shall notify the Holders promptly of the institution, threat or assertion of
      any
      Proceeding arising from or in connection with the transactions contemplated
      by
      this Agreement of which the Company is aware.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (b)  Indemnification
      by Holders. Each Holder shall, severally and not jointly, indemnify and hold
      harmless the Company, its directors, officers, agents and employees, each Person
      who controls the Company (within the meaning of Section 15 of the Securities
      Act
      and Section 20 of the Exchange Act), and the directors, officers, agents or
      employees of such controlling Persons, to the fullest extent permitted by
      applicable law, from and against all Losses, as incurred, to the extent arising
      out of or based solely upon: (x) such Holder’s failure to comply with the
      prospectus delivery requirements of the Securities Act, including, without
      limitation, such Holder’s use of an outdated or defective Prospectus after the
      Company has notified such Holder in writing that the Prospectus is outdated
      or
      defective and prior to the receipt by such Holder of the Advice contemplated
      in
      Section 6(d), (y) following the removal of the legend specified in Section
      4.1(b) of the Purchase Agreement, such Holder’s sale or transfer of any
      Registrable Securities other than (1) pursuant to an effective registration
      statement covering the resale of such Registrable Securities and in accordance
      with the plan of distribution set forth therein or (2) otherwise in accordance
      with all applicable federal and state securities laws or (z) any untrue or
      alleged untrue statement of a material fact contained in any Registration
      Statement, any Prospectus, or in any amendment or supplement thereto or in
      any
      preliminary prospectus, or arising out of or relating to any omission or alleged
      omission of a material fact required to be stated therein or necessary to make
      the statements therein not misleading.  The indemnification provided
      for in the foregoing clause (z) shall be only to the extent, that (i) such
      untrue statement or omission is contained in any information so furnished in
      writing by such Holder to the Company specifically for inclusion in such
      Registration Statement or such Prospectus or (ii) such information relates
      to
      such Holder’s proposed method of distribution of Registrable Securities and was
      reviewed and expressly approved in writing by such Holder expressly for use
      in a
      Registration Statement (it being understood that the Holder has approved Annex
      A
      hereto for this purpose), such Prospectus or in any amendment or supplement
      thereto.  In no event shall the liability of any selling Holder
      hereunder be greater in amount than the dollar amount of the net proceeds
      received by such Holder upon the sale of the Registrable Securities giving
      rise
      to such indemnification obligation. Notwithstanding anything herein to the
      contrary, in no event shall a Holder be required to indemnify the Company
      hereunder in connection with the delivery of an outdated or defective Prospectus
      if the Company failed to notify such Holder in writing that the Prospectus
      is
      outdated or defective at such time.

    

    (c)  Conduct
      of Indemnification Proceedings. If any Proceeding shall be brought or
      asserted against any Person entitled to indemnity hereunder (an “Indemnified
      Party”), such Indemnified Party shall promptly notify the Person from whom
      indemnity is sought (the “Indemnifying Party”) in writing, and the
      Indemnifying Party shall have the right to assume the defense thereof, including
      the employment of counsel reasonably satisfactory to the Indemnified Party
      and
      the payment of all fees and expenses incurred in connection with defense
      thereof; provided, that the failure of any Indemnified Party to give such notice
      shall not relieve the Indemnifying Party of its obligations or liabilities
      pursuant to this Agreement, except (and only) to the extent that such failure
      shall have materially prejudiced the Indemnifying Party.

    

                   An
      Indemnified Party shall have the right to employ separate counsel in any such
      Proceeding and to participate in the defense thereof, but the fees and expenses
      of such counsel shall be at the expense of such Indemnified Party or Parties
      unless:  (1) the Indemnifying Party has agreed in writing to pay such
      fees and expenses; (2) the Indemnifying Party shall have failed promptly to
      assume the defense of such Proceeding and to employ counsel reasonably
      satisfactory to such Indemnified Party in any such Proceeding; or (3) the named
      parties to any such Proceeding (including any impleaded parties) include both
      such Indemnified Party and the Indemnifying Party, and counsel to the
      Indemnified Party shall reasonably believe that a material conflict of interest
      is likely to exist if the same counsel were to represent such Indemnified Party
      and the Indemnifying Party (in which case, if such Indemnified Party notifies
      the Indemnifying Party in writing that it elects to employ separate counsel
      at
      the expense of the Indemnifying Party, the Indemnifying Party shall not have
      the
      right to assume the defense thereof and the reasonable fees and expenses of
      no
      more than one separate counsel shall be at the expense of the Indemnifying
      Party).  The Indemnifying Party shall not be liable for any settlement
      of any such Proceeding effected without its written consent, which consent
      shall
      not be unreasonably withheld or delayed.  No Indemnifying Party shall,
      without the prior written consent of the Indemnified Party, effect any
      settlement of any pending Proceeding in respect of which any Indemnified Party
      is a party, unless such settlement includes an unconditional release of such
      Indemnified Party from all liability on claims that are the subject matter
      of
      such Proceeding.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

                   Subject
      to the terms of this Agreement, all reasonable fees and expenses of the
      Indemnified Party (including reasonable fees and expenses to the extent incurred
      in connection with investigating or preparing to defend such Proceeding in
      a
      manner not inconsistent with this Section) shall be paid to the Indemnified
      Party, as incurred, within ten Trading Days of written notice thereof to the
      Indemnifying Party; provided, that the Indemnified Party shall promptly
      reimburse the Indemnifying Party for that portion of such fees and expenses
      applicable to such actions for which such Indemnified Party is judicially
      determined to be not entitled to indemnification hereunder.

    

    (d)  Contribution.
      If the indemnification under Section 5(a) or 5(b) is unavailable to an
      Indemnified Party, then each Indemnifying Party shall contribute to the amount
      paid or payable by such Indemnified Party, in such proportion as is appropriate
      to reflect the relative fault of the Indemnifying Party and Indemnified Party
      in
      connection with the actions, statements or omissions that resulted in such
      Losses as well as any other relevant equitable considerations. The relative
      fault of such Indemnifying Party and Indemnified Party shall be determined
      by
      reference to, among other things, whether any action in question, including
      any
      untrue or alleged untrue statement of a material fact or omission or alleged
      omission of a material fact, has been taken or made by, or relates to
      information supplied by, such Indemnifying Party or Indemnified Party, and
      the
      parties’ relative intent, knowledge, access to information and opportunity to
      correct or prevent such action, statement or omission.  The amount
      paid or payable by a party as a result of any Losses shall be deemed to include,
      subject to the limitations set forth in this Agreement, any reasonable
      attorneys’ or other fees or expenses incurred by such party in connection with
      any Proceeding to the extent such party would have been indemnified for such
      fees or expenses if the indemnification provided for in this Section was
      available to such party in accordance with its terms.

    

                   The
      parties hereto agree that it would not be just and equitable if contribution
      pursuant to this Section 5(d) were determined by pro rata allocation or by
      any
      other method of allocation that does not take into account the equitable
      considerations referred to in the immediately preceding
      paragraph.  Notwithstanding the provisions of this Section 5(d), no
      Holder shall be required to contribute, in the aggregate, any amount in excess
      of the amount by which the net proceeds actually received by such Holder from
      the sale of the Registrable Securities subject to the Proceeding exceeds the
      amount of any damages that such Holder has otherwise been required to pay by
      reason of such untrue or alleged untrue statement or omission or alleged
      omission.

    

    The
      indemnity and contribution agreements contained in this Section are in addition
      to any liability that the Indemnifying Parties may have to the Indemnified
      Parties.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

               6.           Miscellaneous.

    

    (a)  Remedies.  In
      the event of a breach by the Company or by a Holder of any of their respective
      obligations under this Agreement, each Holder or the Company, as the case may
      be, in addition to being entitled to exercise all rights granted by law and
      under this Agreement, including recovery of damages, shall be entitled to
      specific performance of its rights under this Agreement.  The Company
      and each Holder agree that monetary damages would not provide adequate
      compensation for any losses incurred by reason of a breach by it of any of
      the
      provisions of this Agreement and hereby further agrees that, in the event of
      any
      action for specific performance in respect of such breach, it shall not assert
      or shall waive the defense that a remedy at law would be adequate.

    

    (b)  No
      Piggyback on Registrations; Prohibition on Filing Other Registration
      Statements. Except as set forth on Schedule 6(b) attached hereto,
      neither the Company nor any of its security holders (other than the Holders
      in
      such capacity pursuant hereto) may include securities of the Company in any
      Registration Statements other than the Registrable Securities.  The
      Company shall not file any other registration statements until all Registrable
      Securities are registered pursuant to a Registration Statement that is declared
      effective by the Commission, provided that this Section 6(b) shall not prohibit
      the Company from filing amendments to registration statements filed prior to
      the
      date of this Agreement.  Any such rights shall be subject to customary
      underwriter cutbacks at the discretion of the underwriter.

    

    (c)  Compliance.
      Each Holder covenants and agrees that it will comply with the prospectus
      delivery requirements of the Securities Act as applicable to it in connection
      with sales of Registrable Securities pursuant to a Registration
      Statement.

    

    (d)  Discontinued
      Disposition.  By its acquisition of Registrable Securities, each
      Holder agrees that, upon receipt of a notice from the Company of the occurrence
      of any event of the kind described in Section 3(c), such Holder will forthwith
      discontinue disposition of such Registrable Securities under a Registration
      Statement until it is advised in writing (the “Advice”) by the Company
      that the use of the applicable Prospectus (as it may have been supplemented
      or
      amended) may be resumed.  The Company will use its best efforts to
      ensure that the use of the Prospectus may be resumed as promptly as it
      practicable.  The Company agrees and acknowledges that any periods
      during which the Holder is required to discontinue the disposition of the
      Registrable Securities hereunder shall be subject to the provisions of Section
      2(b).

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (e)  Piggy-Back
      Registrations. If, at any time during the Effectiveness Period, there is not
      an effective Registration Statement covering all of the Registrable Securities
      and the Company shall determine to prepare and file with the Commission a
      registration statement relating to an offering for its own account or the
      account of others under the Securities Act of any of its equity securities,
      other than on Form S-4 or Form S-8 (each as promulgated under the Securities
      Act) or their then equivalents relating to equity securities to be issued solely
      in connection with any acquisition of any entity or business or equity
      securities issuable in connection with the Company’s stock option or other
      employee benefit plans, then the Company shall deliver to each Holder a written
      notice of such determination and, if within five days after the date of the
      delivery of such notice, any such Holder shall so request in writing, the
      Company shall include in such registration statement all or any part of such
      Registrable Securities such Holder requests to be registered; provided,
however, that the Company shall not be required to register any
      Registrable Securities pursuant to this Section 6(e) that are eligible for
      resale pursuant to Rule 144(k) promulgated by the Commission pursuant to the
      Securities Act or that are the subject of a then effective Registration
      Statement

    

    (f)  Amendments
      and Waivers. The provisions of this Agreement, including the provisions of
      this sentence, may not be amended, modified or supplemented, and waivers or
      consents to departures from the provisions hereof may not be given, unless
      the
      same shall be in writing and signed by the Company and the Holders of a majority
      of the then outstanding Registrable Securities (including, for this purpose
      any
      Registrable Securities issuable upon exercise or conversion of any
      Security).  If a Registration Statement does not register all of the
      Registrable Securities pursuant to a waiver or amendment done in compliance
      with
      the previous sentence, then the number of Registrable Securities to be
      registered for each Holder shall be reduced pro rata among all Holders and
      each
      Holder shall have the right to designate which of its Registrable Securities
      shall be omitted from such Registration Statement. Notwithstanding the
      foregoing, a waiver or consent to depart from the provisions hereof with respect
      to a matter that relates exclusively to the rights of a Holder or some Holders
      and that does not directly or indirectly affect the rights of other Holders
      may
      be given by such Holder or Holders of all of the Registrable Securities to
      which
      such waiver or consent relates; provided, however, that the
      provisions of this sentence may not be amended, modified, or supplemented except
      in accordance with the provisions of the first  sentence of this
      Section 6(f).

    

    (g)  Notices.
      Any and all notices or other communications or deliveries required or permitted
      to be provided hereunder shall be delivered as set forth in the Purchase
      Agreement.

    

    (h)  Successors
      and Assigns. This Agreement shall inure to the benefit of and be binding
      upon the successors and permitted assigns of each of the parties and shall
      inure
      to the benefit of each Holder. The Company may not assign (except by merger)
      its
      rights or obligations hereunder without the prior written consent of all of
      the
      Holders of the then outstanding Registrable Securities. Each Holder may assign
      their respective rights hereunder in the manner and to the Persons as permitted
      under the Purchase Agreement.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (i)  No
      Inconsistent Agreements. Neither the Company nor any of its Subsidiaries has
      entered, as of the date hereof, nor shall the Company or any of its
      Subsidiaries, on or after the date of this Agreement, enter into any agreement
      with respect to its securities, that would have the effect of impairing the
      rights granted to the Holders in this Agreement or otherwise conflicts with
      the
      provisions hereof.  Except as set forth on Schedule 6(i),
      neither the Company nor any of its Subsidiaries has previously entered into
      any
      agreement granting any registration rights with respect to any of its securities
      to any Person that have not been satisfied in full.

    

    (j)  Execution
      and Counterparts. This Agreement may be executed in two or more
      counterparts, all of which when taken together shall be considered one and
      the
      same agreement and shall become effective when counterparts have been signed
      by
      each party and delivered to the other party, it being understood that both
      parties need not sign the same counterpart.  In the event that any
      signature is delivered by facsimile transmission or by e-mail delivery of a
      “.pdf” format data file, such signature shall create a valid and binding
      obligation of the party executing (or on whose behalf such signature is
      executed) with the same force and effect as if such facsimile or “.pdf”
signature page were an original thereof.

    

    (k)  Governing
      Law.  All questions concerning the construction, validity,
      enforcement and interpretation of this Agreement shall be determined in
      accordance with the provisions of the Purchase Agreement.

    

    (l)  Cumulative
      Remedies. The remedies provided herein are cumulative and not exclusive of
      any other remedies provided by law.

    

    (m)  Severability.
      If any term, provision, covenant or restriction of this Agreement is held by
      a
      court of competent jurisdiction to be invalid, illegal, void or unenforceable,
      the remainder of the terms, provisions, covenants and restrictions set forth
      herein shall remain in full force and effect and shall in no way be affected,
      impaired or invalidated, and the parties hereto shall use their commercially
      reasonable efforts to find and employ an alternative means to achieve the same
      or substantially the same result as that contemplated by such term, provision,
      covenant or restriction. It is hereby stipulated and declared to be the
      intention of the parties that they would have executed the remaining terms,
      provisions, covenants and restrictions without including any of such that may
      be
      hereafter declared invalid, illegal, void or unenforceable.

