Document:

EXHIBIT
      10.1

     

    SUBSCRIPTION
      AGREEMENT

     

    This
      Subscription Agreement (this “Agreement”)
      is
      entered into as of June 5, 2006 by and among Aeolus Pharmaceuticals, Inc.,
      a
      Delaware corporation (together with its successors and permitted assigns, the
      “Issuer”),
      and
      the undersigned investors (each, together with its successors and permitted
      assigns, the “Investor,”
and
      collectively, together with their successors and permitted assigns, the
“Investors”).
      Capitalized terms used but not otherwise defined herein shall have the meanings
      set forth in Section 9.1
      hereof.

     

    RECITALS

     

    Subject
      to the terms and conditions of this Agreement, the Investors desire to subscribe
      for and purchase, and the Issuer desires to issue and sell to the Investors,
      certain shares of the Issuer’s common stock, par value $0.01 per share (the
“Common
      Stock”),
      and
      certain warrants to purchase shares of Common Stock. The Issuer is offering
      an
      aggregate of 10,000,000 shares of Common Stock at a purchase price of Fifty
      Cents ($0.50) per share, together with warrants to purchase 7,000,000 shares
      of
      Common Stock at an exercise price of Seventy-Five Cents ($0.75) per share and
      warrants to purchase 4,000,000 shares of Common Stock at an exercise price
      of
      Fifty Cents ($0.50), in a private placement to the Investors on the other terms
      and conditions contained in this Agreement (the “Offering”),
      provided that the Issuer reserves the right to issue and sell a lesser or
      greater number of shares or warrants.

     

    TERMS
      OF AGREEMENT

     

    In
      consideration of the mutual representations and warranties, covenants and
      agreements contained herein, the parties hereto agree as follows:

     

    1.  SUBSCRIPTION
      AND ISSUANCE OF COMMON STOCK AND WARRANTS.

     

    1.1  Subscription
      and Issuance of Common Stock.
      Subject
      to the terms and conditions of this Agreement, the Issuer shall issue and sell
      to each Investor, and each Investor subscribes for and shall purchase from
      the
      Issuer, that number of shares of Common Stock set forth on such Investor’s
      counterpart signature page hereof (the “Shares”)
      and a
      warrant in substantially the form attached hereto as Exhibit A1
      (each, a
“Warrant”
and
      collectively, the “Warrants”)
      to
      purchase that number of additional shares of Common Stock (the “Warrant
      Shares”
and,
      together with the Shares and the Warrants, the “Securities”)
      equal
      to seventy percent (70%) of the aggregate number of Shares being purchased
      by
      such Investor pursuant to this Agreement, provided, however, that if any
      Investor subscribes for and purchases more than 8,000,000 Shares pursuant to
      this Agreement, such Investor shall receive an additional warrant in
      substantially the form attached hereto as Exhibit
      A2
      (which
      warrant shall also be a “Warrant”)
      to
      purchase that number of Warrant Shares equal to 40.816326% of the aggregate
      number of Shares being purchased by such Investor pursuant to this Agreement,
      for the aggregate purchase price set forth on such counterpart signature page,
      which aggregate purchase price shall be equal to the product of the number
      of
      Shares subscribed for by such Investor multiplied by the per share purchase
      price specified in the above Recitals to this Agreement (the “Purchase
      Price”).

    
      
        
        

      

      
        1

        
          

        

      

       

    

     

    1.2  Legends.

     

    (a)  Any
      certificate or certificates representing the Shares or Warrant Shares shall
      bear
      the following legend, in addition to any legend that may be required by any
      Requirements of Law:

     

    “THE
      SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
      SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
      ACT”)
      OR THE
      SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. THE SECURITIES MAY NOT
      BE
      OFFERED, SOLD OR OTHERWISE TRANSFERRED EXCEPT (1) PURSUANT TO AN EXEMPTION
      FROM REGISTRATION UNDER THE SECURITIES ACT OR (2) PURSUANT TO AN EFFECTIVE
      REGISTRATION STATEMENT UNDER THE SECURITIES ACT, AND, IN EACH CASE IN ACCORDANCE
      WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES AND OTHER JURISDICTIONS,
      AND
      IN THE CASE OF A TRANSACTION EXEMPT FROM REGISTRATION, UNLESS THE ISSUER HAS
      RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IT THAT SUCH
      TRANSACTION DOES NOT REQUIRE REGISTRATION UNDER THE SECURITIES ACT AND SUCH
      OTHER APPLICABLE LAWS.”

     

    (b)  The
      Warrant shall bear the following legend, in addition to any legend that may
      be
      required by any Requirements of Law:

     

    “NEITHER
      THIS WARRANT NOR THE SECURITIES REPRESENTED HEREBY HAVE BEEN REGISTERED UNDER
      THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE.
      SUCH
      SECURITIES MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED EXCEPT
      (1) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OR
      (2) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
      ACT, AND, IN EACH CASE IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF
      THE
      STATES AND OTHER JURISDICTIONS, AND IN THE CASE OF A TRANSACTION EXEMPT FROM
      REGISTRATION, UNLESS THE ISSUER HAS RECEIVED AN OPINION OF COUNSEL REASONABLY
      SATISFACTORY TO IT THAT SUCH TRANSACTION DOES NOT REQUIRE REGISTRATION UNDER
      THE
      SECURITIES ACT AND SUCH OTHER APPLICABLE LAWS.”

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    2.  CLOSING.

     

    2.1  Closing.
      The
      closing of the transactions contemplated herein (the “Closing”)
      shall
      take place on or about June 5, 2006 at the offices of Paul, Hastings, Janofsky
      & Walker LLP, counsel for the Issuer, located at 3579 Valley Centre Drive,
      San Diego, California 92130; provided that, subject to the satisfaction of
      the
      conditions set forth in Article 8,
      the
      Issuer reserves the right, in its sole discretion, to change the date of the
      Closing. At the Closing: (i) each Investor participating in such Closing
      shall pay to the Issuer, by wire transfer of immediately available funds to
      an
      account designated in writing by the Issuer, the Purchase Price for the Shares
      and Warrant being purchased by such Investor hereunder; (ii) the Issuer
      shall issue to each such Investor the Shares being purchased by the Investor
      hereunder and shall deliver or cause to be delivered to such Investor a
      certificate or certificates representing such Shares and a Warrant duly
      registered in the name of such Investor, as specified on the signature pages
      hereto; and (iii) all other actions referred to in this Agreement which are
      required to be taken at such Closing shall be taken and all other agreements
      and
      documents referred to in this Agreement that are required for such Closing
      shall
      be executed and delivered.

     

    2.2  Additional
      Closings.
      At any
      time following the Closing, the Issuer may sell such additional Securities
      as it
      deems appropriate in its sole discretion up to the aggregate amount of
      Securities referred to in the Recitals to any additional investor or investors
      (each, an “Additional
      Investor”)
      at one
      or more additional closing(s) pursuant to this Agreement that occur within
      90
      days of the Closing (each, an “Additional
      Closing”).
      With
      respect to each Additional Closing, the Issuer, the Investors and each
      Additional Investor agree that: (i) the sale and purchase of Securities at
      such Additional Closing shall be made on the terms and conditions set forth
      in
      this Agreement; (ii) at such Additional Closing, each Additional Investor
      participating in such Additional Closing shall pay to the Issuer, by wire
      transfer of immediately available funds to an account designated in writing
      by
      the Issuer, the Purchase Price for the Shares and Warrant being purchased by
      such Additional Investor hereunder; (iii) at such Additional Closing, the
      Issuer shall issue to each such Additional Investor the Shares being purchased
      by the Additional Investor hereunder and shall deliver or cause to be delivered
      to such Additional Investor a certificate or certificates representing such
      Shares and a Warrant duly registered in the name of such Additional Investor,
      as
      specified on such Additional Investor’s counterpart signature page hereto;
      (iv) the representations and warranties of the Issuer set forth in
Article 3
      shall
      speak only as of the Additional Closing and the Issuer shall be obligated to
      update any such representation or warranty, or any disclosure set forth in
      the
      Disclosure Schedule (as defined in Article
      3)
      relating to such representation or warranty, based on events occurring following
      the Closing; and (v) the representations and warranties of the Additional
      Investor set forth in Article 4
      shall
      speak as of such Additional Closing. In connection with the foregoing,
      notwithstanding anything to the contrary set forth herein, this Agreement may
      be
      amended by the Issuer without the consent of the Investors solely to include
      any
      Additional Investor as a party hereto upon the execution by such Additional
      Investor of a counterpart signature page hereto, and upon any such execution
      by
      such Additional Investor of a counterpart signature page hereto, such Additional
      Investor shall be deemed to be an “Investor” for all purposes under this
      Agreement.

    
      
        
        

      

      
        3

        
          

        

      

       

    

     

    2.3  Termination.
      This
      Agreement may be terminated at any time prior to the Closing:

     

    (a)  by
      mutual
      written consent of the Issuer and the Investors purchasing a majority of the
      Shares to be issued at the Closing (the “Majority
      Investors”);

     

    (b)  by
      the
      Majority Investors, upon a materially inaccurate representation or breach of
      any
      material warranty, covenant or agreement on the part of the Issuer set forth
      in
      this Agreement, in either case such that the conditions in Section 8.1
      would be
      reasonably incapable of being satisfied at or prior to the Closing;
      or

     

    (c)  by
      the
      Issuer, upon a materially inaccurate representation or breach of any material
      warranty, covenant or agreement on the part of any Investor set forth in this
      Agreement, in either case such that the conditions in Section 8.2
      would be
      reasonably incapable of being satisfied at or prior to the Closing; provided
      that in the event of any such materially inaccurate representation or breach
      by
      an Investor, the Issuer reserves the right not to issue and sell the Shares
      and
      Warrant to any such Investor at the Closing in lieu of terminating the
      Agreement.

     

    2.4  Effect
      of Termination.
      In the
      event of termination of this Agreement pursuant to Section 2.3,
      this
      Agreement shall forthwith become void, there shall be no liability on the part
      of the Issuer or the Investors to each other and all rights and obligations
      of
      any party hereto shall cease; provided that nothing herein shall relieve any
      party from liability for the willful breach of any of its representations and
      warranties, covenants or agreements set forth in this Agreement.

     

    3.  REPRESENTATIONS
      AND WARRANTIES OF THE ISSUER.

     

    As
      a
      material inducement to the Investors to enter into this Agreement and subscribe
      for and purchase the Shares, the Issuer represents and warrants to the Investors
      as follows, except, in the case of each representation and warranty, as set
      forth in the Disclosure Schedule delivered to each Investor in connection with
      such Investor’s investment in the Securities (the “Disclosure
      Schedule”):

     

    3.1  Corporate
      Status.
      Aeolus
      Sciences, Inc., a Delaware corporation (the “Subsidiary”),
      is a
      wholly-owned subsidiary of the Issuer. Each of the Issuer and the Subsidiary
      is
      a corporation duly organized, validly existing and in good standing under the
      laws of the State of Delaware. Each of the Issuer and the Subsidiary has full
      corporate power and authority to own and hold its properties and to conduct
      its
      business as described in the SEC Reports. Each of the Issuer and the Subsidiary
      is duly qualified to do business and is in good standing in each jurisdiction
      in
      which the nature of its business requires qualification, except for any failure
      to be so qualified or be in good standing that would not have an Issuer Material
      Adverse Effect. The Issuer has no subsidiaries other than the
      Subsidiary.

     

    3.2  Corporate
      Power and Authority.
      The
      Issuer has the corporate power and authority to execute and deliver this
      Agreement and to perform its obligations hereunder and to consummate the
      transactions contemplated hereby. The Issuer has taken all necessary corporate
      action to authorize the execution, delivery and performance of this Agreement
      and the consummation of the transactions contemplated hereby.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    3.3  Issuance,
      Sale and Delivery of the Securities.
      The
      Shares have been duly authorized and, when issued, delivered and paid for by
      the
      Investors in the manner set forth in this Agreement, will be validly issued,
      fully paid and nonassessable and free and clear of all pledges, Liens,
      restrictions and encumbrances (other than restrictions on transfer under state
      and/or federal securities laws and restrictions relating to or created by the
      Investors). The Issuer has reserved from its duly authorized capital stock
      the
      maximum number of Warrant Shares. The Warrant Shares, when issued and delivered
      upon exercise of the Warrants in the manner set forth therein, will be duly
      authorized, validly issued, fully paid and nonassessable and free and clear
      of
      all pledges, liens, restrictions and encumbrances (other than restrictions
      on
      transfer under state and/or federal securities laws and restrictions created
      by
      the Investors).

     

    3.4  Enforceability.
      This
      Agreement has been duly executed and delivered by the Issuer and (assuming
      it
      has been duly authorized, executed and delivered by each Investor) constitutes
      a
      legal, valid and binding obligation of the Issuer, enforceable against the
      Issuer in accordance with its terms, except as such enforceability may be
      limited by applicable bankruptcy, insolvency, fraudulent conveyance,
      reorganization, moratorium or similar laws from time to time in effect affecting
      the enforcement of creditors’ rights generally, and general equitable
      principles, regardless of whether such enforceability is considered in a
      proceeding at law or in equity, and except for the indemnity provisions of
      Article 7
      of this
      Agreement, which may not be enforceable based upon public policy considerations.
      When executed and delivered pursuant to the terms of this Agreement, the
      Warrants will constitute legal, valid and binding obligations of the Issuer,
      enforceable against the Issuer in accordance with their terms, except as such
      enforceability may be limited by applicable bankruptcy, insolvency, fraudulent
      conveyance, reorganization, moratorium or similar laws from time to time in
      effect affecting the enforcement of creditors’ rights generally, and general
      equitable principles, regardless of whether such enforceability is considered
      in
      a proceeding at law or in equity.

     

    3.5  No
      Violation.
      The
      execution and delivery by the Issuer of this Agreement, the consummation of
      the
      transactions contemplated hereby, and the compliance by the Issuer with the
      terms and provisions hereof (including, without limitation, the Issuer’s
      issuance to the Investors of the Securities as contemplated by and in accordance
      with this Agreement), will not: (i) result in a default under (or give any
      other party the right, with the giving of notice or the passage of time (or
      both), to declare a default or accelerate any obligation under) any Contract
      to
      which the Issuer or the Subsidiary is a party (except to the extent such a
      default or acceleration would not reasonably be expected to have an Issuer
      Material Adverse Effect); (ii) violate any Requirement of Law applicable to
      the Issuer or the Subsidiary, or result in the creation or imposition of any
      Lien upon any of the capital stock, properties or assets of the Issuer or the
      Subsidiary (except where such violations of any Requirement of Law or creations
      or impositions of any Liens would not reasonably be expected to have an Issuer
      Material Adverse Effect); (iii) violate any Permit of Issuer or the Subsidiary,
      which violation would reasonably be expected to have an Issuer Material Adverse
      Effect or (iv) violate the Certificate of Incorporation or the Bylaws of
      the Issuer or the Subsidiary. To the Issuer’s Knowledge, neither the Issuer nor
      the Subsidiary is: (a) in default under or in violation of any Contract to
      which it is a party or by which it or any of its properties is bound, which
      would reasonably be expected to have an Issuer Material Adverse Effect or
      (b) in violation of any order of any Governmental Authority.

     

    3.6  Consents/Approvals.
      Except
      for the filing of a Registration Statement in accordance with Article 6
      hereof,
      filings with the SEC as may be required in connection with an Incidental
      Registration, and filings with the securities commissions of the states in
      which
      the Securities are to be issued, no consent, filing, authorization or other
      action of any Governmental Authority is required to be obtained or made by
      the
      Issuer for the Issuer’s execution, delivery and performance of this Agreement
      which have not already been obtained or made. No consent, approval, waiver
      or
      other action by any Person under any material Contract to which the Issuer
      or
      the Subsidiary is a party or by which the Issuer or the Subsidiary or any of
      their properties or assets are bound is required or necessary for the execution,
      delivery or performance by the Issuer of this Agreement and the consummation
      of
      the transactions contemplated hereby, except where the failure to obtain such
      consent, approval, waiver or other action would not reasonably be expected
      to
      have an Issuer Material Adverse Effect.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    3.7  Valid
      Issuance of Shares and Warrant Shares.
      Upon
      payment of the Purchase Price by the Investors and delivery to the Investors
      of
      the certificates for the Shares, such Shares will be validly issued, fully
      paid
      and non-assessable and will be free and clear of all Liens imposed by the
      Issuer, except for restrictions on transfer set forth in this Agreement or
      imposed by applicable securities laws. Upon the exercise of the Warrants and
      the
      payment of the exercise price pursuant to such Warrants by the holders thereof,
      the Warrant Shares will be validly issued, fully paid and non-assessable and
      will be free and clear of all Liens imposed by the Issuer and the Subsidiary,
      except for restrictions on transfer set forth in this Agreement, the Warrants
      or
      imposed by applicable securities laws.

     

    3.8  Delivery
      of SEC Reports.
      The
      Issuer has made available to the Investors through the SEC’s Electronic Data
      Gathering and Retrieval System (“EDGAR”)
      true
      and complete copies of the SEC Reports.

     

    3.9  Capitalization.
      As of
      the Closing, the authorized capital stock of the Issuer will consist of
      50,000,000 shares of Common Stock and 10,000,000 shares of Preferred Stock.
      Schedule 3.9
      sets
      forth (a) the number of shares of capital stock issued and outstanding on
      the date hereof; (b) the number of shares of capital stock of the Issuer
      issuable pursuant to options outstanding and reserved for issuance, on the
      date
      hereof, under the Issuer’s stock plans on the date hereof (the “Options”);
      and
      (c) the number of shares of capital stock of the Issuer issuable and
      reserved for issuance, on the date hereof, pursuant to securities (other than
      the Securities and the Options) exercisable for, or convertible into or
      exchangeable for any shares of capital stock of the Issuer. All issued and
      outstanding shares of capital stock of the Issuer have been, and as of the
      Closing will be, duly authorized and validly issued and are (or, as of the
      Closing, will be) fully paid and non-assessable, have been issued in compliance
      with all applicable state and federal securities laws in all material respects
      and were not issued in violation of any preemptive, subscription or other
      similar rights of any stockholder of the Issuer. Except as described on
Schedule 3.9,
      no
      Person is entitled to pre-emptive or similar statutory or contractual rights
      with respect to any securities of the Issuer.

     

    3.10  No
      Material Adverse Changes.
      Except
      as set forth in or contemplated by the SEC Reports or as otherwise contemplated
      herein, since March 31, 2006, there has been no Issuer Material Adverse Effect.
      Except as set forth in or contemplated by the SEC Reports, since March 31,
      2006,
      there has not been: (i) any change in the consolidated assets, liabilities,
      financial condition or operating results of the Issuer from that reflected
      in
      the financial statements included in the SEC Reports, except for changes in
      the
      ordinary course of business or which would not have and would not reasonably
      be
      expected to have an Issuer Material Adverse Effect; (ii) any declaration,
      setting aside or payment of any dividend, or authorization or payment of any
      distribution, on any capital stock of the Issuer or the Subsidiary, or any
      redemption or repurchase of any securities of the Issuer or the Subsidiary;
      (iii) any material liabilities (absolute, accrued or contingent) incurred
      or assumed by the Issuer or the Subsidiary, other than current liabilities
      incurred in the ordinary course of business, liabilities under Contracts entered
      into in the ordinary course of business, and liabilities not required to be
      reflected on the Issuer’s consolidated financial statements pursuant to GAAP or
      required to disclosed in the SEC Reports; (iv) any Lien or adverse claim on
      any of the Issuer’s or the Subsidiary’s material properties or assets, except
      for Liens for taxes not yet due and payable or otherwise in the ordinary course
      of business; (v) any satisfaction or discharge of a material Lien, claim or
      encumbrance or payment of any material obligation by the Issuer or the
      Subsidiary, except in the ordinary course of business or which is not material
      to the assets, properties, financial condition, operating results or business
      of
      the Issuer and the Subsidiary, taken as a whole (as such businesses are
      presently conducted); (vi) any sale, assignment or transfer by the Issuer
      or the Subsidiary of any of their material assets, tangible or intangible,
      except in the ordinary course of business; (vii) any material damage,
      destruction to any material assets of the Issuer or the Subsidiary, or loss
      or
      interference with the Issuer’s or the Subsidiary’s businesses or properties from
      fire, flood, windstorm, accident or other calamity, whether or not covered
      by
      insurance; (viii) any material default by the Issuer or the Subsidiary in
      the payment of principal or interest or violation of any covenant with respect
      to any outstanding debt obligations; (ix) any material changes to the
      Issuer’s or the Subsidiary’s critical accounting policies or material deviations
      from historical accounting and other practices in connection with the
      maintenance of the Issuer’s or the Subsidiary’s books and records; (x) any
      waiver not in the ordinary course of business, by either the Issuer or the
      Subsidiary, of a material right or of a material debt owed to it; (xi) except
      in
      connection with the Offering, any change or amendment to the Issuer’s
      Certificate of Incorporation or Bylaws, or material change to any material
      Contract or arrangement by which the Issuer or the Subsidiary is bound or to
      which any of their respective assets or properties are subject; (xii) any
      material labor difficulties or labor union organizing activities with respect
      to
      employees of the Issuer; (xiii) any material transaction entered into by the
      Issuer or the Subsidiary other than in the ordinary course of business
      (excluding, with respect to the Issuer, the Offering); (xiv) the loss of the
      services of any key employee, or material change in the composition of the
      senior management, of the Issuer; (xv) the loss or threatened loss of any
      customer which has had or would reasonably be expected to have an Issuer
      Material Adverse Effect; (xvi) any other event or condition of any character
      that has had or would reasonably be expected to have an Issuer Material Adverse
      Effect; or (xvii) any agreement or commitment to do any of the
      foregoing.

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    3.11  Intellectual
      Property.
      Each of
      the Issuer and the Subsidiary owns or has obtained valid and enforceable
      licenses for all the inventions, patent applications, patents, trademarks (both
      registered and unregistered), trade names, copyrights, trade secrets and other
      intellectual property necessary for the conduct of its business as currently
      conducted (collectively, the “Intellectual
      Property”).
      Each
      of the Issuer and the Subsidiary has duly filed, registered and maintained
      all
      Registered Intellectual Property owned by it, including without limitation
      submitting all necessary filings and paying all filing and maintenance fees.
      There are no third parties who have any ownership or license rights to any
      of
      the Intellectual Property that would preclude either the Issuer or the
      Subsidiary from conducting its business as currently conducted or would
      otherwise result in an Issuer Material Adverse Effect or an Investor Material
      Adverse Effect, except for the ownership rights of the owners of the
      Intellectual Property licensed by the Issuer or the Subsidiary. There are no
      facts known to the Issuer or the Subsidiary that could result in a conclusion
      of
      invalidity, unenforceability or, with respect to patents, narrowing of claim
      construction, of any of the Intellectual Property. With respect to all
      in-license agreements of the Intellectual Property entered into by the Issuer
      and the Subsidiary: (a) they are in good standing and each of the Issuer
      and the Subsidiary is in compliance with their terms and conditions, and
      (b) there exists no default under such agreements which would give rise to
      a termination or limitation of Issuer’s or the Subsidiary’s rights, as
      applicable. To the Issuer’s Knowledge, there are currently no products or
      services offered by a third party the making, using or selling of which would
      constitute an infringement of any Intellectual Property, which infringement
      would have an Issuer Material Adverse Effect or an Investor Material Adverse
      Effect. There is no pending or, to the Issuer’s Knowledge, threatened action,
      suit, proceeding or claim by others challenging the rights of the Issuer or
      the
      Subsidiary in or to any of the Intellectual Property, other than claims which
      would not reasonably be expected to have an Issuer Material Adverse Effect
      or an
      Investor Material Adverse Effect. There is no pending or, to the Issuer’s
      Knowledge, threatened action, suit, proceeding or claim by others challenging
      the validity or scope of any of the Intellectual Property, other than
      non-material actions, suits, proceedings and claims. There is no pending or,
      to
      the Issuer’s Knowledge, threatened action, suit, proceeding or claim by others
      that the Issuer or the Subsidiary infringes or otherwise violates any patent,
      trademark, copyright, trade secret, or other proprietary or intellectual
      property right of others, other than non-material actions, suits, proceedings
      and claims. To the Issuer’s Knowledge, the conduct of the Issuer’s and the
      Subsidiary’s business as currently conducted and contemplated to be conducted
      does not infringe, or constitute contributory infringement, inducement to
      infringe, misappropriation or unlawful use of any patent, trademark, copyright,
      trade secret, or other proprietary or intellectual property right of others.
      

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    3.12  Litigation.
      Except
      as disclosed in the SEC Reports, there is no action, suit, proceeding or
      investigation pending or, to the Issuer’s Knowledge, currently threatened
      against the Issuer or the Subsidiary that questions the validity of this
      Agreement or the right of the Issuer to enter into it or to consummate the
      transactions contemplated hereby, or that would reasonably be expected to
      result, either individually or in the aggregate, in an Issuer Material Adverse
      Effect, or any change in the current equity ownership of the Issuer or the
      Subsidiary. Neither the Issuer nor the Subsidiary is a party to or subject
      to
      the provisions of any order, writ, injunction, judgment or decree of any court
      or Governmental Authority. There is no action, suit, proceeding or investigation
      by the Issuer or the Subsidiary currently pending that would reasonably be
      expected to have an Issuer Material Adverse Effect.

     

    3.13  Rights
      of Registration.
      Except
      as contemplated in this Agreement, no Person has the right to require the Issuer
      or
      the
      Subsidiary
      to
      register any securities of the Issuer or
      the
      Subsidiary
      under
      the Securities Act, whether on a demand basis or in connection with the
      registration of securities of the Issuer or
      the
      Subsidiary
      for its
      own account or for the account of any other Person other than pursuant to
      (i) that certain Registration Rights Agreement made and entered into as of
      November 21, 2005, by and among the Issuer and certain investors listed on
      the
      signature pages thereto, (ii) that certain Registration Rights Agreement
      dated July 15, 1999 between Interneuron Pharmaceuticals, Inc. and the Issuer,
      (iii) that certain Amended and Restated Registration Rights Agreement dated
      as of May 15, 2002 among the Issuer, Elan International Services, Ltd. and
      Elan
      Pharma International Limited, (iv) that certain Registration Rights
      Agreement dated September 16, 2003 among the Issuer, Incara, Inc. and Goodnow
      Capital, LLC, and (v) that certain Registration Rights Agreement dated
      April 19, 2004 among the Issuer, SCO and certain other investors listed on
      the
      signature pages thereto.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    3.14  Offering.
      Subject
      in part to the truth and accuracy of the Investors’ representations and
      warranties set forth in this Agreement, the offer, sale and issuance of the
      Securities as contemplated by this Agreement are exempt from the registration
      requirements of the Securities Act and any applicable state securities laws,
      and
      neither the Issuer, the Subsidiary nor any authorized agent acting on their
      behalf will take any action hereafter that would cause the loss of such
      exemption.

     

    3.15  Licenses
      and Permits.
      Each of
      the Issuer and the Subsidiary has all Permits under applicable Requirements
      of
      Law from all applicable Governmental Authorities that are necessary to operate
      its businesses as presently conducted and all such Permits are in full force
      and
      effect, except where the failure to have any such Permits in full force and
      effect would not, individually or in the aggregate, reasonably be expected
      to
      have an Issuer Material Adverse Effect. Neither the Issuer nor the Subsidiary
      is
      in default under, or in violation of or noncompliance with, any of such Permits,
      except for any such default, violation, or noncompliance which would not,
      individually or in the aggregate, reasonably be expected to have an Issuer
      Material Adverse Effect.

     

    3.16  Material
      Contracts.
      All
      material Contracts to which either the Issuer or the Subsidiary is a party
      and
      that are required to have been filed by the Issuer on Exhibit 10 to the SEC
      Reports have been filed by the Issuer with the SEC pursuant to the requirements
      of the Exchange Act. Neither the Issuer nor, to the Issuer’s Knowledge, any
      other party to any material Contract of the Issuer or the Subsidiary is in
      breach of, or in default under, any such material Contract, except for any
      such
      breach or default which would not reasonably be expected to have an Issuer
      Material Adverse Effect.

     

    3.17  Related
      Party Transactions.
      No
      transaction has occurred between or among the Issuer, the Subsidiary, their
      officers or directors or any affiliate or affiliates of any such officer or
      director that is required to have been described under applicable securities
      laws in the Issuer’s Exchange Act filings and is not so described in such
      filings.

     

    3.18  Off-Balance
      Sheet Arrangements.
      There
      is no transaction, arrangement or other relationship between the Issuer or
      the
      Subsidiary, on the one hand, and an unconsolidated or other off-balance sheet
      entity, on the other hand, that is required to be disclosed by the Issuer in
      the
      Issuer’s Exchange Act filings and is not so disclosed. There are no such
      transactions, arrangements or other relationships with the Issuer or the
      Subsidiary that may create contingencies or liabilities that are required to
      be
      disclosed by the Issuer in the Issuer’s Exchange Act filings that are not
      disclosed therein.

     

    3.19  Sarbanes-Oxley
      Act; Internal Accounting Controls.
      The
      Issuer and the Subsidiary are in compliance in all material respects with all
      provisions of the Sarbanes-Oxley Act of 2002 that are applicable to them. The
      Issuer maintains a consolidated 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 generally accepted accounting principles
      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 Issuer has established disclosure controls and procedures
      (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Issuer and designed
      such disclosure controls and procedures to ensure that material information
      relating to the Issuer is made known to the certifying officers by others within
      those entities. The Issuer’s certifying officers have evaluated the
      effectiveness of the Issuer’s disclosure controls and procedures in accordance
      with Item 307 of Regulation S-K under the Exchange Act for the fiscal
      quarter ended March 31, 2006 (such date, the “Evaluation
      Date”).
      The
      Issuer presented in its most recently filed Form 10-Q 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, to the Issuer’s Knowledge, there have been no significant
      changes in the Issuer’s internal controls (as such term is defined in Item
      308(c) of Regulation S-K under the Exchange Act).

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    3.20  Listing
      and Maintenance Requirements.
      The
      Common Stock is registered pursuant to Section 12(g) of the Exchange Act,
      and neither the Issuer nor the Subsidiary has taken any action designed to,
      or
      which, to the Issuer’s Knowledge, is likely to have the effect of, terminating
      the registration of the Common Stock under the Exchange Act, nor has the Issuer
      or the Subsidiary received any notification from the SEC that it is
      contemplating terminating such registration. The Issuer has not, in the 12
      months preceding the date hereof, received notice from the Over-the-Counter
      Bulletin Board (the “OTCBB”)
      that
      the Issuer is not in compliance with the listing or maintenance requirements
      of
      the OTCBB. The Issuer is, and believes that it will in the foreseeable future
      continue to be, in compliance with all such listing and maintenance
      requirements.

     

    3.21  Manipulation
      of Price.
      The
      Issuer and the Subsidiary have not, and to the Issuer’s Knowledge no one acting
      on behalf of the Issuer or the Subsidiary 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 Issuer 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 (other than
      for the placement agent’s placement 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 Issuer or the Subsidiary. 

     

    3.22  Foreign
      Corrupt Practices.
      The
      Issuer and the Subsidiary have not, and to the Issuer’s Knowledge no director,
      officer, agent, employee or other person acting on behalf of the Issuer or
      the
      Subsidiary, in the course of its actions for, or on behalf of, the Issuer or
      the
      Subsidiary, has: (i) used any corporate funds for any unlawful
      contribution, gift, entertainment or other unlawful expenses relating to
      political activity; (ii) made any direct or indirect unlawful payment to
      any foreign or domestic government official or employee from corporate funds;
      (iii) violated or is in violation of any provision of the U.S. Foreign
      Corrupt Practices Act of 1977, as amended; or (iv) made any unlawful bribe,
      rebate, payoff, influence payment, kickback or other unlawful payment to any
      foreign or domestic government official or employee.