    

    (n)  Headings.
      The headings in this Agreement are for convenience only, do not constitute
      a
      part of the Agreement and shall not be deemed to limit or affect any of the
      provisions hereof.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (o)  Independent
      Nature of Holders’ Obligations and Rights. The obligations of each Holder
      hereunder are several and not joint with the obligations of any other Holder
      hereunder, and no Holder shall be responsible in any way for the performance
      of
      the obligations of any other Holder hereunder. Nothing contained herein or
      in
      any other agreement or document delivered at any closing, and no action taken
      by
      any Holder pursuant hereto or thereto, shall be deemed to constitute the Holders
      as a partnership, an association, a joint venture or any other kind of entity,
      or create a presumption that the Holders are in any way acting in concert with
      respect to such obligations or the transactions contemplated by this Agreement.
      Each Holder shall be entitled to protect and enforce its rights, including
      without limitation the rights arising out of this Agreement, and it shall not
      be
      necessary for any other Holder to be joined as an additional party in any
      proceeding for such purpose.

    

    ********************

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

                   IN
      WITNESS WHEREOF, the parties have executed this Registration Rights Agreement
      as
      of the date first written above.

    

    
      	
              AEOLUS
                PHARMECEUTICALS, INC.

               

               

            
	
              By:____/s/
                Michael P. McManus___________________

                   Name:    Michael
                P. McManus

                   Title:      Chief
                Financial Officer

               

            

    

    

    

    

    

    

    

    

    

    

    [SIGNATURE
      PAGE OF HOLDERS FOLLOWS]

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    [SIGNATURE
      PAGE OF HOLDERS TO AOLS RRA]

    

    

    Name
      of
      Holder: __________________________

    

    Signature
      of Authorized Signatory of Holder: __________________________

    

    Name
      of
      Authorized Signatory: _________________________

    

    Title
      of
      Authorized Signatory: __________________________

    

    

    

    [SIGNATURE
      PAGES CONTINUE]

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Annex
      A

    

    Plan
      of Distribution

    

    Each
      Selling Stockholder (the “Selling Stockholders”) of the common stock and
      any of their pledgees, assignees and successors-in-interest may, from time
      to
      time, sell any or all of their shares of common stock on the OTC Bulletin Board
      or any other stock exchange, market or trading facility on which the shares
      are
      traded or in private transactions.  These sales may be at fixed or
      negotiated prices.  A Selling Stockholder may use any one or more of
      the following methods when selling shares:

     

    
      	
              ·  

            	
              ordinary
                brokerage transactions and transactions in which the broker-dealer
                solicits purchasers;

            

    

     

    
      	
              ·  

            	
              block
                trades in which the broker-dealer will attempt to sell the shares
                as agent
                but may position and resell a portion of the block as principal to
                facilitate the transaction;

            

    

     

    
      	
              ·  

            	
              purchases
                by a broker-dealer as principal and resale by the broker-dealer for
                its
                account;

            

    

     

    
      	
              ·  

            	
              an
                exchange distribution in accordance with the rules of the applicable
                exchange;

            

    

     

    
      	
              ·  

            	
              privately
                negotiated transactions;

            

    

     

    
      	
              ·  

            	
              settlement
                of short sales entered into after the effective date of the registration
                statement of which this prospectus is a
                part;

            

    

     

    
      	
              ·  

            	
              broker-dealers
                may agree with the Selling Stockholders to sell a specified number
                of such
                shares at a stipulated price per
                share;

            

    

     

    
      	
              ·  

            	
              through
                the writing or settlement of options or other hedging transactions,
                whether through an options exchange or
                otherwise;

            

    

     

    
      	
              ·  

            	
              a
                combination of any such methods of sale;
                or

            

    

     

    
      	
              ·  

            	
              any
                other method permitted pursuant to applicable
                law.

            

    

     

    The
      Selling Stockholders may also sell shares under Rule 144 under the Securities
      Act of 1933, as amended (the “Securities Act”), if available, rather than
      under this prospectus.

     

    Broker-dealers
      engaged by the Selling Stockholders may arrange for other brokers-dealers to
      participate in sales.  Broker-dealers may receive commissions or
      discounts from the Selling Stockholders (or, if any broker-dealer acts as agent
      for the purchaser of shares, from the purchaser) in amounts to be negotiated,
      but, except as set forth in a supplement to this Prospectus, in the case of
      an
      agency transaction not in excess of a customary brokerage commission in
      compliance with NASDR Rule 2440; and in the case of a principal transaction
      a
      markup or markdown in compliance with NASDR IM-2440.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    In
      connection with the sale of the common stock or interests therein, the Selling
      Stockholders may enter into hedging transactions with broker-dealers or other
      financial institutions, which may in turn engage in short sales of the common
      stock in the course of hedging the positions they assume.  The Selling
      Stockholders may also sell shares of the common stock short and deliver these
      securities to close out their short positions, or loan or pledge the common
      stock to broker-dealers that in turn may sell these securities.  The
      Selling Stockholders may also enter into option or other transactions with
      broker-dealers or other financial institutions or the creation of one or more
      derivative securities which require the delivery to such broker-dealer or other
      financial institution of shares offered by this prospectus, which shares such
      broker-dealer or other financial institution may resell pursuant to this
      prospectus (as supplemented or amended to reflect such
      transaction).

     

    The
      Selling Stockholders and any broker-dealers or agents that are involved in
      selling the shares may be deemed to be “underwriters” within the meaning of the
      Securities Act in connection with such sales.  In such event, any
      commissions received by such broker-dealers or agents and any profit on the
      resale of the shares purchased by them may be deemed to be underwriting
      commissions or discounts under the Securities Act.  Each Selling
      Stockholder has informed the Company that it does not have any written or oral
      agreement or understanding, directly or indirectly, with any person to
      distribute the Common Stock. In no event shall any broker-dealer receive fees,
      commissions and markups which, in the aggregate, would exceed eight percent
      (8%).

     

    The
      Company is required to pay certain fees and expenses incurred by the Company
      incident to the registration of the shares.  The Company has agreed to
      indemnify the Selling Stockholders against certain losses, claims, damages
      and
      liabilities, including liabilities under the Securities Act.

     

    Because
      Selling Stockholders may be deemed to be “underwriters” within the meaning of
      the Securities Act, they will be subject to the prospectus delivery requirements
      of the Securities Act including Rule 172 thereunder.  In addition, any
      securities covered by this prospectus which qualify for sale pursuant to Rule
      144 under the Securities Act may be sold under Rule 144 rather than under this
      prospectus.  There is no underwriter or coordinating broker acting in
      connection with the proposed sale of the resale shares by the Selling
      Stockholders.

     

    We
      agreed
      to keep this prospectus effective until the earlier of (i) the date on which
      the
      shares may be resold by the Selling Stockholders without registration and
      without regard to any volume limitations by reason of Rule 144(k) under the
      Securities Act or any other rule of similar effect or (ii) all of the shares
      have been sold pursuant to this prospectus or Rule 144 under the Securities
      Act
      or any other rule of similar effect.  The resale shares will be sold
      only through registered or licensed brokers or dealers if required under
      applicable state securities laws. In addition, in certain states, the resale
      shares may not be sold unless they have been registered or qualified for sale
      in
      the applicable state or an exemption from the registration or qualification
      requirement is available and is complied with.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Under
      applicable rules and regulations under the Exchange Act, any person engaged
      in
      the distribution of the resale shares may not simultaneously engage in market
      making activities with respect to the common stock for the applicable restricted
      period, as defined in Regulation M, prior to the commencement of the
      distribution.  In addition, the Selling Stockholders will be subject
      to applicable provisions of the Exchange Act and the rules and regulations
      thereunder, including Regulation M, which may limit the timing of purchases
      and
      sales of shares of the common stock by the Selling Stockholders or any other
      person.  We will make copies of this prospectus available to the
      Selling Stockholders and have informed them of the need to deliver a copy of
      this prospectus to each purchaser at or prior to the time of the sale (including
      by compliance with Rule 172 under the Securities Act).

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Annex
      B

     

    AEOLUS
      PHARMACEUTICALS, INC.

     

    Selling
      Securityholder Notice and Questionnaire

     

    The
      undersigned beneficial owner of common stock (the “Registrable
      Securities”) of Aeolus Pharmaceuticals, Inc., a Delaware corporation (the
“Company”), understands that the Company has filed or intends to file
      with the Securities and Exchange Commission (the “Commission”) a
      registration statement (the “Registration Statement”) for the
      registration and resale under Rule 415 of the Securities Act of 1933, as amended
      (the “Securities Act”), of the Registrable Securities, in accordance with
      the terms of the Registration Rights Agreement (the “Registration Rights
      Agreement”) to which this document is annexed.  A copy of the
      Registration Rights Agreement is available from the Company upon request at
      the
      address set forth below.  All capitalized terms not otherwise defined
      herein shall have the meanings ascribed thereto in the Registration Rights
      Agreement.

     

    Certain
      legal consequences arise from being named as a selling securityholder in the
      Registration Statement and the related prospectus.  Accordingly,
      holders and beneficial owners of Registrable Securities are advised to consult
      their own securities law counsel regarding the consequences of being named
      or
      not being named as a selling securityholder in the Registration Statement and
      the related prospectus.

     

    NOTICE

     

    The
      undersigned beneficial owner (the “Selling Securityholder”) of
      Registrable Securities hereby elects to include the Registrable Securities
      owned
      by it in the Registration Statement.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    The
      undersigned hereby provides the following information to the Company and
      represents and warrants that such information is accurate:

     

    QUESTIONNAIRE

     

    
      	
               

            	
              1.

            	
              Name.

            

    

     

    
      	
               

            	
              (a)

            	
              Full
                Legal Name of Selling
                Securityholder

            

    

     

    
      	 
	 

    

    

    
      	
               

            	
              (b)

            	
              Full
                Legal Name of Registered Holder (if not the same as (a) above) through
                which Registrable Securities are
                held:

            

    

    
       

      
        	 
	 

      

      

    

    
      	
               

            	
              (c)

            	
              Full
                Legal Name of Natural Control Person (which means a natural person
                who
                directly or indirectly alone or with others has power to vote or
                dispose
                of the securities covered by this
                Questionnaire):

            

    

    
       

      
        	 
	 

      

      
 

    

    
      	
               

            	
              2.  Address
                for Notices to Selling
                Securityholder:

            

    

     

    
      	 
	 
	 
	
              Telephone: 
                ___________________________________________

            
	
              Fax: 
                ________________________________________________

            
	
              Contact
                Person: 
                _______________________________________

            

    

    

    
      	
               

            	
              3.  Broker-Dealer
                Status:

            

    

     

    
      	
               

            	
              (a)

            	
              Are
                you a broker-dealer?

            

    

     

    Yes                         No   

     

    
      	
               

            	
              (b)

            	
              If
                “yes” to Section 3(a), did you receive your Registrable Securities as
                compensation for investment banking services to the
                Company?

            

    

     

    Yes                         No   

     

    
      	
              Note:

            	
              If
                “no” to Section 3(b), the Commission’s staff has indicated that you should
                be identified as an underwriter in the Registration
                Statement.

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	
               

            	
              (c)

            	
              Are
                you an affiliate of a
                broker-dealer?

            

    

     

    Yes                         No   

     

    
      	
               

            	
              (d)

            	
              If
                you are an affiliate of a broker-dealer, do you certify that you
                purchased
                the Registrable Securities in the ordinary course of business, and
                at the
                time of the purchase of the Registrable Securities to be resold,
                you had
                no agreements or understandings, directly or indirectly, with any
                person
                to distribute the Registrable
                Securities?

            

    

     

    Yes                         No   

     

    
      	
              Note:

            	
              If
                “no” to Section 3(d), the Commission’s staff has indicated that you should
                be identified as an underwriter in the Registration
                Statement.

            

    

     

    
      	
               

            	
              4.  Beneficial
                Ownership of Securities of the Company Owned by the Selling
                Securityholder.

            

    

     

    Except
      as set forth below in this Item 4, the undersigned is not the beneficial or
      registered owner of any securities of the Company other than the securities
      issuable pursuant to the Purchase Agreement.

     

    
      	
               

            	
              (a)

            	
              Type
                and Amount of other securities beneficially owned by the Selling
                Securityholder:

            

    

     

    
      	 
	 
	 

    

    

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	
               

            	
              5.  Relationships
                with the Company:

            

    

     

    Except
      as set forth below, neither the undersigned nor any of its affiliates, officers,
      directors or principal equity holders (owners of 5% of more of the equity
      securities of the undersigned) has held any position or office or has had any
      other material relationship with the Company (or its predecessors or affiliates)
      during the past three years.

     

    
      	
               

            	
              State
                any exceptions here:

            

    

     

    
      	 
	 
	 

    

    

     

    The
      undersigned agrees to promptly notify the Company of any inaccuracies or changes
      in the information provided herein that may occur subsequent to the date hereof
      at any time while the Registration Statement remains effective.

     

    By
      signing below, the undersigned consents to the disclosure of the information
      contained herein in its answers to Items 1 through 5 and the inclusion of such
      information in the Registration Statement and the related prospectus and any amendments or supplements
      thereto.  The undersigned understands that such information
      will be relied upon by the Company in connection with the preparation or
      amendment of the Registration Statement and the related prospectus.

     

    IN
      WITNESS WHEREOF the undersigned, by authority duly given, has caused this Notice
      and Questionnaire to be executed and delivered either in person or by its duly
      authorized agent.

     

    Date:                                                      Beneficial
      Owner:                                                                         

    

    By:                                                                         

    Name:

    Title:

    

    PLEASE
      FAX A COPY OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND RETURN
      THE ORIGINAL BY OVERNIGHT MAIL, TO:may2007purchaseagmt.htm

    EXHIBIT
      10.1

     

    SECURITIES
      PURCHASE AGREEMENT

     

    This
      Securities Purchase Agreement (this “Agreement”) is dated as of May 22,
      2007, between Aeolus Pharmaceuticals, Inc., a Delaware corporation (the
“Company”), and each purchaser identified on the signature pages hereto
      (each, including its successors and assigns, a “Purchaser” and
      collectively the “Purchasers”).

     

    WHEREAS,
      subject to the terms and conditions set forth in this Agreement and pursuant
      to
      Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”),
      and Rule 506 promulgated thereunder, the Company desires to issue and sell
      to
      each Purchaser, and each Purchaser, severally and not jointly, desires to
      purchase from the Company, securities of the Company as more fully described
      in
      this Agreement.