     

    3.23  Employee
      Relations.
      Neither
      the Issuer nor the Subsidiary is a party to any collective bargaining agreement
      or employs any member of a union. No executive officer of the Issuer (as defined
      in Rule 501(f) of the Securities Act) has formally notified the Issuer that
      such
      officer intends to leave the Issuer or otherwise terminate such officer’s
      employment with the Issuer. No executive officer of the Issuer, to the Issuer’s
      Knowledge is in violation of any material term of any employment contract,
      confidentiality, disclosure or proprietary information agreement,
      non-competition agreement, or any other contract or agreement or any restrictive
      covenant, in each case with or made to the Issuer. The Subsidiary does not
      have
      any employees.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    3.24  ERISA.
      To the
      Issuer’s Knowledge, the Issuer and the Subsidiary are in compliance, in all
      material respects, with all presently applicable provisions of the Employee
      Retirement Income Security Act of 1974, as amended, including the regulations
      and published interpretations thereunder (“ERISA”);
      no
“reportable event” (as defined in ERISA) has occurred with respect to any
“pension plan” (as defined in ERISA) for which the Issuer or the Subsidiary
      would have any liability that would reasonably be expected to have an Issuer
      Material Adverse Effect or an Investor Material Adverse Effect; neither the
      Issuer nor the Subsidiary has incurred or expects to incur liability under
      (i) Title (IV) of ERISA with respect to termination of, or withdrawal from,
      any “pension plan” or (ii) Sections 412 or 4917 of the Internal Revenue
      Code of 1986, as amended, including the regulations and published
      interpretations thereunder (the “Code”);
      and
      each “pension plan” for which the Issuer or the Subsidiary would have any
      liability that is intended to be qualified under Section 401(a) of the Code
      is so qualified in all material respects and nothing has occurred, whether
      by
      action or by failure to act, which, in each case, would cause the loss of such
      qualification, except as would not reasonably be expected to have an Issuer
      Material Adverse Effect or an Investor Material Adverse Effect.

     

    3.25  Environmental
      Matters.
      There
      has been no storage, disposal, generation, manufacture, transportation, handling
      or treatment of toxic wastes, hazardous wastes or hazardous substances by the
      Issuer or the Subsidiary (or, to the Issuer’s Knowledge, any of their
      predecessors-in-interest) at, upon or from any of the property now or previously
      owned or leased by the Issuer or the Subsidiary in violation of any applicable
      law, ordinance, rule, regulation, order, judgment, decree or permit or which
      would require remedial action under any applicable law, ordinance, rule,
      regulation, order, judgment, decree or permit; there has been no material spill,
      discharge, leak, emission, injection, escape, dumping or release of any kind
      into such property or into the environment surrounding such property of any
      toxic wastes, medical wastes, solid wastes, hazardous wastes or hazardous
      substances due to or caused by the Issuer or the Subsidiary, or to the Issuer’s
      Knowledge; the terms “hazardous wastes”, “toxic wastes”, “hazardous substances”,
      and “medical wastes” shall have the meanings specified in any applicable local,
      state, federal and foreign laws or regulations with respect to environmental
      protection.

     

    3.26  Taxes.
      To the
      Issuer’s Knowledge, the Issuer and the Subsidiary have filed all material
      federal, state and foreign income and franchise tax returns and has paid or
      accrued all taxes shown as due thereon, and, to the Issuer’s Knowledge, no tax
      deficiency has been asserted or threatened against the Issuer or the Subsidiary
      which would reasonably be expected to have an Issuer Material Adverse
      Effect.

     

    3.27  Transfer
      Taxes.
      On the
      Closing, all stock transfer or other taxes (other than income taxes) that are
      required to be paid in connection with the sale of the Securities by the Issuer
      to the Investors hereunder will be, or will have been, fully paid or provided
      for by the Issuer.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    3.28  Investment
      Company.
      Neither
      the Issuer nor the Subsidiary is an “investment company” or an “affiliated
      person” of, or “promoter” or “principal underwriter” for an investment company,
      in each case within the meaning of the Investment Company Act of 1940, as
      amended.

     

    3.29  No
      Market Manipulation.
      Neither
      the Issuer nor the Subsidiary has taken, or will take, directly or indirectly,
      any action designed to, or that might reasonably be expected to, cause or result
      in stabilization or manipulation of the price of the Common Stock to facilitate
      the sale or resale of the Securities or affect the price at which the Securities
      may be issued or resold.

     

    3.30  No
      Labor Disputes.
      No
      labor dispute with the employees of the Issuer exists or, to the Issuer’s
      Knowledge, is imminent.

     

    3.31  Insurance
      Coverage.
      The
      Issuer maintains in full force and effect insurance coverage that is customary
      for comparably situated companies for the business being conducted and
      properties owned or leased by the Issuer and the Subsidiary, and the Issuer
      reasonably believes such insurance coverage to be adequate against such
      liabilities, claims and risks against which it is customary for comparably
      situated companies to insure, including, but not limited to, insurance covering
      all real and personal property leased by the Issuer against theft, damage,
      destruction, acts of vandalism.

     

    3.32  Listing.
      The
      Common Stock is quoted on the OTCBB. The Issuer has not received any oral or
      written notice that the Common Stock is not eligible nor will become ineligible
      for quotation on the OTCBB nor that the Common Stock does not meet all
      requirements for the continuation of such quotation. The Issuer satisfies all
      the requirements for the continued quotation of the Common Stock on the
      OTCBB.

     

    3.33  No
      Integrated Offering.
      Neither
      the Issuer nor any Person acting on its behalf has, directly or indirectly,
      made
      any offer or sales of any security of the Issuer or solicited any offers to
      buy
      any security of the Issuer under circumstances that would eliminate the
      availability of the exemption from registration under Regulation D promulgated
      under the Securities Act in connection with the offer and sale of the Securities
      as contemplated hereby.

     

    3.34  SEC
      Comments.
      There
      are no outstanding letters of comment or other issues raised in writing or
      otherwise delivered to the Issuer by the staff of the Division of Corporation
      Finance of the SEC that have not been fully resolved to the satisfaction of
      the
      staff of the Division of Corporation Finance of the SEC.

     

    3.35  SEC
      Reports; Financial Statements.
      The
      Issuer has filed all reports, schedules, forms, statements and other documents
      required to be filed by it pursuant to 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 Issuer was required
      by
      law 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 Report prior to the expiration of any such extension. As
      of
      their respective filing dates, the SEC Reports complied in all material respects
      with the requirements of the Securities Act and the Exchange Act and the rules
      and regulations of the SEC promulgated thereunder, 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 consolidated financial statements of the Issuer
      included in the SEC Reports complied in all material respects with applicable
      accounting requirements and the rules and regulations of the SEC with respect
      thereto as in effect at the time of filing. Such financial statements were
      prepared in accordance with GAAP applied on a consistent basis during the
      periods involved, 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 consolidated financial position of the Issuer 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.

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    3.36  Brokers
      or Finders.
      Neither
      the Issuer nor any of its Affiliates has engaged or used any investment bankers,
      brokers or finders in connection with the transactions contemplated by this
      Agreement, and no persons or entities are entitled to a fee or compensation
      from
      the Issuer in respect thereof.

     

    4.  REPRESENTATIONS
      AND WARRANTIES OF THE INVESTORS.

     

    As
      a
      material inducement to the Issuer to enter into this Agreement and issue the
      Securities, each Investor represents, warrants and covenants to the Issuer
      as
      follows:

     

    4.1  Power
      and Authority.
      Such
      Investor, if other than a natural person, is an entity duly organized, validly
      existing and in good standing under the laws of the jurisdiction of its
      incorporation or formation. Such Investor has the corporate, partnership or
      other power (or, in the case of a natural person, legal capacity) and authority
      under applicable law to execute and deliver this Agreement and consummate the
      transactions contemplated hereby, and has all necessary authority to execute,
      deliver and perform its obligations under this Agreement and to consummate
      the
      transactions contemplated hereby. Such Investor has taken all necessary action
      to authorize the execution, delivery and performance of this Agreement and
      the
      transactions contemplated hereby.

     

    4.2  No
      Violation.
      The
      execution and delivery by such Investor of this Agreement, the consummation
      of
      the transactions contemplated hereby, and the compliance by such Investor with
      the terms and provisions hereof, will not: (i) result in a default under
      (or give any other party the right, with the giving of notice or the passage
      of
      time (or both), to declare a default or accelerate any obligation under) any
      Contract to which such Investor is a party or by which it or any of its
      properties or assets are bound (except to the extent such defaults or
      accelerations, individually or in the aggregate, would not reasonably be
      expected to have an Investor Material Adverse Effect); (ii) violate any
      Requirement of Law applicable to such Investor; or (iii) if such Investor
      is other than a natural person, violate any charter, bylaws or similar documents
      of such Investor. At or prior to the Closing, such Investor will have complied
      with all Requirements of Law applicable to it in connection with the
      Offering.

     

    4.3  Consents/Approvals.
      No
      consent, filing, authorization or action of any Governmental Authority is
      required for such Investor’s execution, delivery and performance of this
      Agreement. No consent, approval, waiver or other action by any Person under
      any
      Contract to which such Investor is a party or by which such Investor or any
      of
      its properties or assets are bound is required or necessary for the execution,
      delivery and performance by such Investor of this Agreement and the consummation
      of the transactions contemplated hereby.

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    4.4  Enforceability.
      This
      Agreement has been duly executed and delivered by such Investor and (assuming
      it
      has been duly authorized, executed, and delivered by the Issuer) constitutes
      a
      legal, valid and binding obligation of such Investor, enforceable against such
      Investor in accordance with its terms, except as such enforceability may be
      limited by applicable bankruptcy, insolvency, fraudulent conveyances,
      reorganization, moratorium or similar laws from time to time in effect affecting
      the enforcement of creditor’s rights generally, and general equitable
      principles, regardless of whether enforceability is considered in a proceeding
      at law or in equity, and except for the indemnity provisions of Article 7
      of this
      Agreement, which may not be enforceable based upon public policy
      considerations.

     

    4.5  Investment
      Intent; Restricted Securities.
      Such
      Investor expressly disclaims being an underwriter and affirms that such Investor
      is acquiring the Securities for its own account, with no present intention
      of
      transferring, distributing or selling such Securities in violation of the
      Securities Act or any applicable state securities law, and no one other than
      the
      Investor has any beneficial interest in the Securities. Such Investor
      understands and acknowledges that the Securities are characterized as
“restricted securities” under the U.S. federal securities laws inasmuch as they
      are being acquired from the Issuer in a transaction not involving a public
      offering and that under such laws and applicable regulations such Securities
      may
      be resold without registration under the Securities Act only in certain limited
      circumstances. Such Investor agrees that it will not sell or otherwise dispose
      of any of the Securities unless such sale or other disposition has been
      registered under the Securities Act or, in an opinion of counsel acceptable
      to
      the Issuer, is exempt from registration under the Securities Act and is exempt
      from registration or qualification under applicable state securities laws.
      Such
      Investor understands that the offer and sale by the Issuer of the Securities
      being acquired by such Investor hereunder has not been registered under the
      Securities Act by reason of an exemption from the registration and prospectus
      delivery requirements of the Securities Act pursuant to Section 4(2)
      thereof, and that the reliance of the Issuer on such exemption from registration
      is predicated in part on these representations and warranties of such Investor.
      Such Investor acknowledges that, pursuant to Section 1.2
      of this
      Agreement, a restrictive legend consistent with the foregoing has been or will
      be placed on all certificates representing the Shares, the Warrant Shares and
      the Warrant issued to such Investor pursuant to this Agreement.

     

    4.6  Accredited
      Investor.
      Such
      Investor is an “accredited investor” as such term is defined in Rule 501(a) of
      Regulation D promulgated under the Securities Act. Without limiting the
      foregoing representation, such Investor confirms that it has reviewed the
      partial definition of an “Accredited Investor” which is attached hereto as
Exhibit B
      (which
      is not a complete definition of the term, but which includes the most likely
      categories of qualification) to confirm the accuracy of such representation,
      and
      such Investor has noted by paragraph number, on its signature page hereto,
      the
      category(ies) pursuant to which such Investor qualifies as an “Accredited
      Investor” according to the definition set forth in Exhibit B.
      Such
      Investor has not been formed for the purpose of acquiring the Securities. Such
      Investor is not an officer, director, employee, investment advisor, promoter
      or
      Affiliate of the Issuer.

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

    4.7  Adequate
      Information.
      Such
      Investor has had an opportunity to receive all information related to the Issuer
      requested by it and to ask questions of and receive answers from the Issuer
      regarding the Issuer, its business and the terms and conditions of the offering
      of the Securities, and has reviewed, such information as such Investor 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. Such
      Investor acknowledges that it has access to the SEC Reports, including the
      risk
      factors contained therein, via EDGAR, and the SEC Reports are specifically
      incorporated herein by reference and form an integral part of this Agreement.
      Such Investor also acknowledges that the additional risk factors set forth
      on
Exhibit C
      are
      specifically incorporated herein by reference and form an integral part of
      this
      Agreement. Neither such inquiries nor any other due diligence investigation
      conducted by such Investor shall modify, amend or affect such Investor’s right
      to rely on the Issuer’s representations and warranties contained in Article 3
      hereof.

     

    4.8  Opportunity
      to Question.
      Such
      Investor has had the opportunity to question, and has questioned, to the extent
      deemed necessary or appropriate, representatives of the Issuer so as to receive
      answers from the Issuer’s representatives regarding the terms and conditions of
      an investment in the Securities and to verify information obtained in such
      Investor’s examination of the Issuer, including, without limitation, the
      information that such Investor received and reviewed as referenced in
Section 4.7
      hereof
      in relation to its investment in the Securities.

     

    4.9  No
      Other Representations.
      Such
      Investor acknowledges that, in deciding whether to enter into this Agreement
      and
      to acquire the Securities hereunder, it has not relied on any representations
      or
      warranties of any type or description made by the Issuer or any of its
      representatives with regard to the Issuer or its business, property or prospects
      of the investment contemplated herein, other than the representations and
      warranties of the Issuer set forth in Article
      3
      hereof.

     

    4.10  Knowledge
      and Experience.
      Such
      Investor understands that an investment in the Securities involves substantial
      risk. Such Investor has such knowledge and experience in financial, tax and
      business matters, including substantial experience in evaluating and investing
      in common stock and other securities (including the common stock and other
      securities of speculative companies), so as to enable such Investor to utilize
      the information referred to in Section 4.7
      hereof
      and any other information made available by the Issuer to such Investor in
      order
      to evaluate the merits and risks of an investment in the Securities and to
      make
      an informed investment decision with respect thereto.

     

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

     

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

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

    4.13  Commissions.
      Such
      Investor has not incurred any obligation for any finder’s, broker’s or agent’s
      fees or commissions in connection with the transactions contemplated
      hereby.

     

    5.  COVENANTS.

     

    5.1  Public
      Announcements.
      Each
      Investor agrees not to make any public announcement or issue any press release
      or otherwise publicly disseminate any information about the subject matter
      of
      this Agreement. Except as provided herein, the Issuer shall have the right
      to
      make such public announcements and shall control, in its sole and absolute
      discretion, the timing, form and content of all press releases or other public
      communications of any sort relating to the subject matter of this Agreement,
      and
      the method of their release or the publication thereof. The Issuer also may
      issue an initial press release relating to the transactions contemplated by
      this
      Agreement, but shall not identify any Investor in such press release without
      the
      consent of such Investor, except as may be required by any Requirement of Law
      or
      OTCBB rule.

     

    5.2  Non-Public
      Information.
      On or
      before 9:00 a.m. New York City time, on the first Business Day after the
      Closing, the Issuer shall issue a press release announcing the execution of
      this
      Agreement and on or before 5:30 p.m. New York City time on the first Business
      Day after the Closing, the Issuer shall file a Current Report on Form 8-K
      disclosing any material, non-public information previously disclosed to the
      Investors and describing the material terms of the transactions contemplated
      by
      this Agreement, and attaching as an exhibit to such Form 8-K a form of this
      Agreement (and any other exhibit required to be filed therewith pursuant to
      the
      Exchange Act) (including such exhibit(s), the “8-K
      Filing”).
      The
      Issuer shall not, and shall use its commercially reasonable efforts to cause
      each of its officers, directors, employees and agents not to, provide an
      Investor with any material, non-public information regarding the Issuer from
      and
      after the filing of the 8-K Filing without the express written consent of such
      Investor. The Issuer understands and confirms that the Investors will rely
      on
      the representations and covenants set forth in Article
      3
      and
Article
      5
      in
      effecting transactions in securities of the Issuer.

     

    5.3  Use
      of
      Purchaser Name.
      Except
      as may be required by applicable law or regulation, the Issuer shall not use
      the
      name of any Investor or the name of any Investor’s affiliate in any
      advertisement, announcement, press release or other similar public communication
      unless it has received the prior written consent of such Investor for the
      specific use contemplated or as otherwise required by applicable law or
      regulation.

     

    5.4  Further
      Assurances.
      Each of
      the parties hereto shall execute and deliver such additional instruments and
      other documents and shall take such further actions as may be reasonably
      necessary or appropriate to effectuate, carry out and comply with all the terms
      of this Agreement and the transactions contemplated hereby. Each of the
      Investors and the Issuer shall make on a prompt and timely basis all
      governmental or regulatory notifications and filings required to be made by
      it
      with or to any Governmental Authority in connection with the consummation of
      the
      transactions contemplated hereby. The Issuer and the Investors agree to
      cooperate with one another in the preparation and filing of all forms,
      notifications, reports and information, if any, required or reasonably deemed
      advisable pursuant to any Requirement of Law or OTCBB rules in connection with
      the transactions contemplated by this Agreement and to use their respective
      commercially reasonable efforts to agree jointly on a method to overcome any
      objections by any Governmental Authority to any such transactions.

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

     

    5.5  Notification
      of Certain Matters.
      Prior
      to the Closing: (a) the Issuer shall give prompt notice to the Investors of
      the occurrence, or non-occurrence, of any event which would be likely to cause
      any representation and warranty of the Issuer herein (except as set forth in
      the
      Disclosure Schedule) to be untrue or inaccurate, or any covenant, condition
      or
      agreement of or applicable to the Issuer pursuant to this Agreement not to
      be
      complied with or satisfied; and (b) each Investor shall give prompt notice
      to the Issuer of the occurrence, or non-occurrence, of any event which would
      be
      likely to cause any representation and warranty of such Investor herein to
      be
      untrue or inaccurate, or any covenant, condition or agreement of or applicable
      to such Investor pursuant to this Agreement not to be complied with or
      satisfied.

     

    5.6  Confidentiality.
      Each
      Investor understands that the U.S. Federal securities laws impose restrictions
      on trading based on information regarding this Offering. In addition, each
      Investor acknowledges that unauthorized disclosure of information regarding
      this
      Offering may result in a violation by the Issuer of Regulation FD promulgated
      by
      the SEC. Each Investor agrees to keep confidential certain information relating
      to the Issuer that has been disclosed by the Issuer to the Investor in
      connection with such Investor’s investment in the Securities. In addition, each
      Investor agrees that no portion of the Confidential Information (as defined
      below) shall be disclosed to third parties, except as may be required by law,
      without the prior written consent of the Issuer; provided that if such Investor
      is required by law to disclose any such information, it shall provide the Issuer
      with prompt notice thereof in time sufficient to enable the Issuer to seek
      an
      appropriate protective order; and provided further that each Investor may share
      such information with such of its officers, agents and professional advisors
      as
      may need to know such information to assist such Investor in its evaluation
      thereof, on the condition that such parties agree to be bound by the terms
      of
      this Section 5.6.
      “Confidential Information” means the existence and terms of this Agreement, the
      transactions contemplated hereby, the disclosures and other information
      contained herein and the receipt and content of any notice of a Suspension
      Event, excluding any disclosures or other information that is publicly
      available.

     

    5.7  Reservation
      of Warrant Shares.
      The
      Issuer has reserved, from its authorized but unissued Common Stock, that number
      of shares of Common Stock equal to the number of Warrant Shares initially
      issuable upon exercise of the Warrants.

     

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

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

     

    5.9  Securities
      Law Compliance.

     

    (a)  State
      Securities Law Compliance -- Sale. The Issuer shall timely prepare and file
      such
      applications, consents to service of process (but not including a general
      consent to service of process) and similar documents and take such other steps
      and perform such further acts as shall be required by the state securities
      law
      requirements of each jurisdiction where an Investor resides as of the date
      such
      Investor purchases the Shares and the Warrants from the Issuer, as indicated
      on
      the signature pages to this Agreement, with respect to the sale of the Shares
      and Warrants under this Agreement. 

     

    (b)  State
      Securities Law Compliance -- Resale. Beginning no later than 30 days following
      any date, from time to time, on which the Common Stock is no longer a “covered
      security” under Section 18(b)(1)(A) of the Securities Act and continuing until
      either (i) the Investors have sold all of their Shares and Warrant Shares under
      a Registration Statement as provided in this Agreement or (ii) the Common Stock
      becomes a “covered security” under Section 18(b)(1)(A) of the Securities Act,
      the Issuer shall maintain within either Moody’s Industrial Manual or Standard
      and Poor’s Standard Corporation Descriptions (or any successors to these manuals
      that are similarly qualified as “recognized securities manuals” under state Blue
      Sky laws) (in each case, a “Manual”)
      an
      updated listing containing (a) the names of the officers and directors of the
      Issuer, (b) a balance sheet of the Issuer as of a date that is at no time older
      than eighteen months and (c) a profit and loss statement of the Issuer for
      either the preceding fiscal year or the most recent year of
      operations;
      provided that
      the
      Issuer shall not be required to maintain such information in a Manual pursuant
      to this Section
      5.9(b)
      prior to
      the date that is ninety (90) days following the Closing.

     

    6.  REGISTRATION
      RIGHTS.

     

    Each
      Investor shall have the following registration rights with respect to the
      Registrable Securities owned by it:

     

    6.1  Transfer
      of Registration Rights.
      Each
      Investor may assign the registration rights with respect to the Shares and/or
      Warrant Shares to any party or parties to which it transfers any of its
      Registrable Securities in accordance with the terms of this Agreement; provided
      that the transferee agrees in writing with the Issuer to be bound by
Articles 6,
      7,
      and
9
      of this
      Agreement. Upon assignment of any registration rights pursuant to this
Section 6.1,
      the
      Investor assigning such rights shall deliver to the Issuer a notice of such
      assignment, which shall include the identity and address of such assignee and
      such other information reasonably requested by the Issuer in connection with
      effecting any such registration, and an agreement, in form and substance
      satisfactory to the Issuer and duly executed by the transferee, to be bound
      by
Articles 6,
      7
      and
9
      of this
      Agreement (collectively, each Investor, along with each such subsequent
      transferee who so agrees to be bound and who continues to hold Registrable
      Securities is referred to herein as a “Holder”).

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

     

    6.2  Required
      Registration.
      As
      promptly as practicable after the Closing, but in no event later than ninety
      (90) days after the date of the Closing, the Issuer agrees to file with the
      SEC
      a Registration Statement to register the resale of all the Shares and Warrant
      Shares (which shall not include an underwritten offering) (a “Required
      Registration”).
      Such
      Registration Statement shall include a plan of distribution substantially in
      the
      form attached hereto as Exhibit D.
      Not
      less than three (3) Business Days prior to the filing of such Registration
      Statement, the Issuer shall provide each of the Investors (or, if an Investor
      shall have so instructed the Issuer, the legal counsel or investment adviser
      of
      such Investor) with a copy of the Registration Statement proposed to be filed
      and shall consider all (but shall not be obligated to give effect to any)
      appropriate comments that are timely provided by such Investors to the Issuer
      with respect to the Registration Statement. The Issuer shall use its
      commercially reasonable efforts to cause the SEC to declare the Registration
      Statement effective no later than the one hundred twentieth (120th) day
      following the date the Registration Statement is filed with the SEC (including
      filing with the SEC a request for acceleration of effectiveness in accordance
      with Rule 461 promulgated under the Securities Act within five (5) Business
      Days
      of the date that the Issuer is notified (orally or in writing, whichever is
      earlier) by the SEC that a Registration Statement will not be “reviewed,” or not
      be subject to further review). In the event that the Registration Statement
      has
      not been filed on or prior to the ninetieth (90th) day after the Closing (the
      “Filing
      Deadline”)
      or
      declared effective by the SEC on or prior to the one hundred twentieth (120th)
      day after the date of the filing of the Registration Statement (the
“Registration
      Deadline”),
      then
      in addition to any other rights the Holders may have hereunder or under
      applicable law, within five (5) Business Days of each monthly anniversary of
      such Filing Deadline and/or Registration Deadline until the date on which the
      Registration Statement is first filed with the SEC or declared effective by
      the
      SEC, as applicable, the Issuer shall pay to each Holder at each Holder’s
      discretion, as evidenced in writing to the Issuer, either (1) an amount in
      cash, as liquidated damages and not as a penalty, equal to 1.0% of the aggregate
      Purchase Price originally paid to the Issuer in connection with the acquisition
      pursuant to the terms of this Agreement of the Registrable Securities then
      held
      by such Holder or (2) an additional warrant to acquire that number of
      shares of Common Stock equal to two percent (2%) of the Shares purchased by
      such
      Holder pursuant to this Agreement, which warrant shall be substantially in
      the
      form of the Holder’s Warrant issued pursuant to this Agreement. Once the
      Registration Statement has been declared effective, the Issuer shall thereafter
      maintain the effectiveness of the Registration Statement until the earlier
      of:
      (i) the date on which all the Shares and Warrant Shares have been sold
      pursuant to the Registration Statement or Rule 144; or (ii) such time as
      the Issuer reasonably determines, based on the advice of counsel, that each
      Holder, acting independently of all other Holders, will be eligible to sell
      under Rule 144 all the Shares and Warrant Shares then owned by such Holder
      within the volume limitations imposed by paragraph (e) of Rule 144 in the three
      (3)-month period immediately following the termination of the effectiveness
      of
      the Registration Statement.

     

    6.3  Registration
      Procedures.

     

    (a)  The
      Issuer shall advise the Investors as to the initiation of the registration
      process contemplated by Section 6.2
      hereof
      and as to the completion thereof. In addition, subject to Section 6.2
      hereof,
      the Issuer shall, to the extent applicable to the Registration
      Statement:

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

     

    (i)  use
      its
      commercially reasonable efforts to obtain from each person who now has piggyback
      registration rights a waiver of those rights with respect to the Registration
      Statement;

     

    (ii)  prepare
      and file with the SEC such amendments and supplements to the Registration
      Statement as may be necessary to keep such Registration Statement continuously
      effective and free from any untrue statement of a material fact or omission
      of a
      material fact required to be stated therein or necessary to make the statements
      therein not misleading, and comply with provisions of the Securities Act with
      respect to the disposition of all Registrable Securities covered thereby during
      the period referred to in Section 6.2
      hereof;

     

    (iii)  provide
      copies to and permit counsel designated by the Investors to review each
      Registration Statement and all amendments thereto no fewer than three (3)
      Business Days prior to their filing with the SEC, and not file any document
      to
      which counsel reasonably objects;

     

    (iv)  furnish
      to Morrison & Foerster LLP at the address set forth in Section
      9.3
      hereof,
      and to the Investors (i) promptly after the same is filed with the SEC or
      received by the Issuer (but not later than two (2) Business Days after the
      filing date or receipt date, as the case may be), one (1) copy of any
      Registration Statement and any amendment thereto, each related preliminary
      prospectus and prospectus and each amendment or supplement thereto, and, upon
      request of any Investor, each letter written by or on behalf of the Issuer
      to
      the SEC or the staff of the Division of Corporation Finance of the SEC, and
      each
      item of correspondence received by the Issuer from the SEC or the staff of
      the
      Division of Corporation Finance of the SEC, in each case relating to such
      Registration Statement (other than any portion of any thereof which contains
      information for which the Issuer has sought confidential treatment), and
      (ii) such number of copies of a prospectus, including a preliminary
      prospectus, and all supplements thereto and such other documents as each
      Investor may reasonably request in order to facilitate the disposition of the
      Registrable Securities owned by the Investor that are covered by the related
      Registration Statement;

     

    (v)  use
      its
      commercially reasonable efforts to cause all Registrable Securities covered
      by a
      Registration Statement to be listed on each securities exchange, interdealer
      quotation system or other market on which similar securities issued by the
      Issuer are then listed;

     

    (vi)  otherwise
      use its commercially reasonable efforts to comply with all applicable rules
      and
      regulations of the SEC under the Securities Act and the Exchange Act, take
      such
      other actions as may be reasonable necessary to facilitate the registration
      of
      the Registrable Securities hereunder; and make available to its security
      holders, as soon as reasonably practicable, but not later than the Availability
      Date (as defined below), an earnings statement covering a period of at least
      twelve (12) months, beginning after the effective date of each Registration
      Statement, which earnings statement shall satisfy the provisions of
      Section 11(a) of the Securities Act, including Rule 158 promulgated
      thereunder. “Availability
      Date”
means
      the forty-fifth (45th) day following the end of the first fiscal quarter ending
      after the first anniversary of the effective date of such Registration
      Statement, except that, if such first quarter is the last quarter of the
      Issuer’s fiscal year, “Availability
      Date”
      means
      the ninetieth (90th) day after the end of such first fiscal
      quarter);

     

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

     

    (vii)  with
      a
      view to making available to the Investors the benefits of Rule 144 (or its
      successor rule) and any other rule or regulation of the SEC that may at any
      time
      permit the Investors to sell shares of Common Stock to the public without
      registration, the Issuer covenants and agrees to use its commercially reasonable
      efforts to: (i) make and keep public information available, as those terms
      are understood and defined in Rule 144, until the earlier of (A) six months
      after such date as all of the Registrable Securities may be resold pursuant
      to
      Rule 144(k) or any other rule of similar effect or (B) such date as all of
      the Registrable Securities shall have been resold; (ii) file with the SEC
      in a timely manner all reports and other documents required of the Issuer under
      the Exchange Act; and (iii) furnish to an Investor upon request, as long as
      such Investor owns at least 10,000 shares of Registrable Securities, (A) a
      written statement by the Issuer that it has complied in all material respects
      with the reporting requirements of the Exchange Act, (B) a copy of the
      Issuer’s most recent Annual Report on Form 10-K or Quarterly Report on Form
      10-Q, and (C) such other information as may be reasonably requested in
      order to avail such Investor of any rule or regulation of the SEC that permits
      the selling of any such Registrable Securities without
      registration;

     

    (viii)  notify
      the Holders promptly when the Registration Statement is declared effective
      by
      the SEC, and furnish to each Holder such number of prospectuses, including
      preliminary prospectuses, and other documents incident thereto as the Holders
      may reasonably request from time to time;

     

    (ix)  use
      its
      commercially reasonable efforts to register or qualify such Registrable
      Securities under such other securities or blue sky laws of such jurisdictions
      of
      the United States where an exemption is not available and as any Holder may
      reasonably request to enable such Holder to consummate the disposition in such
      jurisdiction of the Registrable Securities; provided that in no event will
      the
      Issuer be required to: (x) qualify generally to do business in any
      jurisdiction where it would not otherwise be required to be so qualified;
      (y) consent to general service of process in any such jurisdiction; or
      (z) subject itself to taxation in any jurisdiction where it is not already
      subject to taxation;

     

    (x)  notify
      the Holders at any time when a prospectus relating to the Registrable Securities
      is required to be delivered under the Securities Act of the happening of any
      event as a result of which the prospectus included in the Registration Statement
      contains an untrue statement of a material fact or omits to state a material
      fact necessary to make the statements therein, in light of the circumstances
      under which they were made, not misleading and, subject to Section 6.11
      hereof,
      prepare a supplement or amendment to such prospectus, so that, as thereafter
      delivered to purchasers of such Registrable Securities, such prospectus will
      not
      contain any untrue statement of a material fact or omit to state a material
      fact
      necessary to make the statements therein, in light of the circumstances under
      which they were made, not misleading;

     

    (xi)  with
      a
      view to making available to the Holders the benefits of certain rules and
      regulations of the SEC that at any time permit the sale of the Registrable
      Securities to the public without registration, so long as any Registrable
      Securities are outstanding, use its commercially reasonable efforts for a period
      of two (2) years following the date of the Closing:

     

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

     

     

    
      	(1)  	
              to
                make and keep public information available, as those terms are understood
                and defined in Rule 144(c); and

            

    

     

    
      	(2)  	
              to
                file with the SEC in a timely manner all reports and other documents
                required to be filed by the Issuer under the Exchange Act;
                and

            

    

     

    (xii)  advise
      the Holders promptly after receiving notice or obtaining knowledge of the
      existence of any stop order by the SEC delaying or suspending the effectiveness
      of the Registration Statement or of the initiation or threat in writing of
      any
      proceeding for that purpose, use its commercially reasonable efforts to obtain
      the withdrawal of any order suspending the effectiveness of the Registration
      Statement at the earliest possible time, and promptly notify the Investors
      of
      the lifting or withdrawal of any such order.