     

    NOW,
      THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement,
      and for other good and valuable consideration the receipt and adequacy of which
      are hereby acknowledged, the Company and each Purchaser agree as
      follows:

     

    ARTICLE
      I.

     

    DEFINITIONS

     

    1.1  Definitions

     

    .  In
      addition to the terms defined elsewhere in this Agreement, for all purposes
      of
      this Agreement, the following terms have the meanings set forth in this Section
      1.1:

     

    “Action”
      shall have the meaning ascribed to such term in Section 3.1(j).

     

    “Affiliate”
      means any Person that, directly or indirectly through one or more
      intermediaries, controls or is controlled by or is under common control with
      a
      Person as such terms are used in and construed under Rule 405 under the
      Securities Act.  With respect to a Purchaser, any investment fund or
      managed account that is managed on a discretionary basis by the same investment
      manager as such Purchaser will be deemed to be an Affiliate of such
      Purchaser.

     

    “Board
      of Directors”  means the board of directors of the
      Company.

     

    “Business
      Day” means any day except any Saturday, any Sunday, any day which is a
      federal legal holiday in the United States or any day on which banking
      institutions in the State of New York are authorized or required by law or
      other
      governmental action to close.

     

    “Closing”
      means the closing of the purchase and sale of the Securities pursuant to Section
      2.1.

     

    “Closing
      Date” means the Trading Day when all of the Transaction Documents have been
      executed and delivered by the applicable parties thereto, and all conditions
      precedent to (i) the Purchasers’ obligations to pay the Subscription Amount and
      (ii) the Company’s obligations to deliver the Securities have been satisfied or
      waived.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    “Commission”
      means the Securities and Exchange Commission.

     

    “Common
      Stock” means the common stock of the Company, par value $0.01 per share, and
      any other class of securities into which such securities may hereafter be
      reclassified or changed into.

     

    “Common
      Stock Equivalents” means any securities of the Company or the Subsidiaries
      which would entitle the holder thereof to acquire at any time Common Stock,
      including, without limitation, any debt, preferred stock, rights, options,
      warrants or other instrument that is at any time convertible into or exercisable
      or exchangeable for, or otherwise entitles the holder thereof to receive, Common
      Stock.

     

    “Company
      Counsel” means Paul Hastings Janofsky & Walker LLP, with offices located
      at 3579 Valley Centre Drive, San Diego, California 92130.

     

    “Disclosure
      Schedules” means the Disclosure Schedules of the Company delivered
      concurrently herewith.

     

    “Effective
      Date” means the date that the initial Registration Statement filed by the
      Company pursuant to the Registration Rights Agreement is first declared
      effective by the Commission.

     

     “Evaluation
      Date” shall have the meaning ascribed to such term in Section
      3.1(r).

     

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

    

    “Exempt
      Issuance” means the issuance of (a) shares of Common Stock or options to
      employees, officers or directors of the Company pursuant to any stock or option
      plan duly adopted by the Board of Directors or a committee thereof, (b)
      securities upon the exercise or exchange of or conversion of any Securities
      issued hereunder and/or other securities exercisable or exchangeable for or
      convertible into shares of Common Stock issued and outstanding on the date
      of
      this Agreement, provided that such securities have not been amended since the
      date of this Agreement to increase the number of such securities or to decrease
      the exercise, exchange or conversion price of such securities, (c) securities
      issued pursuant to acquisitions or strategic transactions approved by a majority
      of the disinterested directors of the Company, provided that any such issuance
      shall only be to a Person which is, itself or through its subsidiaries, an
      operating company in a business synergistic (including, without limitation,
      any
      pharmaceutical company) with the business of the Company and in which the
      Company receives benefits in addition to the investment of funds, but shall
      not
      include a transaction in which the Company is issuing securities primarily
      for
      the purpose of raising capital or to an entity whose primary business is
      investing in securities and (d) securities issued pursuant to a split or
      subdivision of the outstanding shares of the Company’s capital stock or pursuant
      to a dividend or other distribution entitling any holder of capital stock of
      the
      Company to receive directly or indirectly, additional securities without payment
      of any consideration by such Holder.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     “FWS”
      means Feldman Weinstein & Smith LLP with offices located at 420 Lexington
      Avenue, Suite 2620, New York, New York 10170-0002.

     

    “GAAP”
      shall have the meaning ascribed to such term in Section 3.1(h).

     

    “Indebtedness”
      shall have the meaning ascribed to such term in Section 3.1(aa).

     

     “Intellectual
      Property Rights” shall have the meaning ascribed to such term in Section
      3.1(o).

     

    “Legend
      Removal Date” shall have the meaning ascribed to such term in Section
      4.1(c).

     

    “Liens”
      means a lien, charge, security interest, encumbrance, right of first refusal,
      preemptive right or other restriction.

     

    “Losses”
      means any and all losses, claims, damages, liabilities, settlement costs and
      expenses, including without limitation reasonable attorneys’ fees;
provided, however, that Losses shall specifically exclude special,
      incidental, consequential and punitive damages.

     

    “Material
      Adverse Effect” shall have the meaning assigned to such term in Section
      3.1(b).

     

    “Material
      Permits” shall have the meaning ascribed to such term in Section
      3.1(m).

     

    “Per
      Share Purchase Price” equals $0.75, subject to adjustment
      for reverse and forward stock splits, stock dividends, stock combinations and
      other similar transactions of the Common Stock that occur after the date of
      this
      Agreement.

     

    “Person”
      means an individual or corporation, partnership, trust, incorporated or
      unincorporated association, joint venture, limited liability company, joint
      stock company, government (or an agency or subdivision thereof) or other entity
      of any kind.

     

    “Proceeding”
      means an action, claim, suit, investigation or proceeding (including, without
      limitation, an informal investigation or partial proceeding, such as a
      deposition), whether commenced or threatened.

     

    “Purchaser
      Party” shall have the meaning ascribed to such term in Section
      4.8.

     

    “Registration
      Rights Agreement” means the Registration Rights Agreement, dated the date
      hereof, among the Company and the Purchasers, in the form of Exhibit A
      attached hereto.

     

    “Registration
      Statement” means a registration statement meeting the requirements set forth
      in the Registration Rights Agreement.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    “Required
      Approvals” shall have the meaning ascribed to such term in Section
      3.1(e).

     

    “Rule
      144” means Rule 144 promulgated by the Commission pursuant to the Securities
      Act, as such Rule may be amended from time to time, or any similar rule or
      regulation hereafter adopted by the Commission having substantially the same
      effect as such Rule.

     

    “SEC
      Reports” shall have the meaning ascribed to such term in Section
      3.1(h).

     

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

     

    “Securities
      Act” means the Securities Act of 1933, as amended, and the rules and
      regulations promulgated thereunder.

     

    “Shares”
      means the shares of Common Stock issued or issuable to each Purchaser pursuant
      to this Agreement.

     

    “Short
      Sales” means all “short sales” as defined in Rule 200 of Regulation SHO
      under the Exchange Act (but shall not be deemed to include the location and/or
      reservation of borrowable shares of Common Stock). 

     

     “Subscription
      Amount” means, as to each Purchaser, the aggregate amount to be paid for
      Shares and Warrants purchased hereunder as specified below such Purchaser’s name
      on the signature page of this Agreement and next to the heading “Subscription
      Amount,” in United States dollars and in immediately available
      funds.

     

    “Subsidiary”
      means any subsidiary of the Company as set forth on Schedule 3.1(a), and
      shall, where applicable, include any subsidiary of the Company formed or
      acquired after the date hereof.

     

     “Trading
      Day” means a day on which the New York Stock Exchange is open for
      trading.

     

    “Trading
      Market” means the following markets or exchanges on which the Common Stock
      is listed or quoted for trading on the date in question: the American Stock
      Exchange, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global
      Select Market, the New York Stock Exchange or the OTC Bulletin
      Board.

     

    “Transaction
      Documents” means this Agreement, the Warrants, the Registration Rights
      Agreement and any other documents or agreements executed in connection with
      the
      transactions contemplated hereunder.

     

    “Transfer
      Agent” means American Stock Transfer & Trust Company, the current
      transfer agent of the Company, with a mailing address of 59 Maiden Lane, Plaza
      Level, New York, New York 10038 and a facsimile number of (718) 236-2641, and
      any successor transfer agent of the Company.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    “VWAP”
      means, for any date, the price determined by the first of the following clauses
      that applies: (a) if the Common Stock is then listed or quoted on a Trading
      Market, the daily volume weighted average price of the Common Stock for such
      date (or the nearest preceding date) on the Trading Market on which the Common
      Stock is then listed or quoted for trading as reported by Bloomberg L.P. (based
      on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York
      City
      time); (b)  if the OTC Bulletin Board is not a Trading Market, the volume
      weighted average price of the Common Stock for such date (or the nearest
      preceding date) on the OTC Bulletin Board; (c) if the Common Stock is not then
      quoted for trading on the OTC Bulletin Board and if prices for the Common Stock
      are then reported in the “Pink Sheets” published by Pink Sheets, LLC (or a
      similar organization or agency succeeding to its functions of reporting prices),
      the most recent bid price per share of the Common Stock so reported; or
      (d) in all other cases, the fair market value of a share of Common Stock as
      determined by an independent appraiser selected in good faith by the Purchasers
      of a majority in interest of the Shares then outstanding and reasonably
      acceptable to the Company, the fees and expenses of which shall be paid by
      the
      Company.

     

    “Warrants”
      means, collectively, the Common Stock purchase warrants delivered to the
      Purchasers at the Closing in accordance with Section 2.2(a) hereof, which
      Warrants shall be exercisable immediately and have a term of exercise equal
      to 5
      years, in the form of Exhibit C attached hereto.

     

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

     

    ARTICLE
      II.

     

    PURCHASE
      AND SALE

     

    2.1  Closing.  On
      the Closing Date, upon the terms and subject to the conditions set forth herein,
      substantially concurrent with the execution and delivery of this Agreement
      by
      the parties hereto, the Company agrees to sell, and the Purchasers, severally
      and not jointly,  agree to purchase, Shares and
      Warrants.  Each Purchaser shall deliver to the Company, via wire
      transfer, immediately available funds equal to its Subscription Amount and
      the
      Company shall deliver to each Purchaser its respective Shares and a Warrant
      as
      determined pursuant to Section 2.2(a), and the Company and each Purchaser
      shall deliver the other items set forth in Section 2.2 deliverable at the
      Closing.  Upon satisfaction of the covenants and conditions set forth
      in Sections 2.2 and 2.3, the Closing shall occur at the offices of FWS or such
      other location as the parties shall mutually agree.

     

    2.2  Deliveries

     

    .

     

    (a)  At
      the
      Closing, the Company shall deliver or cause to be delivered to each Purchaser
      the following:

     

    (i)  this
      Agreement duly executed by the Company;

     

    (ii)  a
      legal
      opinion of Company Counsel, substantially in the form of Exhibit B
      attached hereto;

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (iii)  a
      certificate evidencing a number of Shares equal to such Purchaser’s Subscription
      Amount divided by the Per Share Purchase Price, registered in the name of such
      Purchaser;

     

    (iv)  a
      Warrant
      registered in the name of such Purchaser to purchase up to a number of shares
      of
      Common Stock equal to 75% of the Shares issuable to such Purchaser hereunder,
      with an exercise price equal to $0.75, subject to adjustment therein;
      and

     

    (v)  the
      Registration Rights Agreement duly executed by the Company.

     

    (b)  At
      the
      Closing, each Purchaser shall deliver or cause to be delivered to the Company
      the following:

     

    (i)  this
      Agreement duly executed by such Purchaser;

     

    (ii)  such
      Purchaser’s Subscription Amount by wire transfer of immediately available funds
      to the account as specified in writing by the Company; and

     

    (iii)  the
      Registration Rights Agreement duly executed by such Purchaser.

     

    2.3  Closing
      Conditions.

     

    (a)           The
      obligations of the Company hereunder in connection with the Closing are subject
      to the following conditions being met:

     

    (i)  the
      accuracy in all material respects on the Closing Date of the representations
      and
      warranties of the Purchasers contained herein;

     

    (ii)  all
      obligations, covenants and agreements of each Purchaser required to be performed
      at or prior to the Closing Date shall have been performed; and

     

    (iii)  the
      delivery by each Purchaser of the items set forth in Section 2.2(b) of this
      Agreement.

     

    (b)  The
      respective obligations of the Purchasers hereunder in connection with the
      Closing are subject to the following conditions being met:

     

    (i)  the
      accuracy in all material respects on the Closing Date of the representations
      and
      warranties of the Company contained herein;

     

    (ii)  all
      obligations, covenants and agreements of the Company required to be performed
      at
      or prior to the Closing Date shall have been performed;

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (iii)  the
      delivery by the Company of the items set forth in Section 2.2(a) of this
      Agreement;

     

    (iv)  there
      shall have been no Material Adverse Effect with respect to the Company since
      the
      date hereof; and

     

    (v)  from
      the
      date hereof to the Closing Date, trading in the Common Stock shall not have
      been
      suspended by the Commission or the Company’s principal Trading Market (except
      for any suspension of trading of limited duration agreed to by the Company,
      which suspension shall be terminated prior to the Closing), and, at any time
      prior to the Closing Date, trading in securities generally as reported by
      Bloomberg L.P. shall not have been suspended or limited, or minimum prices
      shall
      not have been established on securities whose trades are reported by such
      service, or on any Trading Market, nor shall a banking moratorium have been
      declared either by the United States or New York State authorities nor shall
      there have occurred any material outbreak or escalation of hostilities or other
      national or international calamity of such magnitude in its effect on, or any
      material adverse change in, any financial market which, in each case, in the
      reasonable judgment of each Purchaser, makes it impracticable or inadvisable
      to
      purchase the Securities at the Closing.

     

    ARTICLE
      III.

     

    REPRESENTATIONS
      AND WARRANTIES

     

    3.1  Representations
      and Warranties of the Company.

     

    Except
      as set forth under the corresponding section of the disclosure schedules
      delivered to the Purchasers concurrently herewith (the “Disclosure Schedules”)
      which Disclosure Schedules shall be deemed a part hereof, the Company hereby
      makes the representations and warranties set forth below to each
      PurchaserExcept as set forth in the Disclosure Schedules, which Disclosure
      Schedules shall be deemed a part hereof and shall qualify any representation
      or
      otherwise made herein to the extent of the disclosure contained in the
      corresponding section of the Disclosure Schedules, the Company hereby makes
      the
      following representations and warranties to each Purchaser:

     

    (a)  Subsidiaries.  All
      of the direct and indirect subsidiaries of the Company are set forth on
Schedule 3.1(a).  The Company owns, directly or indirectly, all
      of the capital stock or other equity interests of each Subsidiary free and
      clear
      of any Liens, and all of the issued and outstanding shares of capital stock
      of
      each Subsidiary are validly issued and are fully paid, non-assessable and free
      of preemptive and similar rights to subscribe for or purchase
      securities.  If the Company has no subsidiaries, then all other
      references to the Subsidiaries or any of them in the Transaction Documents
      shall
      be disregarded.