     

    (b)  Notwithstanding
      anything stated or implied to the contrary in Section 6.3(a)
      hereof,
      the Issuer shall not be required to consent to or participate or cooperate
      in
      connection with any underwritten offering of the Registrable Securities or
      to
      any specific underwriter participating in any underwritten public offering
      of
      the Registrable Securities.

     

    (c)  Each
      Holder agrees to deliver a Notice and Questionnaire in the form attached hereto
      as Exhibit E
      (the
“Notice
      and Questionnaire”)
      to the
      Issuer at least seven (7) Business Days prior to any distribution by it of
      Registrable Securities under the Registration Statement. From and after the
      date
      the Registration Statement is declared effective, the Issuer shall, as promptly
      as is practicable after the date a Notice and Questionnaire is delivered, and
      in
      any event within the later of seven (7) Business Days after such date, or seven
      (7) Business Days after the expiration of any Suspension Period in effect when
      the Notice and Questionnaire are delivered to the Issuer or which comes into
      effect within seven (7) Business Days of such delivery: (i) if required by
      applicable law, file with the SEC a post-effective amendment to the Registration
      Statement or prepare and, if required by applicable law, file a supplement
      to
      the related prospectus or an amendment or supplement to any document
      incorporated therein by reference or file any other required document so that
      the Holder delivering such Notice and Questionnaire is named as a selling holder
      in the Registration Statement and the related prospectus and so that such Holder
      is permitted to deliver such prospectus to purchasers of the Registrable
      Securities in accordance with applicable law and, if the Issuer shall file
      a
      post-effective amendment to the Registration Statement, use commercially
      reasonable efforts to cause such post-effective amendment to be declared
      effective under the Securities Act as promptly as is practicable;
      (ii) provide such Holder copies of any documents filed pursuant to this
Section 6.3(c);
      and
      (iii) notify such Holder as promptly as practicable after the effectiveness
      under the Securities Act of any post-effective amendment filed pursuant to
      this
Section 6.3(c);
      provided that if such Notice and Questionnaire is delivered during a Suspension
      Period, the Issuer shall so inform the Holder delivering such Notice and
      Questionnaire and shall take the actions set forth in clauses (i),
      (ii)
      and
(iii)
      above
      upon expiration of the Suspension Period in accordance with Section 6.11
      hereof.
      Notwithstanding anything contained herein to the contrary, the Issuer shall
      be
      under no obligation to name any Person that is not a Holder as a selling holder
      in the Registration Statement or related prospectus; provided that any Person
      that becomes a Holder pursuant to the provisions of Section 6.1
      hereof
      (whether or not such Person was a Holder at the time the Registration Statement
      was declared effective) shall be named as a selling holder in the Registration
      Statement or related prospectus in accordance with the requirements of this
      Section 6.3(c).

     

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

     

    (d)  Each
      Holder agrees that, upon receipt of any notice from the Issuer of the happening
      of any event of the kind described in Section 6.3(a)(iv)
      hereof,
      and subject to Section 6.11
      hereof,
      such Holder will forthwith discontinue such Holder’s disposition of Registrable
      Securities pursuant to the Registration Statement until such Holder’s receipt of
      the copies of the supplemented or amended prospectus contemplated by
Section 6.3(a)(iv)
      hereof
      and, if so directed by the Issuer, will deliver to the Issuer at the Issuer’s
      expense all copies, other than permanent file copies, then in such Holder’s
      possession, of the prospectus relating to such Registrable Securities current
      at
      the time of receipt of such notice.

     

    6.4  Incidental
      Registration.

     

    (a)  Subject
      to Section 6.4(b)
      hereof
      and Section 6.4(c)
      hereof,
      if at any time prior to the filing of a Registration Statement in connection
      with the Required Registration the Issuer proposes to register under the
      Securities Act any shares of the same class as any of the Registrable Securities
      (whether in an underwritten public offering or otherwise and whether or not
      for
      the account of the Issuer or for any stockholder of the Issuer), in a manner
      that would permit the registration under the Securities Act of Registrable
      Securities for sale to the public, the Issuer will give written notice to each
      Holder of its intention to do so not later than twenty (20) days prior to the
      anticipated filing date of the applicable Registration Statement. Any Holder
      may
      elect to participate in such registration on the same basis as the planned
      method of distribution contemplated by the proposed Registration Statement
      by
      delivering to the Issuer written notice of its election, in the form of the
      Notice and Questionnaire, within fifteen (15) days after its receipt of the
      Issuer’s notice pursuant to this Section 6.4(a).
      A
      Holder’s election pursuant to this Section 6.4(a)
      must
      (i) specify the amount of Registrable Securities desired to be included in
      such Registration Statement by such Holder and (ii) include any other
      information that the Issuer reasonably requests be included in such Registration
      Statement. Upon its receipt of a Holder’s election pursuant to this Section 6.4(a),
      the
      Issuer will, subject to Section 6.5
      hereof,
      use its commercially reasonable efforts to include in such Registration
      Statement all Registrable Securities requested to be included. Any registration
      of Registrable Securities pursuant to this Section 6.4
      is
      referred to as an “Incidental
      Registration”,
      and
      any Holder whose Registrable Securities are included at the request of such
      Holder in an Incidental Registration pursuant to this Section 6.4
      is
      referred to as a “Selling
      Stockholder.”

     

    (b)  The
      Issuer shall have no obligation under this Section 6.4
      with
      respect to any registration effected pursuant to a registration statement on
      Form S-4 (or any other registration statement registering shares issued in
      a
      merger, consolidation, acquisition, or similar transaction) or Form S-8, or
      any
      successor or comparable forms, or a registration statement filed in connection
      with an exchange offer or any offering of securities solely to the Issuer’s
      existing stockholders or otherwise pursuant to a dividend reinvestment plan,
      stock purchase plan or other employee benefit plan.

     

    (c)  The
      Issuer shall have no obligation under this Section 6.4
      with
      respect to any registration initiated by one or more Third-Party Demand
      Stockholders pursuant to one or more registration rights agreements under which
      the rights of all such Third-Party Demand Stockholders are pari
      passu,
      if:

     

    (i)  the
      applicable agreement between the Issuer and such Third-Party Demand Stockholders
      that provides for such registration rights prohibits the inclusion in such
      registration of securities other than those offered by such Third-Party Demand
      Stockholders and the Issuer, and

     

    
      
        
        

      

      
        23

        
          

        

      

      
        
        

      

    

     

    (ii)  no
      securities other than those offered by such Third-Party Demand Stockholders
      are
      included in such registration.

     

    6.5  Limitation
      on Inclusion of Registrable Securities; Priorities.
      If the
      proposed method of distribution in connection with an Incidental Registration
      is
      an underwritten public offering and the lead managing underwriter thereof
      determines in good faith that the amount of securities to be included in such
      offering would adversely affect such offering (including an adverse effect
      on
      the price at which the securities proposed to be registered may be sold), the
      amount of securities to be offered may be reduced or limited to the extent
      necessary to reduce the total number of securities to be included in such
      offering to the amount recommended by the lead managing underwriter as
      follows:

     

    (a)  in
      connection with an offering initiated by the Issuer, if securities are being
      offered for the account of other Persons (including any Holders) such reduction
      shall be made:

     

    (i)  first,
      from the securities intended to be offered by such other Persons (including
      any
      Holders), on a pro
      rata
      basis,
      based on the number of Registrable Securities and other securities that are
      requested to be included in such offering; and

     

    (ii)  second,
      from the number of securities to be offered for the account of the
      Issuer;

     

    (b)  in
      connection with an offering initiated by a Third-Party Demand Stockholder,
      such
      reduction shall be made:

     

    (i)  first,
      from securities held by Persons who are not (A) Holders,
      (B) Third-Party Demand Stockholders or (C) other stockholders entitled
      under any agreement between them and the Issuer to participate pari
      passu
      with the
      Selling Stockholders in such Incidental Registration, and from securities being
      offered for the account of the Issuer, allocated between the Issuer and such
      other Persons as the Issuer may determine, subject to any agreements between
      the
      Issuer and such other Persons;

     

    (ii)  second,
      from the number of Registrable Securities requested to be included in such
      offering by the Selling Stockholders and any other stockholders entitled under
      any agreements between them and the Issuer to participate pari
      passu
      with the
      Selling Stockholders in such Incidental Registration, on a pro
      rata
      basis,
      based on the number of Registrable Securities and other securities which are
      requested to be included in the registration; and

     

    (iii)  last,
      from securities being offered by the Third-Party Demand
      Stockholders.

     

    6.6  Withdrawal
      by Selling Stockholder.
      Each
      Selling Stockholder may, no less than five (5) Business Days before the
      anticipated effective date of the applicable Registration Statement for an
      Incidental Registration, withdraw some or all of its Registrable Securities
      from
      inclusion in such Registration Statement. No such withdrawal shall relieve
      any
      withdrawing Selling Stockholder of its obligation to pay expenses under
Section 6.9
      hereof.

     

    
      
        
        

      

      
        24

        
          

        

      

      
        
        

      

    

     

    6.7  Underwriters;
      Underwriting Agreement.
      In
      connection with any Incidental Registration involving an underwritten public
      offering of securities for the account of the Issuer or a Third-Party Demand
      Stockholder, (a) the managing and lead underwriter(s) shall be selected by
      the Issuer, unless otherwise provided in any agreement between the Issuer and
      any Third-Party Demand Stockholder, and (b) each Selling Stockholder
      electing to participate in the Incidental Registration shall, as a condition
      to
      the Issuer’s obligation under this Article 6
      to
      include such Selling Stockholder’s Registrable Securities in such Incidental
      Registration, enter into and perform its obligations under an underwriting
      agreement or other similar arrangement in customary form with the managing
      underwriter(s) of such offering. Notwithstanding anything stated or implied
      to
      the contrary in this Article 6,
      the
      Issuer shall not be required to consent to or participate or cooperate in
      connection with any underwritten offering of the Registrable Securities or
      to
      any specific underwriter participating in any underwritten public offering
      of
      the Registrable Securities.

     

    6.8  Registration
      Procedures.

     

    (a)  Whenever
      the Issuer is obligated by the provisions of Section 6.4(a)
      hereof
      to effect the registration of any Registrable Securities under the Securities
      Act, the Issuer shall, to the extent applicable to the Registration
      Statement:

     

    (i)  use
      its
      commercially reasonable efforts to cause the applicable Registration Statement
      to become effective as promptly as practicable, and to prepare and file with
      the
      SEC any amendments and supplements to the Registration Statement and to the
      prospectus used in connection therewith as may be necessary to keep the
      Registration Statement and such prospectus effective, current and in compliance
      with the provisions of the Securities Act during the periods when the Issuer
      is
      required, pursuant to the applicable registration rights agreement(s) between
      the Issuer and Third-Party Demand Stockholders or otherwise, to keep the
      Registration Statement effective and current;

     

    (ii)  notify
      the Selling Stockholders promptly when the Registration Statement is declared
      effective by the SEC, and furnish such number of prospectuses, including
      preliminary prospectuses, and other documents incident thereto as the Selling
      Stockholders may reasonably request from time to time;

     

    (iii)  use
      its
      commercially reasonable efforts to register or qualify such Registrable
      Securities under such other securities or blue sky laws of such jurisdictions
      of
      the United States where an exemption is not available and as the Persons holding
      a majority of the securities covered by such Registration Statement may
      reasonably request to enable such Person or Persons to consummate the
      disposition of the Registrable Securities in such jurisdiction; provided that
      in
      no event will the Issuer be required to: (x) qualify to do business as a
      foreign corporation in any jurisdiction where it would not otherwise be required
      to be so qualified; (y) consent to general service of process in any such
      jurisdiction; or (z) subject itself to taxation in any jurisdiction where
      it is not already subject to taxation;

     

    
      
        
        

      

      
        25

        
          

        

      

      
        
        

      

    

     

    (iv)  notify
      the Selling Stockholders at any time when a prospectus relating to the
      Registrable Securities is required to be delivered under the Securities Act
      of
      the happening of a Suspension Event or any other event as a result of which
      the
      prospectus included in the Registration Statement contains an untrue statement
      of a material fact or omits to state a material fact necessary to make the
      statements therein, in light of the circumstances under which they were made,
      not misleading and, subject to Section 6.11
      hereof,
      prepare a supplement or amendment to such prospectus, so that, as thereafter
      delivered to purchasers of such Registrable Securities, such prospectus will
      not
      contain an untrue statement of a material fact or omit to state a material
      fact
      necessary to make the statements therein, in light of the circumstances under
      which they were made, not misleading; and

     

    (v)  advise
      the Selling Stockholders promptly after receiving notice or obtaining knowledge
      of the existence of any stop order by the SEC delaying or suspending the
      effectiveness of the Registration Statement or of the initiation or threat
      of
      any proceeding for that purpose, use its commercially reasonable efforts to
      obtain the withdrawal of any order suspending the effectiveness of the
      Registration Statement at the earliest possible time, and promptly notify the
      Selling Stockholders of the lifting or withdrawal of any such
      order.

     

    (b)  Each
      Selling Stockholder agrees that, upon receipt of any notice from the Issuer
      of
      the happening of any event of the kind described in Section 6.8(a)(iv)
      hereof,
      such Selling Stockholder will forthwith discontinue such Selling Stockholder’s
      disposition of Registrable Securities pursuant to the Registration Statement
      until such Selling Stockholder’s receipt of the copies of the supplemented or
      amended prospectus contemplated by Section 6.8(a)(iv)
      hereof
      and, if so directed by the Issuer, will deliver to the Issuer at the Issuer’s
      expense all copies, other than permanent file copies, then in such Selling
      Stockholder’s possession, of the prospectus relating to such Registrable
      Securities current at the time of receipt of such notice.

     

    6.9  Expenses.
      Except
      as required by law, all expenses incurred by the Issuer in complying with this
      Article 6,
      including, without limitation, all registration, application, qualification,
      filing, listing, transfer and registrar fees; printing expenses; fees and
      disbursements of counsel and accountants for the Issuer; and blue sky fees
      and
      expenses (including fees and disbursements of Issuer’s counsel related to all
      blue sky matters) incurred in connection with any registration, qualification
      or
      compliance pursuant to this Article 6
      shall be
      borne by the Issuer. All underwriting or brokerage discounts and selling
      commissions applicable to a sale incurred in connection with any registration
      of
      Registrable Securities and the legal fees and other expenses of a Holder or
      Selling Stockholder shall be borne by such Holder or Selling Stockholder;
provided
      that
      the
      Issuer shall pay the fees and expenses of one legal counsel for all Selling
      Stockholders or Holders in an amount up to a maximum of $35,000. 

     

    6.10  Further
      Information.
      Each
      Holder, in the case of a Required Registration, and each Selling Stockholder,
      in
      the case of an Incidental Registration, shall cooperate with the Issuer in
      connection with the preparation of the Registration Statement, and for so long
      as the Issuer is obligated to keep the Registration Statement effective, such
      Holder or Selling Stockholder, as the case may be, will provide to the Issuer,
      in writing, for use in the Registration Statement, all information regarding
      such Holder or Selling Stockholder, as the case may be, its intended method
      of
      disposition of the applicable Registrable Securities, and such other information
      as the Issuer may reasonably request to prepare the Registration Statement
      and
      prospectus covering the Registrable Securities and to maintain the currency
      and
      effectiveness thereof. Each Holder and each Selling Stockholder shall indemnify
      the Issuer with respect to such information in accordance with Section 7.2
      hereof.