     

    (b)  Organization
      and Qualification.  The Company and each of the Subsidiaries is an
      entity duly incorporated or otherwise organized, validly existing and in good
      standing under the laws of the jurisdiction of its incorporation or organization
      (as applicable), with the requisite power and authority to own and use its
      properties and assets and to carry on its business as currently
      conducted.  Neither the Company nor any Subsidiary is in violation or
      default of any of the provisions of its respective certificate or articles
      of
      incorporation, bylaws or other organizational or charter
      documents.  Each of the Company and the Subsidiaries is duly qualified
      to conduct business and is in good standing as a foreign corporation or other
      entity in each jurisdiction in which the nature of the business conducted or
      property owned by it makes such qualification necessary, except where the
      failure to be so qualified or in good standing, as the case may be, could not
      have or reasonably be expected to result in (i) a material adverse effect on
      the
      legality, validity or enforceability of any Transaction Document, (ii) a
      material adverse effect on the results of operations, assets, business,
      prospects or condition (financial or otherwise) of the Company and the
      Subsidiaries, taken as a whole, or (iii) a material adverse effect on the
      Company’s ability to perform in any material respect on a timely basis its
      obligations under any Transaction Document (any of (i), (ii) or (iii), a
“Material Adverse Effect”) and no Proceeding has been instituted in any
      such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit
      or curtail such power and authority or qualification.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (c)  Authorization;
      Enforcement.  The Company has the requisite corporate power and
      authority to enter into and to consummate the transactions contemplated by
      each
      of the Transaction Documents and otherwise to carry out its obligations
      hereunder and thereunder.  The execution and delivery of each of the
      Transaction Documents by the Company and the consummation by it of the
      transactions contemplated hereby and thereby have been duly authorized by all
      necessary action on the part of the Company and no further action is required
      by
      the Company, the Board of Directors or the Company’s stockholders in connection
      therewith other than in connection with the Required Approvals.  Each
      Transaction Document has been (or upon delivery will have been) duly executed
      by
      the Company and, when delivered in accordance with the terms hereof and thereof,
      will constitute the valid and binding obligation of the Company enforceable
      against the Company in accordance with its terms, except (i) as limited by
      general equitable principles and applicable bankruptcy, insolvency,
      reorganization, moratorium and other laws of general application affecting
      enforcement of creditors’ rights generally, (ii) as limited by laws relating to
      the availability of specific performance, injunctive relief or other equitable
      remedies and (iii) insofar as indemnification and contribution provisions may
      be
      limited by applicable law.

     

    (d)  No
      Conflicts.  The execution, delivery and performance of the
      Transaction Documents by the Company, the issuance and sale of the Securities
      and the consummation by the Company of the other transactions contemplated
      hereby and thereby do not and will not (i) conflict with or violate any
      provision of the Company’s or any Subsidiary’s certificate or articles of
      incorporation, bylaws or other organizational or charter documents, or (ii)
      conflict with, or constitute a default (or an event that with notice or lapse
      of
      time or both would become a default) under, result in the creation of any Lien
      upon any of the properties or assets of the Company or any Subsidiary, or give
      to others any rights of termination, amendment, acceleration or cancellation
      (with or without notice, lapse of time or both) of, any agreement, credit
      facility, debt or other instrument (evidencing a Company or Subsidiary debt
      or
      otherwise) or other understanding to which the Company or any Subsidiary is
      a
      party or by which any property or asset of the Company or any Subsidiary is
      bound or affected, or (iii) subject to the Required Approvals, conflict with
      or
      result in a violation of any law, rule, regulation, order, judgment, injunction,
      decree or other restriction of any court or governmental authority to which
      the
      Company or a Subsidiary is subject (including federal and state securities
      laws
      and regulations), or by which any property or asset of the Company or a
      Subsidiary is bound or affected; except in the case of each of clauses (ii)
      and
      (iii), such as could not have or reasonably be expected to result in a Material
      Adverse Effect.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (e)  Filings,
      Consents and Approvals.  The Company is not required to obtain any
      consent, waiver, authorization or order of, give any notice to, or make any
      filing or registration with, any court or other federal, state, local or other
      governmental authority or other Person in connection with the execution,
      delivery and performance by the Company of the Transaction Documents, other
      than
      (i) filings required pursuant to Section 4.4 of this Agreement, (ii) the filing
      with the Commission of the Registration Statement, (iii) application(s) to
      each
      applicable Trading Market for the listing of the Securities for trading thereon
      in the time and manner required thereby and (iv) the filing of Form D with
      the
      Commission and such filings as are required to be made under applicable state
      securities laws (collectively, the “Required Approvals”).

     

    (f)  Issuance
      of the Securities.  The Securities are duly authorized and, when
      issued and paid for in accordance with the applicable Transaction Documents,
      will be duly and validly issued, fully paid and nonassessable, free and clear
      of
      all Liens imposed by the Company other than restrictions on transfer provided
      for in the Transaction Documents.  The Warrant Shares, when issued in
      accordance with the terms of the Transaction Documents, will be validly issued,
      fully paid and nonassessable, free and clear of all Liens imposed by the Company
      other than restrictions on transfer provided for in the Transaction
      Documents.  The Company has reserved from its duly authorized capital
      stock the maximum number of shares of Common Stock issuable pursuant to this
      Agreement and the Warrants.

     

    (g)  Capitalization.  The
      capitalization of the Company is as set forth on Schedule 3.1(g), which
Schedule 3.1(g) shall also include the number of shares of Common Stock
      owned beneficially, and of record, by Affiliates of the Company as of the date
      hereof. The Company has not issued any capital stock since its most recently
      filed periodic report under the Exchange Act, other than pursuant to the
      exercise of employee stock options under the Company’s stock option plans, the
      issuance of shares of Common Stock to employees pursuant to the Company’s
      employee stock purchase plans and pursuant to the conversion or exercise of
      Common Stock Equivalents outstanding as of the date of the most recently filed
      periodic report under the Exchange Act.  No Person has any right of
      first refusal, preemptive right, right of participation, or any similar right
      to
      participate in the transactions contemplated by the Transaction
      Documents.  Except as a result of the purchase and sale of the
      Securities, there are no outstanding options, warrants, scrip rights to
      subscribe to, calls or commitments of any character whatsoever relating to,
      or
      securities, rights or obligations convertible into or exercisable or
      exchangeable for, or giving any Person any right to subscribe for or acquire,
      any shares of Common Stock, or contracts, commitments, understandings or
      arrangements by which the Company or any Subsidiary is or may become bound
      to
      issue additional shares of Common Stock or Common Stock
      Equivalents.  The issuance and sale of the Securities will not
      obligate the Company to issue shares of Common Stock or other securities to
      any
      Person (other than the Purchasers) and will not result in a right of any holder
      of Company securities to adjust the exercise, conversion, exchange or reset
      price under any of such securities. All of the outstanding shares of capital
      stock of the Company are validly issued, fully paid and nonassessable, have
      been
      issued in compliance with all federal and state securities laws, and none of
      such outstanding shares was issued in violation of any preemptive rights or
      similar rights to subscribe for or purchase securities.  No further
      approval or authorization of any stockholder, the Board of Directors or others
      is required for the issuance and sale of the Securities.  There are no
      stockholders agreements, voting agreements or other similar agreements with
      respect to the Company’s capital stock to which the Company is a party or, to
      the knowledge of the Company, between or among any of the Company’s
      stockholders.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (h)  SEC
      Reports; Financial Statements.  The Company has filed all reports,
      schedules, forms, statements and other documents required to be filed by the
      Company under the Securities Act and the Exchange Act, including pursuant to
      Section 13(a) or 15(d) thereof, for the two years preceding the date hereof
      (or
      such shorter period as the Company was required by law or regulation to file
      such material) (the foregoing materials, including the exhibits thereto and
      documents incorporated by reference therein, being collectively referred to
      herein as the “SEC Reports”) on a timely basis or has received a valid
      extension of such time of filing and has filed any such SEC Reports prior to
      the
      expiration of any such extension.  As of their respective dates, the
      SEC Reports complied in all material respects with the requirements of the
      Securities Act and the Exchange Act, as applicable, and none of the SEC Reports,
      when filed, contained any untrue statement of a material fact or omitted to
      state a material fact required to be stated therein or necessary in order to
      make the statements therein, in the light of the circumstances under which
      they
      were made, not misleading.  The financial statements of the Company
      included in the SEC Reports comply in all material respects with applicable
      accounting requirements and the rules and regulations of the Commission with
      respect thereto as in effect at the time of filing.  Such financial
      statements have been prepared in accordance with United States generally
      accepted accounting principles applied on a consistent basis during the periods
      involved (“GAAP”), except as may be otherwise specified in such financial
      statements or the notes thereto and except that unaudited financial statements
      may not contain all footnotes required by GAAP, and fairly present in all
      material respects the financial position of the Company and its consolidated
      subsidiaries as of and for the dates thereof and the results of operations
      and
      cash flows for the periods then ended, subject, in the case of unaudited
      statements, to normal, immaterial, year-end audit adjustments.

     

    (i)  Material
      Changes; Undisclosed Events, Liabilities or Developments.  Since
      the date of the latest audited financial statements included within the SEC
      Reports, except as specifically disclosed in a subsequent SEC Report filed
      prior
      to the date hereof, (i) there has been no event, occurrence or development
      that
      has had or that could reasonably be expected to result in a Material Adverse
      Effect, (ii) the Company has not incurred any liabilities (contingent or
      otherwise) other than (A) trade payables and accrued expenses incurred in the
      ordinary course of business consistent with past practice and (B) liabilities
      not required to be reflected in the Company’s financial statements pursuant to
      GAAP or disclosed in filings made with the Commission, (iii) the Company has
      not
      altered its method of accounting, (iv) the Company has not declared or made
      any
      dividend or distribution of cash or other property to its stockholders or
      purchased, redeemed or made any agreements to purchase or redeem any shares
      of
      its capital stock and (v) the Company has not issued any equity securities
      to
      any officer, director or Affiliate, except pursuant to existing Company stock
      option plans.  The Company does not have pending before the Commission
      any request for confidential treatment of information.  Except for the
      issuance of the Securities contemplated by this Agreement or as set forth on
      Schedule 3.1(i), no event, liability or development has occurred or
      exists with respect to the Company or its Subsidiaries or their respective
      business, properties, operations or financial condition, that would be required
      to be disclosed by the Company under applicable securities laws at the time
      this
      representation is made or deemed made that has not been publicly disclosed
      at
      least 1 Trading Day prior to the date that this representation is
      made.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (j)  Litigation.  There
      is no action, suit, inquiry, notice of violation, proceeding or investigation
      pending or, to the knowledge of the Company, threatened against the Company,
      any
      Subsidiary or any of their respective properties before or by any court,
      arbitrator, governmental or administrative agency or regulatory authority
      (federal, state, county, local or foreign) (collectively, an “Action”)
      which (i) adversely affects or challenges the legality, validity or
      enforceability of any of the Transaction Documents or the Securities or (ii)
      could, if there were an unfavorable decision, have or reasonably be expected
      to
      result in a Material Adverse Effect.  Neither the Company nor any
      Subsidiary, nor any director or officer thereof, is or has been the subject
      of
      any Action involving a claim of violation of or liability under federal or
      state
      securities laws or a claim of breach of fiduciary duty.  There has not
      been, and to the knowledge of the Company, there is not pending or contemplated,
      any investigation by the Commission involving the Company or any current or
      former director or officer of the Company.  The Commission has not
      issued any stop order or other order suspending the effectiveness of any
      registration statement filed by the Company or any Subsidiary under the Exchange
      Act or the Securities Act.

     

    (k)  Labor
      Relations.  No material labor dispute exists or, to the knowledge
      of the Company, is imminent with respect to any of the employees of the Company
      which could reasonably be expected to result in a Material Adverse
      Effect.  None of the Company’s or its Subsidiaries’ employees is a
      member of a union that relates to such employee’s relationship with the Company
      or such Subsidiary, and neither the Company nor any of its Subsidiaries is
      a
      party to a collective bargaining agreement, and the Company and its Subsidiaries
      believe that their relationships with their employees are good.  No
      executive officer, to the knowledge of the Company, is, or is now expected
      to
      be, in violation of any material term of any employment contract,
      confidentiality, disclosure or proprietary information agreement or
      non-competition agreement, or any other contract or agreement or any restrictive
      covenant in favor of any third party, and the continued employment of each
      such
      executive officer does not subject the Company or any of its Subsidiaries to
      any
      liability with respect to any of the foregoing matters.  The Company
      and its Subsidiaries are in compliance with all U.S. federal, state, local
      and
      foreign laws and regulations relating to employment and employment practices,
      terms and conditions of employment and wages and hours, except where the failure
      to be in compliance could not, individually or in the aggregate, reasonably
      be
      expected to have a Material Adverse Effect.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (l)  Compliance.  Neither
      the Company nor any Subsidiary (i) is in default under or in violation of (and
      no event has occurred that has not been waived that, with notice or lapse of
      time or both, would result in a default by the Company or any Subsidiary under),
      nor has the Company or any Subsidiary received notice of a claim that it is
      in
      default under or that it is in violation of, any indenture, loan or credit
      agreement or any other agreement or instrument to which it is a party or by
      which it or any of its properties is bound (whether or not such default or
      violation has been waived), (ii) is in violation of any order of any court,
      arbitrator or governmental body, or (iii) is or has been in violation of any
      statute, rule or regulation of any governmental authority, including without
      limitation all foreign, federal, state and local laws applicable to its business
      and all such laws that affect the environment, except in each case as could
      not
      have or reasonably be expected to result in a Material Adverse
      Effect.

     

    (m)  Regulatory
      Permits.  The Company and the Subsidiaries possess all
      certificates, authorizations and permits issued by the appropriate federal,
      state, local or foreign regulatory authorities necessary to conduct their
      respective businesses as described in the SEC Reports, except where the failure
      to possess such permits could not reasonably be expected to result in a Material
      Adverse Effect (“Material Permits”), and neither the Company nor any
      Subsidiary has received any notice of proceedings relating to the revocation
      or
      modification of any Material Permit.

     

    (n)  Title
      to Assets.  The Company and the Subsidiaries have good and
      marketable title in fee simple to all real property owned by them and good
      and
      marketable title in all personal property owned by them that is material to
      the
      business of the Company and the Subsidiaries, in each case free and clear of
      all
      Liens, except for Liens as do not materially affect the value of such property
      and do not materially interfere with the use made and proposed to be made of
      such property by the Company and the Subsidiaries and Liens for the payment
      of
      federal, state or other taxes, the payment of which is neither delinquent nor
      subject to penalties.  Any real property and facilities held under
      lease by the Company and the Subsidiaries are held by them under valid,
      subsisting and enforceable leases with which the Company and the Subsidiaries
      are in compliance.

     

    (o)  Patents
      and Trademarks.  The Company and the Subsidiaries have, or have
      rights to use, all patents, patent applications, trademarks, trademark
      applications, service marks, trade names, trade secrets, inventions, copyrights,
      licenses and other intellectual property rights and similar rights used in
      connection with their respective businesses as described in the SEC Reports
      and
      which the failure to so have could have a Material Adverse Effect (collectively,
      the “Intellectual Property Rights”).  Neither the Company nor
      any Subsidiary has received a notice (written or otherwise) that any of the
      Intellectual Property Rights used by the Company or any Subsidiary violates
      or
      infringes upon the rights of any Person.  To the knowledge of the
      Company, all such Intellectual Property Rights are enforceable and there is
      no
      existing infringement by another Person of any of the Intellectual Property
      Rights.  The Company and its Subsidiaries have taken reasonable
      security measures to protect the secrecy, confidentiality and value of all
      of
      their intellectual properties, except where failure to do so could not,
      individually or in the aggregate, reasonably be expected to have a Material
      Adverse Effect.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (p)  Insurance.  The
      Company and the Subsidiaries are insured by insurers that are “A” rated by A.M.
      Best against such losses and risks and in such amounts as are prudent and
      customary in the businesses in which the Company and the Subsidiaries are
      engaged, including, but not limited to, directors and officers insurance
      coverage at least equal to the aggregate Subscription Amount.  Neither
      the Company nor any Subsidiary has any reason to believe that it will not be
      able to renew its existing insurance coverage as and when such coverage expires
      or to obtain similar coverage from similar insurers as may be necessary to
      continue its business without a significant increase in cost.

     

    (q)  Transactions
      With Affiliates and Employees.  Except as set forth in the SEC
      Reports, none of the officers or directors of the Company and, to the knowledge
      of the Company, none of the employees of the Company is presently a party to
      any
      transaction with the Company or any Subsidiary (other than for services as
      employees, officers and directors), including any contract, agreement or other
      arrangement providing for the furnishing of services to or by, providing for
      rental of real or personal property to or from, or otherwise requiring payments
      to or from any officer, director or such employee or, to the knowledge of the
      Company, any entity in which any officer, director, or any such employee has
      a
      substantial interest or is an officer, director, trustee or partner, in each
      case in excess of $60,000 other than for (i) payment of salary or consulting
      fees for services rendered, (ii) reimbursement for expenses incurred on behalf
      of the Company and (iii) other employee benefits, including stock option
      agreements under any stock option plan of the Company.

     

    (r)  Sarbanes-Oxley;
      Internal Accounting Controls.  The Company is in material
      compliance with all provisions of the Sarbanes-Oxley Act of 2002 which are
      applicable to it as of the Closing Date.  The Company and the
      Subsidiaries 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 Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
      Company and designed such disclosure controls and procedures to ensure that
      information required to be disclosed by the Company in the reports it files
      or
      submits under the Exchange Act is recorded, processed, summarized and reported,
      within the time periods specified in the Commission’s rules and
      forms.  The Company’s certifying officers have evaluated the
      effectiveness of the Company’s disclosure controls and procedures as of the end
      of the period covered by the Company’s most recently filed periodic report under
      the Exchange Act (such date, the “Evaluation Date”).  The
      Company presented in its most recently filed periodic report under the Exchange
      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
      changes in the Company’s internal control over financial reporting (as such term
      is defined in the Exchange Act) that has materially affected, or is reasonably
      likely to materially affect, the Company’s internal control over financial
      reporting.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (s)  Certain
      Fees.  No brokerage or finder’s fees or commissions are or will be
      payable by the Company to any broker, financial advisor or consultant, finder,
      placement agent, investment banker, bank or other Person with respect to the
      transactions contemplated by the Transaction Documents.  The
      Purchasers shall have no obligation with respect to any fees or with respect
      to
      any claims made by or on behalf of other Persons for fees of a type contemplated
      in this Section that may be due in connection with the transactions contemplated
      by the Transaction Documents.

     

    (t)  Private
      Placement. Assuming the accuracy of the Purchasers representations and
      warranties set forth in Section 3.2, no registration under the Securities Act
      is
      required for the offer and sale of the Securities by the Company to the
      Purchasers as contemplated hereby. The issuance and sale of the Securities
      hereunder does not contravene the rules and regulations of the Trading
      Market.

     

    (u)  Investment
      Company. The Company is not, and is not an Affiliate of, and immediately
      after receipt of payment for the Securities, will not be or be an Affiliate
      of,
      an “investment company” within the meaning of the Investment Company Act of
      1940, as amended.  The Company shall conduct its business in a manner
      so that it will not become subject to the Investment Company Act of 1940, as
      amended.

     

    (v)  Registration
      Rights.  Other than each of the Purchasers, no Person has any
      right to cause the Company to effect the registration under the Securities
      Act
      of any securities of the Company.

     

    (w)  Listing
      and Maintenance Requirements.  The Company’s Common Stock is
      registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and the
      Company has taken no action designed to, or which to its knowledge is likely
      to
      have the effect of, terminating the registration of the Common Stock under
      the
      Exchange Act nor has the Company received any notification that the Commission
      is contemplating terminating such registration.  The Company has not,
      in the 12 months preceding the date hereof, received notice from any Trading
      Market on which the Common Stock is or has been listed or quoted to the effect
      that the Company is not in compliance with the listing or maintenance
      requirements of such Trading Market. The Company is, and has no reason to
      believe that it will not in the foreseeable future continue to be, in compliance
      with all such listing and maintenance requirements.

     

    (x)  Application
      of Takeover Protections.  The Company and the Board of Directors
      have taken all necessary action, if any, in order to render inapplicable any
      control share acquisition, business combination, poison pill (including any
      distribution under a rights agreement) or other similar anti-takeover provision
      under the Company’s certificate of incorporation (or similar charter documents)
      or the laws of its state of incorporation that is or could become applicable
      to
      the Purchasers as a result of the Purchasers and the Company fulfilling their
      obligations or exercising their rights under the Transaction Documents,
      including without limitation as a result of the Company’s issuance of the
      Securities and the Purchasers’ ownership of the Securities.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (y)  Disclosure.  Except
      with respect to the material terms and conditions of the transactions
      contemplated by the Transaction Documents, the Company confirms that neither
      it
      nor any other Person acting on its behalf has provided any of the Purchasers
      or
      their agents or counsel with any information that it believes constitutes or
      might constitute material, non-public information.   The Company
      understands and confirms that the Purchasers will rely on the foregoing
      representation in effecting transactions in securities of the
      Company.  All disclosure furnished by or on behalf of the Company to
      the Purchasers regarding the Company, its business and the transactions
      contemplated hereby, including the Disclosure Schedules to this Agreement,
      is
      true and correct and does 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 light of the circumstances under which they were made, not
      misleading. The press releases disseminated by the Company during the twelve
      months preceding the date of this Agreement taken as a whole do not contain
      any
      untrue statement of a material fact or omit to state a material fact required
      to
      be stated therein or necessary in order to make the statements therein, in
      light
      of the circumstances under which they were made and when made, not
      misleading.  The Company acknowledges and agrees that no Purchaser
      makes or has made any representations or warranties with respect to the
      transactions contemplated hereby other than those specifically set forth in
      Section 3.2 hereof.

     

    (z)  No
      Integrated Offering. Assuming the accuracy of the Purchasers’
representations and warranties set forth in Section 3.2, 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 security or solicited
      any offers to buy any security, under circumstances that would cause this
      offering of the Securities to be integrated with prior offerings by the Company
      for purposes of (i) the Securities Act which would require the registration
      of
      any such securities under the Securities Act, or (ii) any applicable shareholder
      approval provisions of any Trading Market on which any of the securities of
      the
      Company are listed or designated.

     

    (aa)  Solvency.  Based
      on the consolidated financial condition of the Company as of the Closing Date,
      after giving effect to the receipt by the Company of the proceeds from the
      sale
      of the Securities hereunder, (i) the fair saleable value of the Company’s assets
      exceeds the amount that will be required to be paid on or in respect of the
      Company’s existing debts and other liabilities (including known contingent
      liabilities) as they mature, (ii) the Company’s assets do not constitute
      unreasonably small capital to carry on its business as now conducted and as
      proposed to be conducted including its capital needs taking into account the
      particular capital requirements of the business conducted by the Company, and
      projected capital requirements and capital availability thereof, and (iii)
      the
      current cash flow of the Company, together with the proceeds the Company would
      receive, were it to liquidate all of its assets, after taking into account
      all
      anticipated uses of the cash, would be sufficient to pay all amounts on or
      in
      respect of its liabilities when such amounts are required to be
      paid.  The Company does not intend to incur debts beyond its ability
      to pay such debts as they mature (taking into account the timing and amounts
      of
      cash to be payable on or in respect of its debt).  The Company has no
      knowledge of any facts or circumstances which lead it to believe that it will
      file for reorganization or liquidation under the bankruptcy or reorganization
      laws of any jurisdiction within one year from the Closing
      Date.  Schedule 3.1(aa) sets forth as of the date thereof all
      outstanding secured and unsecured Indebtedness of the Company or any Subsidiary,
      or for which the Company or any Subsidiary has commitments.  For the
      purposes of this Agreement, “Indebtedness” means (a) any liabilities for
      borrowed money or amounts owed in excess of $50,000 (other than trade accounts
      payable incurred in the ordinary course of business), (b) all guaranties,
      endorsements and other contingent obligations in respect of indebtedness of
      others, whether or not the same are or should be reflected in the Company’s
      balance sheet (or the notes thereto), except guaranties by endorsement of
      negotiable instruments for deposit or collection or similar transactions in
      the
      ordinary course of business; and (c) the present value of any lease payments
      in
      excess of $50,000 due under leases required to be capitalized in accordance
      with
      GAAP.  Neither the Company nor any Subsidiary is in default with
      respect to any Indebtedness.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (bb)  Tax
      Status.  Except for matters that would not, individually or in the
      aggregate, have or reasonably be expected to result in a Material Adverse
      Effect, the Company and each Subsidiary has filed all necessary federal, state
      and foreign income and franchise tax returns and has paid or accrued all taxes
      shown as due thereon, and the Company has no knowledge of a tax deficiency
      which
      has been asserted or threatened against the Company or any
      Subsidiary.

     

    (cc)  No
      General Solicitation.  Neither the Company nor any person acting
      on behalf of the Company has offered or sold any of the Securities by any form
      of general solicitation or general advertising.  The Company has
      offered the Securities for sale only to the Purchasers and certain other
“accredited investors” within the meaning of Rule 501 under the Securities
      Act.

     

    (dd)  Foreign
      Corrupt Practices.  Neither the Company, nor to the knowledge of
      the Company, any agent or other person acting on behalf of the Company, has
      (i)
      directly or indirectly, used any funds for unlawful contributions, gifts,
      entertainment or other unlawful expenses related to foreign or domestic
      political activity, (ii) made any unlawful payment to foreign or domestic
      government officials or employees or to any foreign or domestic political
      parties or campaigns from corporate funds, (iii) failed to disclose fully any
      contribution made by the Company (or made by any person acting on its behalf
      of
      which the Company is aware) which is in violation of law, or (iv) violated
      in
      any material respect any provision of the Foreign Corrupt Practices Act of
      1977,
      as amended.

     

    (ee)     Accountants.  The
      Company’s accounting firm is set forth on Schedule 3.1(ee) of the
      Disclosure Schedule.  To the knowledge and belief of the Company, such
      accounting firm (i) is a registered public accounting firm as required by the
      Exchange Act and (ii) shall express its opinion with respect to the financial
      statements to be included in the Company’s Annual Report on Form 10-K for the
      year ending September 30, 2007.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (ff)  No
      Disagreements with Accountants and Lawyers.   There are no
      disagreements of any kind presently existing, or reasonably anticipated by
      the
      Company to arise, between the Company and the accountants and lawyers formerly
      or presently employed by the Company which could affect the Company’s ability to
      perform any of its obligations under any of the Transaction Documents, and
      the
      Company is current with respect to any fees owed to its accountants and
      lawyers.

     

    (gg)  Acknowledgment
      Regarding Purchasers’ Purchase of Securities.  The Company
      acknowledges and agrees that each of the Purchasers is acting solely in the
      capacity of an arm’s length purchaser with respect to the Transaction Documents
      and the transactions contemplated thereby.  The Company further
      acknowledges that no Purchaser is acting as a financial advisor or fiduciary
      of
      the Company (or in any similar capacity) with respect to the Transaction
      Documents and the transactions contemplated thereby and any advice given by
      any
      Purchaser or any of their respective representatives or agents in connection
      with the Transaction Documents and the transactions contemplated thereby is
      merely incidental to the Purchasers’ purchase of the Securities.  The
      Company further represents to each Purchaser that the Company’s decision to
      enter into this Agreement and the other Transaction Documents has been based
      solely on the independent evaluation of the transactions contemplated hereby
      by
      the Company and its representatives.

     

    (hh)  Acknowledgement
      Regarding Purchaser’s Trading Activity.  Anything in this
      Agreement or elsewhere herein to the contrary notwithstanding (except for
      Sections 3.2(f) and 4.14 hereof), it is understood and acknowledged by the
      Company (i) that none of the Purchasers have been asked by the Company to agree,
      nor has any Purchaser agreed, to desist from purchasing or selling, long and/or
      short, securities of the Company, or “derivative” securities based on securities
      issued by the Company or to hold the Securities for any specified term; (ii)
      that past or future open market or other transactions by any Purchaser,
      specifically including, without limitation, Short Sales or “derivative”
transactions, before or after the closing of this or future private placement
      transactions, may negatively impact the market price of the Company’s
      publicly-traded securities; (iii) that any Purchaser, and counter-parties in
      “derivative” transactions to which any such Purchaser is a party, directly or
      indirectly, presently may have a “short” position in the Common Stock, and (iv)
      that each Purchaser shall not be deemed to have any affiliation with or control
      over any arm’s length counter-party in any “derivative”
transaction.  The Company further understands and acknowledges that
      (a) one or more Purchasers may engage in hedging activities at various times
      during the period that the Securities are outstanding, including, without
      limitation, during the periods that the value of the Warrant Shares deliverable
      with respect to Securities are being determined and (b) such hedging activities
      (if any) could reduce the value of the existing stockholders' equity interests
      in the Company at and after the time that the hedging activities are being
      conducted.