     

    
      
        
        

      

      
        26

        
          

        

      

      
        
        

      

    

     

    6.11  Right
      of Suspension.

     

    (a)  Notwithstanding
      any other provision of this Agreement or any related agreement to the contrary,
      the Issuer shall have the right, at any time, to suspend the availability of
      the
      Registration Statement and the related prospectus and offers and sales of the
      Registrable Securities pursuant thereto whenever, in the good-faith judgment
      of
      the management of the Issuer: (i) continuing such availability or
      permitting such offers and sales could reasonably be expected to have an adverse
      effect upon a pending or proposed significant corporate event, or negotiations,
      discussions or pending proposals with respect thereto; (ii) there exists a
      material development or a potential material development with respect to or
      involving the Issuer that the Issuer would be obligated to disclose in the
      prospectus used in connection with the Registration Statement, which disclosure,
      in the good-faith judgment of the Issuer, after consultation with counsel,
      would
      be premature or otherwise inadvisable at such time; (iii) the Registration
      Statement or any document incorporated or deemed to be incorporated therein
      by
      reference contains an untrue statement of a material fact or omits to state
      a
      material fact required to be stated therein or necessary to make the statements
      therein not misleading; or (iv) the prospectus included in the Registration
      Statement, as supplemented from time to time, contains an untrue statement
      of a
      material fact or omits to state a material fact necessary in order to make
      the
      statements therein, in light of the circumstances under which they were made,
      not misleading (each of the events described in clauses (i),
      (ii),
      (iii)
      and
(iv),
      a
“Suspension
      Event”).
      In
      the event that a Suspension Event shall occur and the Issuer shall determine
      to
      suspend the availability of the Registration Statement and offers and sales
      of
      the Registrable Securities pursuant thereto, the Issuer shall, in addition
      to
      performing those acts required to be performed under the Securities Act and/or
      the Exchange Act or deemed advisable by the Issuer, deliver to the Holders
      or
      the Selling Stockholders, as applicable, written notice thereof, signed by
      an
      officer of the Issuer. Upon receipt of such notice, the Holders or the Selling
      Stockholders, as applicable, shall discontinue disposition of the Registrable
      Securities pursuant to the Registration Statement and prospectus until such
      Holders or Selling Stockholders: (A) are advised in writing by the Issuer
      that the use of the Registration Statement and related prospectus (and offers
      and sales thereunder) may be resumed; (B) have received copies of a
      supplemental or amended prospectus, if applicable; and (C) have received
      copies of any additional or supplemental filings which are incorporated or
      deemed to be incorporated by reference into such prospectus. The Issuer will
      use
      commercially reasonable efforts to ensure that the use of the Registration
      Statement and prospectus may be resumed as promptly as practicable.

     

    (b)  The
      Issuer’s right to suspend the effectiveness of the Registration Statement and
      the offers and sales of the Registrable Securities pursuant thereto, as
      described in Section 6.11(a)
      hereof,
      shall be for a period of time (the “Suspension
      Period”)
      beginning on the date of the occurrence of the Suspension Event and expiring
      on
      the earlier to occur of: (i) the date on which the Suspension Event ceases;
      or (ii) thirty (30) days after the date of the occurrence of the Suspension
      Event; provided that there shall not be more than two (2) Suspension Periods
      in
      any twelve (12)-month period.

     

    
      
        
        

      

      
        27

        
          

        

      

      
        
        

      

    

     

    6.12  Transfer
      of Shares.
      Notwithstanding any other provision of this Agreement, an Investor may transfer
      all or any part of its Securities to any Person under common management with
      such Investor, provided that: (a) such transferee agrees in writing with
      the Issuer to be bound by Articles 6,
      7
      and
9
      of this
      Agreement; and (b) any such transfer shall be effected in full compliance
      with all applicable federal and state securities laws, including, without
      limitation, the Securities Act and the rules of the SEC promulgated thereunder.
      The Issuer will effect such transfer of restricted certificates and, if the
      Securities to be transferred are Registrable Securities registered under an
      effective Registration Statement, then upon receipt of the Notice and
      Questionnaire from the transferee, the Issuer will promptly amend the prospectus
      forming a part of the Registration Statement to add or replace such transferee
      as a Selling Stockholder in the Registration Statement, provided that such
      transferor and transferee shall be required to provide the Issuer with the
      information requested of such Investor in this Agreement, information reasonably
      necessary for the Issuer to determine that the transfer was effected in
      accordance with all applicable federal and state securities laws, including,
      without limitation, the Securities Act and the rules of the SEC promulgated
      thereunder, and all other information reasonably requested by the Issuer from
      time to time in connection with any transfer, registration, qualification or
      compliance referred to in Section 6.10
      hereof.

     

    7.  INDEMNIFICATION.

     

    7.1  Indemnification
      by the Issuer.
      The
      Issuer will indemnify and hold harmless each Holder or Selling Stockholder
      of
      Shares and/or Warrant Shares covered by a Registration Statement pursuant to
      the
      provisions of Article 6
      hereof,
      any Person who controls such Holder or Selling Stockholder within the meaning
      of
      the Securities Act, and any officer, director, investment adviser, employee,
      agent, partner, member or Affiliate of such Holder or Selling Stockholder (each,
      a “Holder/Selling
      Stockholder Indemnified Party”),
      from
      and against, and will promptly reimburse each such Holder/Selling Stockholder
      Indemnified Party with respect to, any and all claims, actions, demands, losses,
      damages, liabilities, costs and expenses to which such Holder/Selling
      Stockholder or any such Holder/Selling Stockholder Indemnified Party may become
      subject under the Securities Act or otherwise, insofar as such claims, actions,
      demands, losses, damages, liabilities, costs or expenses arise out of or are
      based upon: (a) any untrue statement or alleged untrue statement of a
      material fact contained in such Registration Statement, any prospectus contained
      therein or any amendment or supplement thereto; (b) the omission or alleged
      omission to state therein a material fact required to be stated therein or
      necessary to make the statements therein (in the case of any preliminary
      prospectus or prospectus, in light of the circumstances under which they were
      made) not misleading; or (c) any inaccurate representation or breach of any
      warranty, agreement or covenant of the Issuer contained herein; provided that
      the Issuer will not be liable in any such case to the extent that any such
      claim, action, demand, loss, damage, liability, cost or expense arises out
      of or
      is based upon an untrue statement or alleged untrue statement or omission or
      alleged omission (i) made in reliance on and conformity with information
      furnished by any Holder or Selling Stockholder, as applicable, in writing
      specifically for use in the preparation thereof or (ii) which was cured in
      an amendment or supplement to the prospectus (or any amendment or supplement
      thereto) delivered to the Holder or Selling Stockholder, as applicable, on
      a
      timely basis to permit proper delivery thereof prior to the date on which any
      Shares or Warrant Shares were transferred or sold by such Holder or Selling
      Stockholder, as applicable.

     

    
      
        
        

      

      
        28

        
          

        

      

      
        
        

      

    

     

    7.2  Indemnification
      by the Holder or Selling Stockholder.
      Each
      Holder and each Selling Stockholder of Shares and/or Warrant Shares covered
      by a
      Registration Statement pursuant to the provisions of Article 6
      hereof
      will, severally and not jointly, indemnify and hold harmless the Issuer, any
      Person who controls the Issuer within the meaning of the Securities Act, and
      any
      officer, director, employee, agent, partner, member or Affiliate of the Issuer
      (each, an “Issuer
      Indemnified Party”)
      from
      and against, and will promptly reimburse the Issuer Indemnified Parties with
      respect to, any and all claims, actions, demands, losses, damages, liabilities,
      costs or expenses to which such Issuer Indemnified Parties may become subject
      under the Securities Act or otherwise, insofar as such claims, actions, demands,
      losses, damages, liabilities, costs or expenses arise out of or are based upon:
      (a) any untrue statement or alleged untrue statement of a material fact
      contained in such Registration Statement, any prospectus contained therein
      or
      any amendment or supplement thereto; or (b) the omission or the alleged
      omission to state therein a material fact required to be stated therein or
      necessary to make the statements therein (in the case of any preliminary
      prospectus or prospectus, in light of the circumstances under which they were
      made) not misleading, in each case to the extent, but only to the extent, that
      such untrue statement or alleged untrue statement or omission or alleged
      omission was so made in reliance on and conformity with written information
      furnished by such Holder or Selling Stockholder specifically for use in the
      preparation thereof; provided that the liability of any Holder or Selling
      Stockholder pursuant to this Section 7.2
      shall be
      limited to an amount not to exceed the net proceeds received by such Holder
      or
      Selling Stockholder from the sale of Registrable Securities pursuant to the
      Registration Statement which gives rise to such obligation to
      indemnify.

     

    7.3  Procedures.
      

     

    (a)  Promptly
      after receipt by a party entitled to be indemnified pursuant to the provisions
      of Section 7.1
      or
Section
      7.2
      hereof,
      as applicable, of notice of the commencement of any action involving the subject
      matter of the foregoing indemnity provisions, such indemnified party will,
      if a
      claim thereof is to be made against the indemnifying party pursuant to the
      provisions of Section 7.1
      or
Section 7.2
      hereof,
      notify the indemnifying party of the commencement thereof; provided that the
      failure to so notify the indemnifying party will not relieve the indemnifying
      party from any liability which it may have to an indemnified party otherwise
      than under this Article 7,
      and
      shall not relieve the indemnifying party from liability under this Article 7,
      except
      to the extent that such indemnifying party is materially prejudiced by such
      failure. In case such action is brought against any indemnified party and it
      notifies the indemnifying party of the commencement thereof, the indemnifying
      party shall have the right to participate in, and, to the extent that it may
      wish, jointly with any other indemnifying party similarly notified, to assume
      the defense thereof, with counsel reasonably satisfactory to such indemnified
      party; provided,
      however, that
      if
      the defendants in any such action include both the indemnified party and the
      indemnifying party and the indemnified party shall have reasonably concluded,
      based on an opinion of counsel, that there may be a conflict of interest between
      the positions of the indemnifying party and the indemnified party in conducting
      the defense of any such action or that there may be legal defenses available
      to
      it and/or other indemnified parties which are different from or additional
      to
      those available to the indemnifying party, the indemnified party or parties
      shall have the right to select separate counsel to assume such legal defenses
      and to otherwise participate in the defense of such action on behalf of such
      indemnified party or parties. Upon receipt of notice from the indemnifying
      party
      to such indemnified party of its election to assume the defense of such action
      and approval by the indemnified party of counsel, the indemnifying party will
      not be liable to such indemnified party under Section 7.1
      or
Section 7.2
      hereof
      for any legal or other expenses subsequently incurred by such indemnified party
      in connection with the defense thereof unless (i) the indemnified party
      shall have employed such counsel in connection with the assumption of legal
      defenses in accordance with the proviso to the preceding sentence (it being
      understood, however, that the indemnifying party shall not be liable for the
      expenses of more than one separate counsel, reasonably satisfactory to such
      indemnifying party, representing all of the indemnified parties who are parties
      to such action) or (ii) the indemnifying party shall not have employed
      counsel reasonably satisfactory to the indemnified party to represent the
      indemnified party within a reasonable time after notice of commencement of
      action, in each of which cases the reasonable fees and expenses of counsel
      shall
      be at the expense of the indemnifying party. No indemnifying party shall be
      liable to an indemnified party for any settlement of any action or claim without
      the written consent of the indemnifying party. No indemnifying party will
      consent to entry of any judgment or enter into any settlement which does not
      include as an unconditional term thereof the giving by the claimant or plaintiff
      to such indemnified party of an unconditional release from all liability in
      respect to such action, claim or litigation.

     

    
      
        
        

      

      
        29

        
          

        

      

      
        
        

      

    

     

    (b)  If
      the
      indemnification provided for in this Article 7
      is
      required by its terms but is for any reason held to be unavailable to or
      otherwise insufficient to hold harmless an indemnified party under the above
      paragraphs of this Article 
      7 in
      respect to any claims, actions, demands, losses, damages, liabilities, costs
      or
      expenses referred to herein, then each applicable indemnifying party shall
      contribute to the amount paid or payable by such indemnified party as a result
      of any claims, actions, demands, losses, damages, liabilities, costs or expenses
      referred to herein (i) in such proportion as is appropriate to reflect the
      relative benefits received by the Issuer and the Investors from the private
      placement of Securities hereunder or (ii) if the allocation provided by
      clause (i) above is not permitted by applicable law, in such proportion as
      is appropriate to reflect not only the relative benefits referred to in clause
      (i) above but the relative fault of the Issuer and the Investors in connection
      with the statements or omissions or inaccuracies in the representations and
      warranties in this Agreement and/or the Registration Statement which resulted
      in
      such claims, actions, demands, losses, damages, liabilities, costs or expenses,
      as well as any other relevant equitable considerations. The respective relative
      benefits received by the Issuer on the one hand and each Investor on the other
      shall be deemed to be in the same proportion as the amount paid by the Investor
      to the Issuer pursuant to this Agreement for the Shares purchased by the
      Investor that were sold pursuant to the Registration Statement bears to the
      difference (the “Difference”)
      between the amount the Investor paid for the Shares that were sold pursuant
      to
      the Registration Statement and the amount received by the Investor from such
      sale. The relative fault of the Issuer, on the one hand, and each Investor
      on
      the other shall be determined by reference to, among other things, whether
      the
      untrue or alleged untrue statement of a material fact or the omission or alleged
      omission to state a material fact or the inaccurate or the alleged inaccurate
      representation and/or warranty relates to information supplied by the Issuer
      or
      by the Investors and the parties’ relative intent, knowledge, access to
      information and opportunity to correct or prevent such statement or omission.
      The amount paid or payable by a party as a result of the claims, actions,
      demands, losses, damages, liabilities, costs or expenses referred to above
      shall
      be deemed to include, subject to the limitations set forth in Section 7.3(a)
      hereof,
      any legal or other fees or expenses reasonably incurred by such party in
      connection with investigating or defending any action or claim. The provisions
      set forth in Section 7.3(a)
      hereof
      with respect to the notice of the threat or commencement of any threat or action
      shall apply if a claim for contribution is to be made under this Section
      7.3(b);
      provided,
      however,
      that no
      additional notice shall be required with respect to any threat or action for
      which notice has been given under Section 7.3(a)
      hereof
      for purposes of indemnification. The Issuer and each Investor agree that it
      would not be just and equitable if contribution pursuant to this Section 7.3(b)
      were
      determined solely by pro rata allocation (even if the Investors were treated
      as
      one entity for such purpose) or by any other method of allocation which does
      not
      take account of the equitable considerations referred to in this paragraph.
      Notwithstanding the provisions of this Section 7.3,
      no
      Investor shall be required to contribute any amount in excess of the amount
      by
      which the Difference exceeds the amount of any damages that the Investor has
      otherwise been required to pay by reason of such untrue or alleged untrue
      statement or omission or alleged omission. No person guilty of fraudulent
      misrepresentation (within the meaning of Section 11(f) of the Securities
      Act) shall be entitled to contribution from any person who was not guilty of
      such fraudulent misrepresentation. The Investor’s obligations to contribute
      pursuant to this Section 7.3
      are
      several and not joint.

     

    
      
        
        

      

      
        30

        
          

        

      

      
        
        

      

    

     

    8.  CONDITIONS
      TO CLOSING.

     

    8.1  Conditions
      to the Obligations of the Investors.
      The
      obligation of the Investors to proceed with the Closing is subject to the
      following conditions:

     

    (a)  Representations
      and Warranties.
      Each of
      the representations and warranties of the Issuer contained in this Agreement,
      as
      qualified by the Disclosure Schedule, shall be true and correct in all material
      respects as of the Closing as though made on and as of the Closing, except:
      (i) for changes specifically permitted by this Agreement; and
      (ii) that those representations and warranties which address matters only
      as of a particular date shall remain true and correct as of such
      date.

     

    (b)  Agreement
      and Covenants.
      The
      Issuer shall have performed or complied in all material respects with all
      agreements and covenants required by this Agreement to be performed or complied
      with by it on or prior to the Closing.

     

    (c)  No
      Order.
      No
      Governmental Authority shall have enacted, issued, promulgated, enforced or
      entered any statute, rule, regulation, executive order, decree, injunction,
      or
      other order (whether temporary, preliminary or permanent) which is in effect
      and
      which materially restricts, prevents or prohibits consummation of the Closing
      or
      any transaction contemplated by this Agreement.

     

    (d)  Trading.
      From
      and after the date hereof until the Closing, each of the following conditions
      will remain in effect: (i) the trading of the Common Stock shall not have
      been suspended by the SEC or on the OTCBB; and (ii) trading in securities
      generally on the OTCBB shall not have been suspended.

     

    (e)  Officer’s
      Certificate.
      The
      Issuer shall have delivered a Certificate, executed on behalf of the Issuer
      by
      its Chief Executive Officer or its Chief Financial Officer, dated as of the
      date
      of the Closing, certifying to the fulfillment of the conditions specified in
      Sections
      8.1(a)
      and
(b).