     

    (ii)  Regulation
      M Compliance.  The Company has not, and to its knowledge no one acting
      on its behalf has, (i) taken, directly or indirectly, any action designed to
      cause or to result in the stabilization or manipulation of the price of any
      security of the Company to facilitate the sale or resale of any of the
      Securities, (ii) sold, bid for, purchased, or, paid any compensation for
      soliciting purchases of, any of the Securities, or (iii) paid or agreed to
      pay
      to any Person any compensation for soliciting another to purchase any other
      securities of the Company, other than, in the case of clauses (ii) and (iii),
      compensation paid to the Company’s placement agent in connection with the
      placement of the Securities.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (jj)  FDA.  As
      to each product subject to the jurisdiction of the U.S. Food and Drug
      Administration (“FDA”) under the Federal Food, Drug and Cosmetic Act, as
      amended, and the regulations thereunder (“FDCA”) that is manufactured,
      packaged, labeled, tested, distributed, sold, and/or marketed by the Company
      or
      any of its Subsidiaries (each such product, a “Pharmaceutical Product”),
      such Pharmaceutical Product is being manufactured, packaged, labeled, tested,
      distributed, sold and/or marketed by the Company in compliance with all
      applicable requirements under FDCA and similar laws, rules and regulations
      relating to registration, investigational use, premarket clearance, licensure,
      or application approval, good manufacturing practices, good laboratory
      practices, good clinical practices, product listing, quotas, labeling,
      advertising, record keeping and filing of reports, except where the failure
      to
      be in compliance would not have a Material Adverse Effect.  There is
      no pending, completed or, to the Company's knowledge, threatened, action
      (including any lawsuit, arbitration, or legal or administrative or regulatory
      proceeding, charge, complaint, or investigation) against the Company or any
      of
      its Subsidiaries, and none of the Company or any of its Subsidiaries has
      received any notice, warning letter or other communication from the FDA or
      any
      other governmental entity, which (i) contests the premarket clearance,
      licensure, registration, or approval of, the uses of, the distribution of,
      the
      manufacturing or packaging of, the testing of, the sale of, or the labeling
      and
      promotion of any Pharmaceutical Product, (ii) withdraws its approval of,
      requests the recall, suspension, or seizure of, or withdraws or orders the
      withdrawal of advertising or sales promotional materials relating to, any
      Pharmaceutical Product, (iii) imposes a clinical hold on any clinical
      investigation by the Company or any of its Subsidiaries, (iv) enjoins production
      at any facility of the Company or any of its Subsidiaries, (v) enters or
      proposes to enter into a consent decree of permanent injunction with the Company
      or any of its Subsidiaries, or (vi) otherwise alleges any violation of any
      laws,
      rules or regulations by the Company or any of its Subsidiaries, and which,
      either individually or in the aggregate, would have a Material Adverse
      Effect.  The properties, business and operations of the Company have
      been and are being conducted in all material respects in accordance with all
      applicable laws, rules and regulations of the FDA.  The Company has not
      been informed by the FDA that the FDA will prohibit the marketing, sale, license
      or use in the United States of any product proposed to be developed, produced
      or
      marketed by the Company nor has the FDA expressed any concern as to approving
      or
      clearing for marketing any product being developed or proposed to be developed
      by the Company.

     

    3.2  Representations
      and Warranties of the Purchasers

     

    .  Each
      Purchaser, for itself and for no other Purchaser, hereby represents and warrants
      as of the date hereof and as of the Closing Date to the Company as
      follows:

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (a)  Organization;
      Authority.  Such Purchaser is an entity duly organized, validly
      existing and in good standing under the laws of the jurisdiction of its
      organization with full right, corporate or partnership power and authority
      to
      enter into and to consummate the transactions contemplated by the Transaction
      Documents and otherwise to carry out its obligations hereunder and thereunder.
      The execution and delivery of the Transaction Documents and performance by
      such
      Purchaser of the transactions contemplated by the Transaction Documents have
      been duly authorized by all necessary corporate or similar action on the part
      of
      such Purchaser.  Each Transaction Document to which it is a party has
      been duly executed by such Purchaser, and when delivered by such Purchaser
      in
      accordance with the terms hereof, will constitute the valid and legally binding
      obligation of such Purchaser, enforceable against it in accordance with its
      terms, except (i) as limited by general equitable principles and applicable
      bankruptcy, insolvency, reorganization, moratorium and other laws of general
      application affecting enforcement of creditors’ rights generally, (ii) as
      limited by laws relating to the availability of specific performance, injunctive
      relief or other equitable remedies and (iii) insofar as indemnification and
      contribution provisions may be limited by applicable law.

     

    (b)  Own
      Account.  Such Purchaser understands that the Securities are
“restricted securities” and have not been registered under the Securities Act or
      any applicable state securities law and is acquiring the Securities as principal
      for its own account and not with a view to or for distributing or reselling
      such
      Securities or any part thereof in violation of the Securities Act or any
      applicable state securities law, has no present intention of distributing any
      of
      such Securities in violation of the Securities Act or any applicable state
      securities law and has no direct or indirect arrangement or understandings
      with
      any other persons to distribute or regarding the distribution of such Securities
      (this representation and warranty not limiting such Purchaser’s right to sell
      the Securities pursuant to the Registration Statement or otherwise in compliance
      with applicable federal and state securities laws) in violation of the
      Securities Act or any applicable state securities law.  Such Purchaser
      is acquiring the Securities hereunder in the ordinary course of its
      business.

     

    (c)  Purchaser
      Status.  At the time such Purchaser was offered the Securities, it
      was, and at the date hereof it is, and on each date on which it exercises any
      Warrants, it will be either: (i) an “accredited investor” as defined in Rule
      501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or (ii)
      a
“qualified institutional buyer” as defined in Rule 144A(a) under the Securities
      Act.  Such Purchaser is not required to be registered as a
      broker-dealer under Section 15 of the Exchange Act.

     

    (d)  Experience
      of Such Purchaser.  Such Purchaser, either alone or together with
      its representatives, has such knowledge, sophistication and experience in
      business and financial matters so as to be capable of evaluating the merits
      and
      risks of the prospective investment in the Securities, and has so evaluated
      the
      merits and risks of such investment.  Such Purchaser is able to bear
      the economic risk of an investment in the Securities and, at the present time,
      is able to afford a complete loss of such investment.

     

    (e)  General
      Solicitation.  Such Purchaser is not purchasing the Securities as
      a result of any advertisement, article, notice or other communication regarding
      the Securities published in any newspaper, magazine or similar media or
      broadcast over television or radio or presented at any seminar or any other
      general solicitation or general advertisement.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (f)  Short
      Sales and Confidentiality Prior To The Date Hereof.  Other
      than consummating the transactions contemplated hereunder, such Purchaser has
      not, nor has any Person acting on behalf of or pursuant to any understanding
      with such Purchaser, directly or indirectly executed any purchases or sales,
      including Short Sales, of the securities of the Company during the period
      commencing from the time that such Purchaser first received a term sheet
      (written or oral) from the Company or any other Person representing the Company
      setting forth the material terms of the transactions contemplated hereunder
      until the date hereof (“Discussion Time”).  Notwithstanding the
      foregoing, in the case of a Purchaser that is a multi-managed investment vehicle
      whereby separate portfolio managers manage separate portions of such Purchaser's
      assets and the portfolio managers have no direct knowledge of the investment
      decisions made by the portfolio managers managing other portions of such
      Purchaser's assets, the representation set forth above shall only apply with
      respect to the portion of assets managed by the portfolio manager that made
      the
      investment decision to purchase the Securities covered by this
      Agreement.  Other than to other Persons party to this Agreement, such
      Purchaser has maintained the confidentiality of all disclosures made to it
      in
      connection with this transaction (including the existence and terms of this
      transaction).

     

    (g)  Certain
      Fees.  No brokerage or finder’s fees or commissions are or will be
      payable by such Purchaser to any broker, financial advisor or consultant,
      finder, placement agent, investment banker, bank or other Person with respect
      to
      the transactions contemplated by the Transaction Documents, and such Purchaser
      has not taken any action that would cause the Company to be liable for any
      such
      fees or commissions.

     

    (h)  Adequate
      Information.  Such Purchaser 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, and has reviewed such
      information as such Purchaser considers necessary or appropriate to evaluate
      the
      risks and merits of an investment in, and make an informed investment decision
      with respect to, the Securities.

     

    (i)  Opportunity
      to Question.  Such Purchaser has had an opportunity to question,
      and to the extent deemed necessary or appropriate has questioned, the
      representatives of the Company so as to receive answers from the Company’s
      representatives regarding the terms and conditions of an investment in the
      Securities and to verify information obtained in such Purchaser’s examination of
      the Company, including, without limitation, the information that such Purchaser
      may have requested and received, as referenced in Section 3.2(h), in relation
      to
      the investment in the Securities.

     

    (j)  No
      Other Representations of the Company.  Such Purchaser acknowledges
      that, in deciding whether to enter into this Agreement and to acquire the
      Securities hereunder, such Purchaser has not relied on any representations
      or
      warranties of any type or description made by the Company or any of its
      representatives with regard to the Company or its business, property or
      prospects of the investment contemplated herein, other than the representations
      and warranties of the Company as set forth in Section 3.1.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    ARTICLE
      IV.

     

    OTHER
      AGREEMENTS OF THE PARTIES

     

    4.1  Transfer
      Restrictions.

     

    (a)  The
      Securities may only be disposed of in compliance with state and federal
      securities laws.  In connection with any transfer of Securities other
      than pursuant to an effective registration statement or Rule 144, to the Company
      or to an Affiliate of a Purchaser or in connection with a pledge as contemplated
      in Section 4.1(b), the Company may require the transferor thereof to provide
      to
      the Company an opinion of counsel selected by the transferor and reasonably
      acceptable to the Company, the form and substance of which opinion shall be
      reasonably satisfactory to the Company, to the effect that such transfer does
      not require registration of such transferred Securities under the Securities
      Act.  As a condition of transfer, any such transferee shall agree in
      writing to be bound by the terms of this Agreement and shall have the rights
      of
      a Purchaser under this Agreement and the Registration Rights
      Agreement.

     

    (b)  The
      Purchasers agree to the imprinting, so long as is required by this Section
      4.1,
      of a legend on any of the Securities in the following form:

     

    THIS
      SECURITY HAS NOT BEEN  REGISTERED WITH THE SECURITIES AND EXCHANGE
      COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
      EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
      “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
      TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT
      TO
      AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
      REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
      APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL
      TO
      THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
      ACCEPTABLE TO THE COMPANY.  THIS SECURITY MAY BE PLEDGED IN CONNECTION
      WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN
      WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE
      501(a) UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH
      SECURITIES.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    The
      Company acknowledges and agrees that a Purchaser may from time to time pledge
      pursuant to a bona fide margin agreement with a registered broker-dealer or
      grant a security interest in some or all of the Securities to a financial
      institution that is an “accredited investor” as defined in Rule 501(a) under the
      Securities Act and who agrees to be bound by the provisions of this Agreement
      and the Registration Rights Agreement and, if required under the terms of such
      arrangement, such Purchaser may transfer pledged or secured Securities to the
      pledgees or secured parties.  Such a pledge or transfer would not be
      subject to approval of the Company and no legal opinion of legal counsel of
      the
      pledgee, secured party or pledgor shall be required in connection
      therewith.  Further, no notice shall be required of such
      pledge.  At the appropriate Purchaser’s expense, the Company will
      execute and deliver such reasonable documentation as a pledgee or secured party
      of Securities may reasonably request in connection with a pledge or transfer
      of
      the Securities, including, if the Securities are subject to registration
      pursuant to the Registration Rights Agreement, the preparation and filing of
      any
      required prospectus supplement under Rule 424(b)(3) under the Securities Act
      or
      other applicable provision of the Securities Act to appropriately amend the
      list
      of Selling Stockholders thereunder.

     

    (c)  Certificates
      evidencing the Shares and Warrant Shares shall not contain any legend (including
      the legend set forth in Section 4.1(b)), (i) while a registration statement
      (including the Registration Statement) covering the resale of such security
      is
      effective under the Securities Act, or (ii) following any sale of such Shares
      or
      Warrant Shares pursuant to Rule 144, or (iii) if such Shares or Warrant Shares
      are eligible for sale under Rule 144(k), or (iv) if such legend is not required
      under applicable requirements of the Securities Act (including judicial
      interpretations and pronouncements issued by the staff of the
      Commission).  The Company shall cause its counsel to issue a legal
      opinion to the Transfer Agent promptly after the Effective Date if required
      by
      the Transfer Agent to effect the removal of the legend hereunder.  If
      all or any portion of a Warrant is exercised at a time when there is an
      effective registration statement to cover the resale of the Warrant Shares,
      such
      Warrant Shares shall be issued free of all legends.  The Company
      agrees that following the Effective Date or at such time as such legend is
      no
      longer required under this Section 4.1(c), it will, no later than three Trading
      Days following the delivery by a Purchaser to the Company or the Transfer Agent
      of a certificate representing Shares or Warrant Shares, as the case may be,
      issued with a restrictive legend (such third Trading Day, the “Legend Removal
      Date”), deliver or cause to be delivered to such Purchaser a certificate
      representing such shares that is free from all restrictive and other
      legends.  The Company may not make any notation on its records or give
      instructions to the Transfer Agent that enlarge the restrictions on transfer
      set
      forth in this Section.  Certificates for Securities subject to legend
      removal hereunder shall be transmitted by the Transfer Agent to the Purchaser
      by
      crediting the account of the Purchaser’s prime broker with the Depository Trust
      Company System as directed by such Purchaser.