     

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

     

    
      
        
        

      

      
        31

        
          

        

      

      
        
        

      

    

     

    (g)  Legal
      Opinion.
      The
      Investors shall have received an opinion from Paul, Hastings, Janofsky &
Walker LLP, the Issuer’s counsel, dated as of the date of the Closing, in form
      and substance reasonably acceptable to Morrison & Foerster LLP and
      addressing such legal matters as the Investors may reasonably
      request.

     

    (h)  Issuer
      Series A Preferred Stock.
      Each
      holder of outstanding shares of the Issuer’s Series A Preferred Stock shall have
      executed a Conversion Agreement in substantially the form attached as
Exhibit F
      hereto.

     

    (i)  Waiver
      and Acknowledgment.
      SCO
      Financial Group LLC shall have executed a Waiver and Acknowledgement in
      substantially the form attached as Exhibit G
      hereto.

     

    8.2  Conditions
      to the Obligations of the Issuer.
      The
      obligation of the Issuer to proceed with the Closing is subject to the following
      conditions, any and all of which may be waived by the Issuer, in whole or in
      part, to the extent permitted by applicable law:

     

    (a)  Representations
      and Warranties.
      Each of
      the representations and warranties of each of the Investors contained in this
      Agreement shall be true and correct as of the Closing as though made on and
      as
      of the Closing, except: (i) for changes specifically permitted by this
      Agreement; and (ii) that those representations and warranties which address
      matters only as of a particular date shall remain true and correct as of such
      date. Unless the Issuer receives written notification to the contrary at the
      Closing, the Issuer shall be entitled to assume that the preceding sentence
      is
      accurate in all respects at the Closing.

     

    (b)  Agreement
      and Covenants.
      Each
      Investor shall have performed or complied in all material respects with all
      agreements and covenants required by this Agreement to be performed or complied
      with by it on or prior to the Closing. Unless the Issuer receives written
      notification to the contrary at the Closing, the Issuer shall be entitled to
      assume that the preceding sentence is accurate in all respects at the
      Closing.

     

    (c)  No
      Order.
      No
      Governmental Authority shall have enacted, issued, promulgated, enforced or
      entered any statute, rule, regulation, executive order, decree, injunction,
      or
      other order (whether temporary, preliminary or permanent) which is in effect
      and
      which materially restricts, prevents or prohibits consummation of the Closing
      or
      any transaction contemplated by this Agreement.

     

    9.  MISCELLANEOUS.

     

    9.1  Defined
      Terms.
      As used
      herein the following terms shall have the following meanings:

     

    (a)  “Additional
      Closing”
has
      the
      meaning specified in Section 2.2
      of this
      Agreement.

     

    
      
        
        

      

      
        32

        
          

        

      

      
        
        

      

    

     

    (b)  “Additional
      Investor”
has
      the
      meaning specified in Section 2.2
      of this
      Agreement.

     

    (c)  “Affiliate”
has
      the
      meaning ascribed to it in Rule 12b-2 of the General Rules and Regulations
      promulgated under the Exchange Act, as in effect on the date
      hereof.

     

    (d)  “Agreement”
has
      the
      meaning specified in the preamble to this Agreement.

     

    (e)  “Business
      Day”
means
      any day except Saturday, Sunday and any day which shall be a federal legal
      holiday or a day on which either (i) the SEC or (ii) banking
      institutions in the State of New York are authorized or required by law or
      other
      governmental action to close.

     

    (f)  “Closing”
has
      the
      meaning specified in Section 2.1
      of this
      Agreement.

     

    (g)  “Common
      Stock”
has
      the
      meaning specified in the Recitals to this Agreement.

     

    (h)  “Confidential
      Information”
has
      the
      meaning specified in Section 5.6
      of this
      Agreement.

     

    (i)  “Contract”
means
      any indenture, lease, sublease, loan agreement, mortgage, note, restriction,
      commitment, obligation or other contract, agreement or instrument.

     

    (j)  “Disclosure
      Schedule”
has
      the
      meaning specified in Section 3
      of this
      Agreement.

     

    (k)  “EDGAR”
has
      the
      meaning specified in Section 3.8
      of this
      Agreement.

     

    (l)  “Exchange
      Act”
means
      the Securities Exchange Act of 1934, as amended.

     

    (m)  “GAAP”
means
      generally accepted accounting principles in effect in the United States of
      America.

     

    (n)  “Governmental
      Authority”
means
      any nation or government, any state or other political subdivision thereof,
      and
      any entity or official exercising executive, legislative, judicial, regulatory
      or administrative functions of or pertaining to government.

     

    (o)  “Holder”
has
      the
      meaning specified in Section 6.1
      of this
      Agreement.

     

    (p)  “Holder/Selling
      Stockholder Indemnified Party”
has
      the
      meaning specified in Section 7.1
      of this
      Agreement.

     

    (q)  “Incidental
      Registration”
has
      the
      meaning specified in Section 6.4(a)
      of this
      Agreement.

     

    (r)  “Investor”
has
      the
      meaning specified in the preamble to this Agreement, as modified in Section
      1.1
      of this
      Agreement.

     

    
      
        
        

      

      
        33

        
          

        

      

      
        
        

      

    

     

    (s)  “Investor
      Material Adverse Effect”
means
      any effect, change, development, event or circumstance that, considered together
      with all other effects, changes, developments, events or circumstances, is
      or
      could reasonably be expected to be or to become materially adverse to, or has
      or
      could reasonably be expected to have or to result in a material adverse effect
      on, (a) the right or ability of any Investor to vote or otherwise exercise
      ownership rights with respect to the Securities, or (b) any of the rights
      of an Investor under this Agreement.

     

    (t)  “Issuer”
means
      Aeolus Pharmaceuticals, Inc., a Delaware corporation.

     

    (u)  “Issuer
      Indemnified Party”
has
      the
      meaning specified in Section 7.2
      of this
      Agreement.

     

    (v)  “Issuer
      Material Adverse Effect”
      means
      any effect, change, development, event or circumstance that, considered together
      with all other effects, changes, developments, events or circumstances, is
      or
      could reasonably be expected to be or to become materially adverse to, or has
      or
      could reasonably be expected to have or to result in a material adverse effect
      on, (a) the business (as currently conducted or proposed to be conducted),
      condition (financial or otherwise), cash position, liquidity, working capital,
      capitalization, assets (tangible or intangible), liabilities (fixed, contingent
      or otherwise), operations or cash flow financial performance of the Issuer
      and
      the Subsidiary, taken together as a whole, or (b) the ability of the Issuer
      to consummate the transactions contemplated by this Agreement or to perform
      any
      of its obligations under this Agreement.

     

    (w)  “Issuer’s
      Knowledge,”
(i)
      for
      purposes other than Section 3.11
      of this
      Agreement, means the actual knowledge of Richard P. Burgoon, Jr., John L.
      McManus or Michael P. McManus, following commercially reasonable investigation,
      and (ii) for purposes of Section 3.11
      of this
      Agreement only, means the actual knowledge of Richard P. Burgoon, Jr. and Brian
      Day following an investigation of all written materials of the Issuer in its
      possession.

     

    (x)  “Lien”
means
      any mortgage, pledge, security interest, encumbrance, lien or charge of any
      kind.

     

    (y)  “Manual”
has
      the
      meaning specified in Section 5.9(b)
      of this
      Agreement.

     

    (z)  “Majority
      Investors”
has
      the
      meaning specified in Section 2.3(a)
      of this
      Agreement.

     

    (aa)   “Notice
      and Questionnaire”
has
      the
      meaning specified in Section 6.3(c)
      of this
      Agreement.

     

    (bb)  “Offering”
has
      the
      meaning specified in the Recitals to this Agreement.

     

    (cc)  “Options”
has
      the
      meaning specified in Section 3.9
      of this
      Agreement.

     

    (dd)  “OTCBB”
has
      the
      meaning specified in Section 3.20
      of this
      Agreement.

     

    (ee)  “Permit”
means
      any permit, certificate, consent, approval, authorization, order, license,
      variance, franchise or other similar indicia of authority issued or granted
      by
      any Governmental Authority.

     

    
      
        
        

      

      
        34

        
          

        

      

      
        
        

      

    

     

    (ff)  “Person”
means
      a
      natural person, partnership, corporation, limited liability company, business
      trust, joint stock company, estate, trust, unincorporated association, joint
      venture, Governmental Authority or other entity, of whatever
      nature.

     

    (gg)  “Placement
      Agent Warrants”
      has the
      meaning specified in Section 1.1
      of this
      Agreement.

     

    (hh)  “Purchase
      Price”
has
      the
      meaning specified in Section 1.1
      of this
      Agreement.

     

    (ii)  “Register”,
      “registered”
and
      “registration”
refer
      to a registration of the offering and sale or resale of Common Stock effected
      by
      preparing and filing with the SEC a registration statement in compliance with
      the Securities Act and the declaration or ordering of the effectiveness of
      such
      registration statement.

     

    (jj)  “Registered
      Intellectual Property”
means
      any Intellectual Property that is the subject of an application, certificate,
      filing, registration or other document issued, filed with or recorded by any
      Governmental Authority, including (i) issued patents and patent applications,
      (ii) trademark registrations and applications and (iii) copyright registrations
      and applications. 

     

    (kk)  “Registrable
      Securities”
means
      all Shares and Warrant Shares acquired by the Investors pursuant to this
      Agreement and any other shares of Common Stock or other securities issued in
      respect of such Shares or Warrant Shares by way of a stock dividend or stock
      split or in connection with a combination or subdivision of the Common Stock
      or
      by way of a recapitalization, merger or consolidation or reorganization of
      the
      Issuer; provided that as to any particular securities, such securities will
      cease to be Registrable Securities when they (i) have been sold pursuant to
      a Registration Statement or in a transaction exempt from the registration and
      prospectus delivery requirements of the Securities Act or (ii) can then be
      sold by the Holder without registration under the Securities Act pursuant to
      Rule 144(k).

     

    (ll)  “Registration
      Deadline”
has
      the
      meaning specified in Section 6.2
      of this
      Agreement.

     

    (mm)  “Registration
      Statement”
means
      a
      registration statement (including the related prospectus) of the Issuer under
      the Securities Act on any form selected by the Issuer for which it then
      qualifies and which permits the sale thereunder of the number and type of
      Registrable Securities (and any other securities of the Issuer) to be included
      therein in accordance with this Agreement by the applicable sellers in the
      manner described therein. The term “Registration
      Statement”
also
      shall include all exhibits, financial statements and schedules and documents
      incorporated by reference in such Registration Statement when it becomes
      effective under the Securities Act, and in the case of the references to the
      Registration Statement as of a date subsequent to its effective date, as amended
      or supplemented as of such date.

     

    (nn)  “Required
      Registration”
has
      the
      meaning specified in Section 6.2
      of this
      Agreement.

     

    (oo)  “Requirements
      of Law”
means
      as to any Person, the certificate of incorporation, by-laws or other
      organizational or governing documents of such Person, and any domestic or
      foreign federal, state or local law, rule, regulation, statute or ordinance
      or
      determination of any arbitrator or a court or other Governmental Authority,
      in
      each case applicable to, or binding upon, such Person or any of its properties
      or to which such Person or any of its property is subject.

     

    
      
        
        

      

      
        35

        
          

        

      

      
        
        

      

    

     

    (pp)  “Rule
      144”
means
      Rule 144 promulgated under the Securities Act, or any successor
      thereto.

     

    (qq)  “SEC”
means
      the Securities and Exchange Commission.

     

    (rr)  “Securities”
has
      the
      meaning specified in Section 1.1
      of this
      Agreement.

     

    (ss)  “Selling
      Stockholder”
has
      the
      meaning specified in Section 6.4(a)
      of this
      Agreement.

     

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

     

    (uu)  “Shares”
has
      the
      meaning specified in Section 1.1
      of this
      Agreement.

     

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

     

    (ww)  “Subsidiary”
has
      the
      meaning specified in Section 3.1
      of this
      Agreement. 

     

    (xx)  “Suspension
      Event”
has
      the
      meaning specified in Section 6.11(a)
      of this
      Agreement.

     

    (yy)  “Suspension
      Period”
has
      the
      meaning specified in Section 6.11(b)
      of this
      Agreement.

     

    (zz)  “Third-Party
      Demand Stockholder”
means
      any Person having the right to require that the Issuer effect a registration
      under the Securities Act of securities owned by such Person, other than pursuant
      to this Agreement, and any other Person exercising incidental rights of
      registration pursuant to the agreement under which such first Person has the
      right to require registration.

     

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

     

    (bbb)  “Warrants”
has
      the
      meaning specified in Section 1.1
      of this
      Agreement.

     

    (ccc)  “Warrant
      Shares”
has
      the
      meaning specified in Section 1.1
      of this
      Agreement.

     

    9.2  Other
      Definitional Provisions.

     

    
      
        
        

      

      
        36

        
          

        

      

      
        
        

      

    

     

    (a)  All
      terms
      defined in this Agreement shall have the defined meanings when used in any
      certificates, reports or other documents made or delivered pursuant hereto
      or
      thereto, unless the context otherwise requires.

     

    (b)  Terms
      defined in the singular shall have a comparable meaning when used in the plural,
      and vice versa.

     

    (c)  All
      accounting terms shall have a meaning determined in accordance with
      GAAP.

     

    (d)  The
      words
“hereof,” “herein” and “hereunder,” and words of similar import, when used in
      this Agreement shall refer to this Agreement as a whole (including any exhibits
      and schedules hereto) and not to any particular provision of this
      Agreement.

     

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

     

    If
      to the
      Issuer:

    

    Aeolus
      Pharmaceuticals, Inc.

    c/o
      Michael P. McManus

    23811
      Inverness Place

    Laguna
      Niguel, CA 92677 

    Facsimile:
      (949) 481-9829

    

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

    Paul,
      Hastings, Janofsky & Walker LLP

    3579
      Valley Centre Drive 

    San
      Diego, CA 92130

    Attention:
      Leigh P. Ryan, Esq.

    Facsimile:
      (858) 720-2555

    

    If
      to the
      Investors, to the addresses set forth on the signature pages
      hereto.

     

    
      
        
        

      

      
        37

        
          

        

      

      
        
        

      

    

     

    If
      to
      Morrison & Foerster LLP:

    

    Morrison
      & Foerster LLP

    12531
      High Bluff Drive, Ste. 100

    San
      Diego, CA 92130

    Attention:
      Jeremy D. Glaser, Esq.

    Facsimile:
      (858) 720-5125

    

    9.4  Entire
      Agreement.
      This
      Agreement (including the exhibits and schedules attached hereto) and other
      documents delivered at the Closing pursuant hereto, contain the entire
      understanding of the parties in respect of its subject matter and supersede
      all
      prior agreements and understandings between the parties with respect to such
      subject matter.

     

    9.5  Expenses;
      Taxes.
      Except
      as otherwise provided in this Agreement, the parties shall pay their own fees
      and expenses, including their own counsel fees and expenses, incurred in
      connection with this Agreement or any transaction contemplated hereby; provided
      that the Issuer shall pay the reasonable and documented legal fees and expenses
      of two (2) special counsels to the Investors up to an aggregate amount of
      $75,000. Any sales tax, stamp duty, deed transfer or other tax (except taxes
      based on the income of the Investors) arising out of the issuance of the
      Securities (but not with respect to subsequent transfers) by the Issuer to
      the
      Investors and consummation of the transactions contemplated by this Agreement
      shall be paid by the Issuer. The Issuer shall reimburse the Investors upon
      demand for all reasonable out-of-pocket expenses incurred by the Investors,
      including without limitation, reimbursement of attorneys’ fees and
      disbursements, in connection with any amendment, modification or waiver of
      this
      Agreement or the Warrants. In the event that legal proceedings are commenced
      by
      any party to this Agreement against another party to this Agreement in
      connection with this Agreement or the Warrants, the party or parties which
      do
      not prevail in such proceedings shall severally, but not jointly, pay their
      pro
      rata
      share of
      the reasonable attorneys’ fees and other reasonable out-of-pocket costs and
      expenses incurred by the prevailing party in such proceedings.