     

    (d)  In
      addition to such Purchaser’s other available remedies, the Company shall pay to
      a Purchaser, in cash, as partial liquidated damages and not as a penalty, for
      each $2,000 of Shares or Warrant Shares (based on the VWAP of the Common Stock
      on the date such Securities are submitted to the Transfer Agent) delivered
      for
      removal of the restrictive legend and subject to Section 4.1(c), $10 per Trading
      Day (increasing to $20 per Trading Day five (5) Trading Days after such damages
      have begun to accrue) for each Trading Day after the 2nd Trading
      Day
      immediately following the Legend Removal Date until such certificate is
      delivered without a legend. Nothing herein shall limit such Purchaser’s right to
      pursue actual damages for the Company’s failure to deliver certificates
      representing any Securities as required by the Transaction Documents, and such
      Purchaser shall have the right to pursue all remedies available to it at law
      or
      in equity including, without limitation, a decree of specific performance and/or
      injunctive relief.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (e)  Each
      Purchaser, severally and not jointly with the other Purchasers, agrees that
      such
      Purchaser will sell any Securities pursuant to either the registration
      requirements of the Securities Act, including any applicable prospectus delivery
      requirements, or an exemption therefrom, and that if Securities are sold
      pursuant to a Registration Statement, they will be sold in compliance with
      the
      plan of distribution set forth therein, and acknowledges that the removal of
      the
      restrictive legend from certificates representing Securities as set forth in
      this Section 4.1 is predicated upon the Company’s reliance upon this
      understanding.

     

    4.2  Furnishing
      of Information

     

    .  Until
      the earliest of the time that (i) no Purchaser owns Securities or (ii) the
      Warrants have expired, the Company covenants to timely file (or obtain
      extensions in respect thereof and file within the applicable grace period)
      all
      reports required to be filed by the Company after the date hereof pursuant
      to
      the Exchange Act.  As long as any Purchaser owns Securities, if the
      Company is not required to file reports pursuant to the Exchange Act, it will
      prepare and furnish to the Purchasers and make publicly available in accordance
      with Rule 144(c) such information as is required for the Purchasers to sell
      the
      Securities under Rule 144. The Company further covenants that it will take
      such
      further action as any holder of Securities may reasonably request, to the extent
      required from time to time to enable such Person to sell such Securities without
      registration under the Securities Act within the requirements of the exemption
      provided by Rule 144.

     

    4.3  Integration

     

    .  The
      Company shall not sell, offer for sale or solicit offers to buy or otherwise
      negotiate in respect of any security (as defined in Section 2 of the Securities
      Act) that would be integrated with the offer or sale of the Securities in a
      manner that would require the registration under the Securities Act of the
      sale
      of the Securities to the Purchasers or that would be integrated with the offer
      or sale of the Securities to the Purchasers for purposes of the rules and
      regulations of any Trading Market such that it would require shareholder
      approval prior to the closing of such other transaction unless shareholder
      approval is obtained before the closing of such subsequent
      transaction.

     

    4.4  Securities
      Laws Disclosure; Publicity.  The Company shall, by 8:30 a.m. (New
      York City time) on the 2nd Trading
      Day
      immediately following the date hereof, issue a Current Report on Form 8-K,
      disclosing the material terms of the transactions contemplated hereby, and
      filing the Transaction Documents as exhibits thereto.  The Company and
      each Purchaser shall consult with each other in issuing any other press releases
      with respect to the transactions contemplated hereby, and neither the Company
      nor any Purchaser shall issue any such press release or otherwise make any
      such
      public statement without the prior consent of the Company, with respect to
      any
      press release of any Purchaser, or without the prior consent of each Purchaser,
      with respect to any press release of the Company, which consent shall not
      unreasonably be withheld or delayed, except if such disclosure is required
      by
      law, in which case the disclosing party shall promptly provide the other party
      with prior notice of such public statement or
      communication.  Notwithstanding the foregoing, the Company shall not
      publicly disclose the name of any Purchaser, or include the name of any
      Purchaser in any filing with the Commission or any regulatory agency or Trading
      Market, without the prior written consent of such Purchaser, except (i) as
      required by federal securities law in connection with (A) any registration
      statement contemplated by the Registration Rights Agreement and (B) the filing
      of final Transaction Documents (including signature pages thereto) with the
      Commission and (ii) to the extent such disclosure is required by law or Trading
      Market regulations, in which case the Company shall provide the Purchasers
      with
      prior notice of such disclosure permitted under this clause (ii).

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    4.5  Shareholder
      Rights Plan.  No claim will be made or enforced by the Company or,
      with the consent of the Company, any other Person, that any Purchaser is an
      “Acquiring Person” under any control share acquisition, business combination,
      poison pill (including any distribution under a rights agreement) or similar
      anti-takeover plan or arrangement in effect or hereafter adopted by the Company,
      or that any Purchaser could be deemed to trigger the provisions of any such
      plan
      or arrangement, by virtue of receiving Securities under the Transaction
      Documents or under any other agreement between the Company and the
      Purchasers.

     

    4.6  Non-Public
      Information.  Except with respect to the material terms and
      conditions of the transactions contemplated by the Transaction Documents, the
      Company covenants and agrees that neither it nor any other Person acting on
      its
      behalf will provide any Purchaser or its agents or counsel with any information
      that the Company believes constitutes material non-public information, unless
      prior thereto such Purchaser shall have executed a written agreement regarding
      the confidentiality and use of such information.  The Company
      understands and confirms that each Purchaser shall be relying on the foregoing
      covenant in effecting transactions in securities of the Company.

     

    4.7  Use
      of
      Proceeds.  Except as set forth on Schedule 4.7 attached
      hereto, the Company shall use the net proceeds from the sale of the Securities
      hereunder for working capital purposes and shall not use such proceeds for
      (a)
      the satisfaction of any portion of the Company’s debt (other than payment of
      trade payables in the ordinary course of the Company’s business and prior
      practices), (b) the redemption of any Common Stock or Common Stock Equivalents
      or (c) the settlement of any outstanding litigation.

     

    4.8  Indemnification
      of Purchasers.   Subject to the provisions of this Section
      4.8 and Section 5.10, the Company will indemnify and hold each Purchaser and
      its
      directors, officers, shareholders, members, partners, employees and agents
      (and
      any other Persons with a functionally equivalent role of a Person holding such
      titles notwithstanding a lack of such title or any other title), each Person
      who
      controls such Purchaser (within the meaning of Section 15 of the Securities
      Act
      and Section 20 of the Exchange Act), and the directors, officers, shareholders,
      agents, members, partners or employees (and any other Persons with a
      functionally equivalent role of a Person holding such titles notwithstanding
      a
      lack of such title or any other title) of such controlling persons (each, a
      “Purchaser Party”) harmless from any and all Losses that any such
      Purchaser Party may suffer or incur as a result of or relating to (a) any breach
      of any of the representations, warranties, covenants or agreements made by
      the
      Company in this Agreement or in the other Transaction Documents or (b) any
      action instituted against a Purchaser in any capacity, or any of them or their
      respective Affiliates, by any stockholder of the Company who is not an Affiliate
      of such Purchaser, with respect to any of the transactions contemplated by
      the
      Transaction Documents (unless such action is based upon a breach of such
      Purchaser’s representations, warranties or covenants under the Transaction
      Documents or any agreements or understandings such Purchaser may have with
      any
      such stockholder or any violations by the Purchaser of state or federal
      securities laws or any conduct by such Purchaser which constitutes fraud, gross
      negligence, willful misconduct or malfeasance).  If any action shall
      be brought against any Purchaser Party in respect of which indemnity may be
      sought pursuant to this Agreement, such Purchaser Party shall promptly notify
      the Company in writing, and the Company shall have the right to assume the
      defense thereof with counsel of its own choosing reasonably acceptable to the
      Purchaser Party.  Any Purchaser Party shall have the right to employ
      separate counsel in any such action and participate in the defense thereof,
      but
      the fees and expenses of such counsel shall be at the expense of such Purchaser
      Party except to the extent that (i) the employment thereof has been specifically
      authorized by the Company in writing, (ii) the Company has failed after a
      reasonable period of time to assume such defense and to employ counsel or (iii)
      in such action there is, in the reasonable opinion of such separate counsel,
      a
      material conflict on any material issue between the position of the Company
      and
      the position of such Purchaser Party, in which case the Company shall be
      responsible for the reasonable fees and expenses of no more than one such
      separate counsel.  The Company will not be liable to any Purchaser
      Party under this Agreement (i) for any settlement by a Purchaser Party effected
      without the Company’s prior written consent, which shall not be unreasonably
      withheld or delayed; or (ii) to the extent, but only to the extent that any
      Losses are attributable to any Purchaser Party’s breach of any of the
      representations, warranties, covenants or agreements made by such Purchaser
      Party in this Agreement or in the other Transaction Documents.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    4.9  Reservation
      of Common Stock. As of the date hereof, the Company has reserved and the
      Company shall continue to reserve and keep available at all times, free of
      preemptive rights, a sufficient number of shares of Common Stock for the purpose
      of enabling the Company to issue Shares pursuant to this Agreement and Warrant
      Shares pursuant to any exercise of the Warrants.

     

    4.10  Listing
      of Common Stock.

     

    (a)    The
      Company hereby agrees to use best efforts to maintain the listing of the Common
      Stock on a Trading Market, and as soon as reasonably practicable following
      the
      Closing (but not later than the earlier of the Effective Date and the first
      anniversary of the Closing Date) to list all of the Shares and Warrant Shares
      on
      such Trading Market. The Company further agrees, if the Company applies to
      have
      the Common Stock traded on any other Trading Market, it will include in such
      application all of the Shares and Warrant Shares, and will take such other
      action as is necessary to cause all of the Shares and Warrant Shares to be
      listed on such other Trading Market as promptly as possible.  The
      Company will take all action reasonably necessary to continue the listing and
      trading of its Common Stock on a Trading Market and will comply in all respects
      with the Company’s reporting, filing and other obligations under the bylaws or
      rules of the Trading Market.

     

    4.11  Equal
      Treatment of Purchasers.  No consideration shall be offered or
      paid to any Person to amend or consent to a waiver or modification of any
      provision of any of the Transaction Documents unless the same consideration
      is
      also offered to all of the parties to the Transaction Documents.  For
      clarification purposes, this provision constitutes a separate right granted
      to
      each Purchaser by the Company and negotiated separately by each Purchaser,
      and
      is intended for the Company to treat the Purchasers as a class and shall not
      in
      any way be construed as the Purchasers acting in concert or as a group with
      respect to the purchase, disposition or voting of Securities or
      otherwise.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    4.12  [INTENTIONALLY
      DELETED]

     

    4.13  Subsequent
      Equity Sales.

     

    (a)  From
      the
      date hereof until 30 days after the Effective Date, neither the Company nor
      any
      Subsidiary shall issue shares of Common Stock or Common Stock Equivalents;
      provided, however, the 30 day period set forth in this Section
      4.13 shall be extended for the number of Trading Days during such period in
      which (i) trading in the Common Stock is suspended by any Trading Market, or
      (ii) following the Effective Date, the Registration Statement is not effective
      or the prospectus included in the Registration Statement may not be used by
      the
      Purchasers for the resale of the Initial Shares (as defined in the Registration
      Rights Agreement).

     

    (b)  From
      the
      date hereof until such time as no Purchaser holds any of the Securities, the
      Company shall be prohibited from effecting or entering into an agreement to
      effect any Subsequent Financing involving a Variable Rate
      Transaction.  “Variable Rate Transaction” means a transaction
      in which the Company issues or sells (i) any debt or equity securities that
      are
      convertible into, exchangeable or exercisable for, or include the right to
      receive additional shares of Common Stock either (A) at a conversion, exercise
      or exchange rate or other price that is based upon and/or varies with the
      trading prices of or quotations for the shares of Common Stock at any time
      after
      the initial issuance of such debt or equity securities, or (B) with a
      conversion, exercise or exchange price that is subject to being reset at some
      future date after the initial issuance of such debt or equity security or upon
      the occurrence of specified or contingent events directly or indirectly related
      to the business of the Company or the market for the Common Stock or (ii) enters
      into any agreement, including, but not limited to, an equity line of credit,
      whereby the Company may sell securities at a future determined
      price.  Any Purchaser shall be entitled to obtain injunctive relief
      against the Company to preclude any such issuance, which remedy shall be in
      addition to any right to collect damages.

     

    (c)  Notwithstanding
      the foregoing, this Section 4.13 shall not apply in respect of an Exempt
      Issuance, except that no Variable Rate Transaction shall be an Exempt
      Issuance.

     

    4.14  Short
      Sales and Confidentiality After The Date Hereof. Each Purchaser,
      severally and not jointly with the other Purchasers, covenants that neither
      it
      nor any Affiliate acting on its behalf or pursuant to any understanding with
      it
      will execute any Short Sales during the period commencing at the Discussion
      Time
      and ending at the time that the transactions contemplated by this Agreement
      are
      first publicly announced as described in Section 4.4.  Each Purchaser,
      severally and not jointly with the other Purchasers, covenants that until such
      time as the transactions contemplated by this Agreement are publicly disclosed
      by the Company as described in Section 4.4, such Purchaser will maintain the
      confidentiality of the existence and terms of this transaction and the
      information included in the Disclosure Schedules.  Each Purchaser severally
      and not jointly with any other Purchaser, understands and acknowledges, and
      agrees, to act in a manner that will not violate the positions of the Commission
      as set forth in Item 65, Section A, of the Manual of Publicly Available
      Telephone Interpretations, dated July 1997, compiled by the Office of Chief
      Counsel, Division of Corporation Finance. Notwithstanding the
      foregoing, no Purchaser makes any representation, warranty or covenant hereby
      that it will not engage in Short Sales in the securities of the Company after
      the time that the transactions contemplated by this Agreement are first publicly
      announced as described in Section 4.4.  Notwithstanding the foregoing, in
      the case of a Purchaser that is a multi-managed investment vehicle whereby
      separate portfolio managers manage separate portions of such Purchaser’s assets
      and the portfolio managers have no direct knowledge of the investment decisions
      made by the portfolio managers managing other portions of such Purchaser’s
      assets, the covenant set forth above shall only apply with respect to the
      portion of assets managed by the portfolio manager that made the investment
      decision to purchase the Securities covered by this Agreement.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    4.15   Delivery
      of Securities After Closing.  The Company shall deliver, or cause
      to be delivered, the respective Securities purchased by each Purchaser to such
      Purchaser within 3 Trading Days of the Closing Date.

     

    4.16  Form
      D; Blue Sky Filings.  The Company agrees to timely file a Form D
      with respect to the Securities as required under Regulation D and to provide
      a
      copy thereof, promptly upon request of any Purchaser. The Company
      shall take such action as the Company shall reasonably determine is
      necessary in order to obtain an exemption for, or to qualify the Securities
      for,
      sale to the Purchasers at the Closing under applicable securities or “Blue Sky”
laws of the states of the United States, and shall provide evidence of such
      actions promptly upon request of any Purchaser.

     

    4.17  Capital
      Changes.  Until the one year anniversary of the Effective Date,
      the Company shall not undertake a reverse or forward stock split or
      reclassification of the Common Stock without the prior written consent of the
      Purchasers holding a majority in interest of the Shares.

     

    ARTICLE
      V.

     

    MISCELLANEOUS

     

    5.1  Termination. 
      This Agreement may be terminated by any Purchaser, as to such Purchaser’s
      obligations hereunder only and without any effect whatsoever on the obligations
      between the Company and the other Purchasers, by written notice to the other
      parties, if the Closing has not been consummated on or before May 31, 2007;
      provided, however, that no such termination will affect the right
      of any party to sue for any breach by the other party (or parties).

     

    5.2  Fees
      and Expenses.  Except as expressly set forth in the Transaction
      Documents to the contrary, each party shall pay the fees and expenses of its
      advisers, counsel, accountants and other experts, if any, and all other expenses
      incurred by such party incident to the negotiation, preparation, execution,
      delivery and performance of this Agreement.  The Company shall pay all
      Transfer Agent fees, stamp taxes and other taxes and duties levied in connection
      with the delivery of any Securities to the Purchasers.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    5.3  Entire
      Agreement.  The Transaction Documents, together with the exhibits
      and schedules thereto, contain the entire understanding of the parties with
      respect to the subject matter hereof and supersede all prior agreements and
      understandings, oral or written, with respect to such matters, which the parties
      acknowledge have been merged into such documents, exhibits and
      schedules.

     

    5.4  Notices.  Any
      and all notices or other communications or deliveries required or permitted
      to
      be provided hereunder shall be in writing and shall be deemed given and
      effective on the earliest of (a) the date of transmission, if such notice or
      communication is delivered via facsimile at the facsimile number set forth
      on
      the signature pages attached hereto prior to 5:30 p.m. (New York City time)
      on a
      Trading Day, (b) the next Trading Day after the date of transmission, if such
      notice or communication is delivered via facsimile at the facsimile number
      set
      forth on the signature pages attached hereto on a day that is not a Trading
      Day
      or later than 5:30 p.m. (New York City time) on any Trading Day, (c) the 2nd Trading
      Day
      following the date of mailing, if sent by U.S. nationally recognized overnight
      courier service, or (d) upon actual receipt by the party to whom such notice
      is
      required to be given.  The address for such notices and communications
      shall be as set forth on the signature pages attached hereto.

     

    5.5  Amendments;
      Waivers.  No provision of this Agreement may be waived or amended
      except in a written instrument signed, in the case of an amendment, by the
      Company and the Purchasers of at least 85% of the Shares still held by the
      Purchasers or, in the case of a waiver, by the party against whom enforcement
      of
      any such waived provision is sought.  No waiver of any default with
      respect to any provision, condition or requirement of this Agreement shall
      be
      deemed to be a continuing waiver in the future or a waiver of any subsequent
      default or a waiver of any other provision, condition or requirement hereof,
      nor
      shall any delay or omission of any party to exercise any right hereunder in
      any
      manner impair the exercise of any such right.

     

    5.6  Headings.  The
      headings herein are for convenience only, do not constitute a part of this
      Agreement and shall not be deemed to limit or affect any of the provisions
      hereof.

     

    5.7  Successors
      and Assigns.  This Agreement shall be binding upon and inure to
      the benefit of the parties and their successors and permitted
      assigns.  The Company may not assign this Agreement or any rights or
      obligations hereunder without the prior written consent of each Purchaser (other
      than by merger).  Any Purchaser may assign any or all of its rights
      under this Agreement to any Person to whom such Purchaser assigns or transfers
      any Securities, provided such transferee agrees in writing to be bound, with
      respect to the transferred Securities, by the provisions of the Transaction
      Documents that apply to the “Purchasers.”

     

    5.8  No
      Third-Party Beneficiaries.  This Agreement is intended for the
      benefit of the parties hereto and their respective successors and permitted
      assigns and is not for the benefit of, nor may any provision hereof be enforced
      by, any other Person, except as otherwise set forth in Section 4.8.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    5.9  Governing
      Law.  All questions concerning the construction, validity,
      enforcement and interpretation of the Transaction Documents shall be governed
      by
      and construed and enforced in accordance with the internal laws of the State
      of
      New York, without regard to the principles of conflicts of law
      thereof.  Each party agrees that all legal proceedings concerning the
      interpretations, enforcement and defense of the transactions contemplated by
      this Agreement and any other Transaction Documents (whether brought against
      a
      party hereto or its respective affiliates, directors, officers, shareholders,
      employees or agents) shall be commenced exclusively in the state and federal
      courts sitting in the City of New York. Each party hereby irrevocably submits
      to
      the exclusive jurisdiction of the state and federal courts sitting in the City
      of New York, borough of Manhattan for the adjudication of any dispute hereunder
      or in connection herewith or with any transaction contemplated hereby or
      discussed herein (including with respect to the enforcement of any of the
      Transaction Documents), and hereby irrevocably waives, and agrees not to assert
      in any suit, action or proceeding, any claim that it is not personally subject
      to the jurisdiction of any such court, that such suit, action or proceeding
      is
      improper or is an inconvenient venue for such proceeding.  Each party
      hereby irrevocably waives personal service of process and consents to process
      being served in any such suit, action or proceeding by mailing a copy thereof
      via registered or certified mail or overnight delivery (with evidence of
      delivery) to such party at the address in effect for notices to it under this
      Agreement and agrees that such service shall constitute good and sufficient
      service of process and notice thereof.  Nothing contained herein shall
      be deemed to limit in any way any right to serve process in any other manner
      permitted by law.  If either party shall commence an action or
      proceeding to enforce any provisions of the Transaction Documents, then the
      prevailing party in such action or proceeding shall be reimbursed by the other
      party for its reasonable attorneys’ fees and other costs and expenses incurred
      with the investigation, preparation and prosecution of such action or
      proceeding.

     

    5.10  Survival.  The
      representations and warranties contained herein shall survive the Closing and
      the delivery of the Shares and Warrant Shares for a period of 3 years following
      the Closing Date.

     

    5.11  Execution.  This
      Agreement may be executed in two or more counterparts, all of which when taken
      together shall be considered one and the same agreement and shall become
      effective when counterparts have been signed by each party and delivered to
      the
      other party, it being understood that both parties need not sign the same
      counterpart.  In the event that any signature is delivered by
      facsimile transmission or by e-mail delivery of a “.pdf” format data file, such
      signature shall create a valid and binding obligation of the party executing
      (or
      on whose behalf such signature is executed) with the same force and effect
      as if
      such facsimile or “.pdf” signature page were an original thereof.

     

    5.12  Severability.  If
      any term, provision, covenant or restriction of this Agreement is held by a
      court of competent jurisdiction to be invalid, illegal, void or unenforceable,
      the remainder of the terms, provisions, covenants and restrictions set forth
      herein shall remain in full force and effect and shall in no way be affected,
      impaired or invalidated, and the parties hereto shall use their commercially
      reasonable efforts to find and employ an alternative means to achieve the same
      or substantially the same result as that contemplated by such term, provision,
      covenant or restriction. It is hereby stipulated and declared to be the
      intention of the parties that they would have executed the remaining terms,
      provisions, covenants and restrictions without including any of such that may
      be
      hereafter declared invalid, illegal, void or unenforceable.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    5.13  Rescission
      and Withdrawal Right.  Notwithstanding anything to the contrary
      contained in (and without limiting any similar provisions of) any of the other
      Transaction Documents, whenever any Purchaser exercises a right, election,
      demand or option under a Transaction Document and the Company does not timely
      perform its related obligations within the periods therein provided, then such
      Purchaser may rescind or withdraw, in its sole discretion from time to time
      upon
      written notice to the Company, any relevant notice, demand or election in whole
      or in part without prejudice to its future actions and rights; provided,
however, in the case of a rescission of an exercise of a Warrant,
      the
      Purchaser shall be required to return any shares of Common Stock delivered
      in
      connection with any such rescinded exercise notice.

     

    5.14  Replacement
      of Securities.  If any certificate or instrument evidencing any
      Securities is mutilated, lost, stolen or destroyed, the Company shall issue
      or
      cause to be issued in exchange and substitution for and upon cancellation
      thereof (in the case of mutilation), or in lieu of and substitution therefor,
      a
      new certificate or instrument, but only upon receipt of evidence reasonably
      satisfactory to the Company of such loss, theft or destruction.  The
      applicant for a new certificate or instrument under such circumstances shall
      also pay any reasonable third-party costs (including customary indemnity)
      associated with the issuance of such replacement Securities.

     

    5.15  Remedies.  In
      addition to being entitled to exercise all rights provided herein or granted
      by
      law, including recovery of damages, each of the Purchasers and the Company
      will
      be entitled to specific performance under the Transaction
      Documents.  The parties agree that monetary damages may not be
      adequate compensation for any loss incurred by reason of any breach of
      obligations contained in the Transaction Documents and hereby agrees to waive
      and not to assert in any action for specific performance of any such obligation
      the defense that a remedy at law would be adequate.

     

    5.16  Payment
      Set Aside.  To the extent that the Company makes a payment or
      payments to any Purchaser pursuant to any Transaction Document or a Purchaser
      enforces or exercises its rights thereunder, and such payment or payments or
      the
      proceeds of such enforcement or exercise or any part thereof are subsequently
      invalidated, declared to be fraudulent or preferential, set aside, recovered
      from, disgorged by or are required to be refunded, repaid or otherwise restored
      to the Company, a trustee, receiver or any other person under any law
      (including, without limitation, any bankruptcy law, state or federal law, common
      law or equitable cause of action), then to the extent of any such restoration
      the obligation or part thereof originally intended to be satisfied shall be
      revived and continued in full force and effect as if such payment had not been
      made or such enforcement or setoff had not occurred.

     

    5.17  Independent
      Nature of Purchasers’ Obligations and Rights.  The obligations of
      each Purchaser under any Transaction Document are several and not joint with
      the
      obligations of any other Purchaser, and no Purchaser shall be responsible in
      any
      way for the performance or non-performance of the obligations of any other
      Purchaser under any Transaction Document.  Nothing contained herein or
      in any other Transaction Document, and no action taken by any Purchaser pursuant
      thereto, shall be deemed to constitute the Purchasers as a partnership, an
      association, a joint venture or any other kind of entity, or create a
      presumption that the Purchasers are in any way acting in concert or as a group
      with respect to such obligations or the transactions contemplated by the
      Transaction Documents.  Subject to Section 5.5, each Purchaser shall
      be entitled to independently protect and enforce its rights, including without
      limitation, the rights arising out of this Agreement or out of the other
      Transaction Documents, and it shall not be necessary for any other Purchaser
      to
      be joined as an additional party in any proceeding for such
      purpose.  Each Purchaser has been represented by its own separate
      legal counsel in their review and negotiation of the Transaction
      Documents.  For reasons of administrative convenience only, Purchasers
      and their respective counsel have chosen to communicate with the Company through
      FWS.  FWS does not represent any of the Purchasers but only Rodman
& Renshaw, LLC, the placement agent for the transaction.  The
      Company has elected to provide all Purchasers with the same terms and
      Transaction Documents for the convenience of the Company and not because it
      was
      required or requested to do so by the Purchasers.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    5.18  Liquidated
      Damages.  The Company’s obligations to pay any partial liquidated
      damages or other amounts owing under the Transaction Documents is a continuing
      obligation of the Company and shall not terminate until all unpaid partial
      liquidated damages and other amounts have been paid notwithstanding the fact
      that the instrument or security pursuant to which such partial liquidated
      damages or other amounts are due and payable shall have been
      canceled.

     

    5.19  Saturdays,
      Sundays, Holidays, etc.   If the last or appointed day for
      the taking of any action or the expiration of any right required or granted
      herein shall not be a Business Day, then such action may be taken or such right
      may be exercised on the next succeeding Business Day.

     

    5.20  Construction.
      The parties agree that each of them and/or their respective counsel has reviewed
      and had an opportunity to revise the Transaction Documents and, therefore,
      the
      normal rule of construction to the effect that any ambiguities are to be
      resolved against the drafting party shall not be employed in the interpretation
      of the Transaction Documents or any amendments hereto.

     

    5.21  Waiver
      of Jury Trial.  In any action, suit or proceeding in any
      jurisdiction brought by any party against any other party, the parties each
      knowingly and intentionally, to the greatest extent permitted by applicable
      law,
      hereby absolutely, unconditionally, irrevocably and expressly waives forever
      trial by jury.

     

    

     

    (Signature
      Pages Follow)

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, the parties hereto
      have caused this Securities Purchase Agreement to be duly executed by their
      respective authorized signatories as of the date first indicated
      above.

     

    

    
      	
              AEOLUS
                PHARMACEUTICALS, INC.

               

               

            	
              Address
                for Notice:

               
                23811 Inverness Place

               
                Laguna Niguel, CA 92677

            
	
              By:_____/s/
                Michael P. McManus_______________

                   Name:   Michael
                P. McManus

                   Title:     Chief
                Financial Officer

               

            	
              Fax:  (949)
                481-9829

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

              Paul,
                Hastings, Janofsky & Walker LLP

              3579
                Valley Centre
                Drive

              San
                Diego,
                CA  92130

              Attention:
                Leigh P. Ryan

              Facsimile:
                (858) 720-2555

            	 

    

    

    

    

    [REMAINDER
      OF PAGE INTENTIONALLY LEFT BLANK

    SIGNATURE
      PAGE FOR PURCHASER FOLLOWS]

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    

      [PURCHASER
        SIGNATURE PAGES TO AOLS SECURITIES PURCHASE AGREEMENT]

      

      IN
        WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement
        to be duly executed by their respective authorized signatories as of the
        date
        first indicated above.

       

      Name
        of
        Purchaser: ________________________________________________________

      Signature
        of Authorized Signatory of Purchaser:
        __________________________________

      Name
        of
        Authorized Signatory:
        ____________________________________________________

      Title
        of
        Authorized Signatory:
        _____________________________________________________

      Email
        Address of
        Purchaser:________________________________________________

      Fax
        Number of Purchaser:
        ________________________________________________

      Address
        for Notice of Purchaser:

      

      

      

      

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

      

      

      

      

      

      Subscription
        Amount: $_________________

      

      Shares:
        _________________

      

      Warrant
        Shares: __________________

      

      EIN
        Number:  [PROVIDE THIS UNDER SEPARATE
        COVER]

      

      

      [SIGNATURE
        PAGES CONTINUE]

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