     

    9.6  Amendment;
      Waiver.
      This
      Agreement may not be modified, amended, supplemented, canceled or discharged,
      except by written instrument executed by the Issuer and the Holders of a
      majority of the Registrable Securities. No failure to exercise, and no delay
      in
      exercising, any right, power or privilege under this Agreement shall operate
      as
      a waiver, nor shall any single or partial exercise of any right, power or
      privilege hereunder preclude the exercise of any other right, power or privilege
      hereunder. No waiver of any breach of any provision shall be deemed to be a
      waiver of any preceding or succeeding breach of the same or any other provision,
      nor shall any waiver be implied from any course of dealing between the parties.
      No extension of time for performance of any obligations or other acts hereunder
      or under any other agreement shall be deemed to be an extension of the time
      for
      performance of any other obligations or any other acts. The rights and remedies
      of the parties under this Agreement are in addition to all other rights and
      remedies, at law or equity, that they may have against each other.

     

    9.7  Binding
      Effect; Assignment.
      The
      rights and obligations of this Agreement shall bind and inure to the benefit
      of
      the parties and their respective successors and legal assigns. The rights and
      obligations of the Issuer pursuant to this Agreement may not be assigned to
      any
      third party without the prior written consent of the Holders of a majority
      of
      the Registrable Securities.

     

    
      
        
        

      

      
        38

        
          

        

      

      
        
        

      

    

     

    9.8  Counterparts;
      Facsimile Signature.
      This
      Agreement may be executed by facsimile signature and in any number of
      counterparts, including counterparts transmitted by facsimile or other
      electronic transmission, each of which shall be an original but all of which
      together shall constitute one and the same instrument.

     

    9.9  Headings.
      The
      headings contained in this Agreement are for convenience of reference only
      and
      are not to be given any legal effect and shall not affect the meaning or
      interpretation of this Agreement.

     

    9.10  Governing
      Law; Interpretation.
      The
      validity, interpretation and performance of this Agreement shall be governed
      by,
      and construed in accordance with, the laws of the State of California applicable
      to contracts made and to be performed entirely within such State, regardless
      of
      the law that might be applied under principles of conflicts of law. The Issuer
      and the Investors each irrevocably submits to the exclusive jurisdiction of
      the
      state and federal courts located in California for the purpose of any suit,
      action, proceeding or judgment relating to or arising out of this Agreement
      and
      the transactions contemplated hereby. Service of process in connection with
      any
      such suit, action or proceeding may be served on each party hereto anywhere
      in
      the world by the same methods as are specified for the giving of notices under
      this Agreement. The Issuer and the Investors each irrevocably consents to the
      jurisdiction of any such court in any such suit, action or proceeding and to
      the
      laying of venue in such court. The Issuer and the Investors each irrevocably
      waives any objection to the laying of venue of any such suit, action or
      proceeding brought in such courts and irrevocably waives any claim that any
      such
      suit, action or proceeding brought in any such court has been brought in an
      inconvenient forum.

     

    9.11  Severability.
      The
      parties stipulate that the terms and provisions of this Agreement are fair
      and
      reasonable as of the date of this Agreement. However, in the event any provision
      of this Agreement shall be determined by a court of competent jurisdiction
      to be
      invalid, void or unenforceable, the remainder of the terms, provisions,
      covenants and restrictions of this Agreement shall remain in full force and
      effect and shall in no way be affected, impaired or invalidated. If, moreover,
      any of those provisions shall for any reason be determined by a court of
      competent jurisdiction to be unenforceable because excessively broad or vague
      as
      to duration, activity or subject, it shall be construed by limiting, reducing
      or
      defining it, so as to be enforceable.

     

    
      
        
        

      

      
        39

        
          

        

      

      
        
        

      

    

    
       

      
        9.12  Independent
          Nature of Investors' Obligations and Rights.
          The
          obligations of each Investor under this Agreement and the Warrants are
          several
          and not joint with the obligations of any other Investor, and no Investor
          shall
          be responsible in any way for the performance of the obligations of any
          other
          Investor under any Warrant. Nothing contained herein or in the Warrants,
          and no
          action taken by any Investor pursuant thereto, shall be deemed to constitute
          the
          Investors as a partnership, an association, a joint venture or any other
          kind of
          entity, or create a presumption that the Investors are in any way acting
          in
          concert or as a group with respect to such obligations or the transactions
          contemplated by such agreement. Each Investor shall be entitled to independently
          protect and enforce its rights, including without limitation, the rights
          arising
          out of this Agreement or out of the Warrants, and it shall not be necessary
          for
          any other Investor to be joined as an additional party in any proceeding
          for
          such purpose. Each Investor represents that it has been represented by
          its own
          separate legal counsel in its review and negotiation of this Agreement
          and the
          Warrants. For reasons of administrative convenience only, the Investors
          acknowledge and agree that they and their respective counsel have chosen
          to
          communicate with the Issuer through Morrison & Foerster LLP, but Morrison
& Foerster LLP does not represent any of the Investors in this transaction
          other than Efficacy Capital.

      

    

     

    [REMAINDER
      OF PAGE INTENTIONALLY LEFT BLANK]

     

    
      
        
        

      

      
        40

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, the parties hereto have caused this Subscription Agreement
      to
      be duly executed and delivered as of the date first written above.

     

    
      	 	 	 
	 	
              ISSUER:

            
	 	 
	 	Aeolus
              Pharmaceuticals, Inc.
	 
 	 
 	 
 
	 	By:  	
              /s/
                Richard P. Burgoon

            
	 	
              

              Name:
                Richard P. Burgoon

            
	 	Title:
              Chief Executive Officer

    

     

     

    
       

      
        -1-

        
          

        

      

      
        
        

      

    

     

    [INVESTOR
      COUNTERPART SIGNATURE PAGE]

    
      

      
        	
                NAME
                  OF INVESTOR:

              	
                ADDRESS
                  FOR NOTICE:

              
	 	 
	
                EFFICACY
                  BIOTECH MASTER

              	
                Efficacy
                  Capital Ltd.

              
	
                FUND
                  LTD.

              	
                11622
                  El Camino Real, Suite 100

              
	 	
                San
                  Diego, CA 92130

              
	 	 
	 	
                Attention:
                  Mark Lappe

              
	 	 
	 	
                Tax
                  Identification #:
                  XX-XXXXXXX

              

      

      

      SIGNATURE:

       

      By:
        Efficacy Capital Ltd.

      Its:
        Investment Manager

       

      
        	 	
                    
By:

              	/s/
                Mark P. Lappe 	 
	 	 	Name: Mark
                P. Lappe	 
	 	 	Title: Managing Partner	 

      

       

      Date:
        June 5, 2006

      

      
        	
                Exact
                  name to appear on stock certificate:

              	 	
                Number
                  of Shares subscribed for:

              
	 	 	 
	
                EFFICACY
                  BIOTECH MASTER FUND LTD.

              	 	
                9,800,000

              
	 	 	 
	
                Aggregate
                  Purchase Price (see Section 1.1):

              	 	
                Category/categories
                  pursuant to which Investor qualifies as an Accredited Investor
                  as defined
                  in Exhibit B
                  to
                  this Agreement (please indicate each applicable section number
                  noted on
                  Exhibit B
                  to
                  this Agreement):

              
	 	 	 
	
                $4,900,000.00

              	 	
                3

              

      

    

     

     

    
      
        
        

      

      
        -2-

        
          

        

      

      
        
        

      

    

     

    [INVESTOR
      COUNTERPART SIGNATURE PAGE]

    
      

      
        	
                NAME
                  OF INVESTOR:

              	
                ADDRESS
                  FOR NOTICE:

              
	 	 
	
                
                  RONIN
                    CAPITAL, LLC

                

              	
                Ronin
                  Capital, LLC

              
	
                 

              	
                230
                  S. LaSalle St., Suite 400

              
	 	
                Chicago,
                  IL 60604

              
	 	 
	 	
                Attention:
                  Eric Dai

              
	 	 
	 	
                
                  Tax
                    Identification #:
                    XX-XXXXXXX

                

              

      

      
SIGNATURE:

    

     

    
       

      
        	 	
                  By: 

              	/s/
                John Stafford	 
	 	 	   
                Name:	John
                Stafford III	 
	 	 	Title:	CEO	 

      

       

      
        Date:
          June 5, 2006

        

        
          	
                  Exact
                    name to appear on stock certificate:

                	 	
                  Number
                    of Shares subscribed for:

                
	 	 	 
	
                  Ronin
                    Capital, LLC

                	 	
                  200,000

                
	 	 	 
	
                  Aggregate
                    Purchase Price (see Section 1.1):

                	 	
                  Category/categories
                    pursuant to which Investor qualifies as an Accredited Investor
                    as defined
                    in Exhibit B
                    to
                    this Agreement (please indicate each applicable section number
                    noted on
                    Exhibit B
                    to
                    this Agreement):

                
	 	 	 
	
                  $100,000.00

                	 	
                  #8

                

        

        

        
          
            
            

          

          
            -3-

            
              

            

          

          
            
            

          

        

      

    

    

    EXHIBIT
      A1

    

    FORM
      OF WARRANT

     

    
      
        
        

      

      
        A-1

        
          

        

      

       

    

    EXHIBIT
      A2

    

    FORM
      OF WARRANT

    
      
        
        

      

      
        A-2

        
          

        

      

       

    

    EXHIBIT
      B

     

    DEFINITION
      OF “ACCREDITED INVESTOR”

     

    “Accredited
      Investor”
shall
      mean any person who comes within any of the following categories, or who the
      Issuer reasonably believes comes within any of the following categories, at
      the
      time of the sale of the Securities to that person:

     

    1.  Any
      bank
      as defined in section 3(a)(2) of the Act, or any savings and loan association
      or
      other institution as defined in section 3(a)(5)(A) of the Act whether acting
      in
      its individual or fiduciary capacity; any broker or dealer registered pursuant
      to section 15 of the Securities Exchange Act of 1934; any insurance company
      as
      defined in section 2(13) of the Act; any investment company registered under
      the
      Investment Company Act of 1940 or a business development company as defined
      in
      section 2(a)(48) of that Act; any Small Business Investment Company licensed
      by
      the U.S. Small Business Administration under section 301(c) or (d) of the Small
      Business Investment Act of 1958; any plan established and maintained by a state,
      its political subdivisions, or any agency or instrumentality of a state or
      its
      political subdivisions, for the benefit of its employees, if such plan has
      total
      assets in excess of $5,000,000; any employee benefit plan within the meaning
      of
      the Employee Retirement Income Security Act of 1974 if the investment decision
      is made by a plan fiduciary, as defined in section 3(21) of such act, which
      is
      either a bank, savings and loan association, insurance company, or registered
      investment adviser, or if the employee benefit plan has total assets in excess
      of $5,000,000 or, if a self-directed plan, with investment decisions made solely
      by persons that are Accredited Investors;

     

    2.  Any
      private business development company as defined in section 202(a)(22) of the
      Investment Advisers Act of 1940;

     

    3.  Any
      organization described in section 501(c)(3) of the Internal Revenue Code,
      corporation, Massachusetts or similar business trust, or partnership, not formed
      for the specific purpose of acquiring the securities offered, with total assets
      in excess of $5,000,000;

     

    4.  Any
      director, executive officer, or general partner of the Issuer, or any director,
      executive officer, or general partner of a general partner of the
      Issuer;

     

    5.  Any
      natural person whose individual net worth, or joint net worth with that person’s
      spouse, at the time of his purchase exceeds $1,000,000;

     

    6.  Any
      natural person who had an individual income in excess of $200,000 in each of
      the
      two most recent years or joint income with that person’s spouse in excess of
      $300,000 in each of those years and has a reasonable expectation of reaching
      the
      same income level in the current year;

     

    7.  Any
      trust, with total assets in excess of $5,000,000, not formed for the specific
      purpose of acquiring the Securities, whose purchase is directed by a
      sophisticated person as described in 230.506(b)(2)(ii); and

     

    8.  Any
      entity in which all of the equity owners are Accredited
      Investors.

    
      
        
        

      

      
        B-1

        
          

        

      

       

    

    EXHIBIT
      C

     

    RISK
      FACTORS

     

    SALES
      OR THE PERCEPTION OF FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK
      PRICE.

     

    Sales
      of
      substantial numbers of shares of our Common Stock in the public market, or
      the
      perception that significant sales are likely, could adversely affect the market
      price of our Common Stock. Compliance with the registration rights provisions
      of
      this Subscription Agreement could create the perception that all Shares and
      Warrant Shares that are a part of this Offering will soon be available for
      sale.
      This number of Shares and Warrant Shares (i.e., 21,000,000) is far greater
      than
      the average trading volume for shares of our Common Stock. No
      prediction can be made as to the effect, if any, that market sales of such
      Shares and Warrant Shares will have on the market price of our Common Stock.
      Sales of substantial amounts of such Shares and Warrant Shares in the public
      market could adversely affect the market price of our Common Stock.

     

    THE
      OFFERING PRICE OF THE SECURITIES MAY NOT BEAR ANY RELATIONSHIP TO OUR ASSETS,
      BOOK VALUE, EARNINGS HISTORY, OR OTHER ESTABLISHED CRITERIA. AS A RESULT, YOU
      MAY EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION.

     

    The
      offering price of the Securities was established based on such factors as our
      capital requirements, financial conditions and prospects, percentage of
      ownership to be held by investors following this Offering, and the general
      condition of securities markets at the time of the Offering. The offering price
      does not necessarily bear any relationship to our assets, book value, earnings
      history or other established criteria of value. As a result, you may experience
      immediate and substantial dilution.

     

    WE
      ARE UNABLE TO DETERMINE WITH CERTAINTY WHEN THE REGISTRATION STATEMENT TO BE
      FILED WITH THE SEC WILL BE DECLARED EFFECTIVE. CONSEQUENTLY, YOU MAY NOT BE
      ABLE
      TO SELL YOUR SHARES OR WARRANT SHARES FOR A SUBSTANTIAL PERIOD OF
      TIME.

     

    Although
      we have undertaken to register the Shares and Warrant Shares for resale by
      you,
      you should be aware that we are unable to determine with certainty when the
      Registration Statement to be filed with the SEC will become effective. In
      addition, the SEC may seek to review our Registration Statement, in which case,
      the period necessary to achieve effectiveness of the Registration Statement
      with
      the SEC will be affected by our ability to provide the SEC with sufficient
      disclosures satisfactory to the SEC. The length of the SEC review process is
      uncertain and may extend to a number of months. As you are aware, the Shares
      and
      Warrant Shares being sold in this Offering are restricted in nature and may
      not
      be publicly resold absent the effectiveness of the Registration Statement or
      pursuant to an applicable exemption from registration. Consequently, you may
      not
      be able to sell your Shares and Warrant Shares for a substantial period of
      time.

     

    
      
        
        

      

      
        C-1

        
          

        

      

      
        
        

      

    

     

    WE
      MAY ALLOCATE THE NET PROCEEDS OF THIS OFFERING IN WAYS WITH WHICH YOU MAY NOT
      AGREE.

     

    We
      will
      have broad discretion in how we apply the net proceeds from this Offering.
      Because the net proceeds of this Offering are not required to be allocated
      to
      any specific investment or transaction, you cannot determine at this time the
      value or appropriateness of our application of the net proceeds, and you and
      other stockholders may not agree with our decisions.

    
      
        
        

      

      
        C-2

        
          

        

      

       

    

    EXHIBIT
      D

     

    PLAN
      OF DISTRIBUTION

     

    The
      selling stockholders, which as used herein includes donees, pledgees,
      transferees or other successors-in-interest selling shares of common stock
      or
      interests in shares of common stock received after the date of this Prospectus
      from a selling stockholder as a gift, pledge, partnership distribution or other
      transfer, may, from time to time, sell, transfer or otherwise dispose of any
      or
      all of their shares of common stock or interests in shares of common stock
      on
      any stock exchange, market or trading facility on which the shares are traded
      or
      in private transactions. These dispositions may be at fixed prices, at
      prevailing market prices at the time of sale, at prices related to the
      prevailing market price, at varying prices determined at the time of sale,
      or at
      negotiated prices.

     

    The
      selling stockholders may use any one or more of the following methods when
      disposing of shares or interests therein:

     

    -
      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;

     

    -
      short
      sales effected after the date of this Prospectus;

     

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

     

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

     

    -
      a
      combination of any such methods of sale; and

     

    -
      any
      other method permitted pursuant to applicable law.

     

    The
      selling stockholders may, from time to time, pledge or grant a security interest
      in some or all of the shares of common stock owned by them and, if they default
      in the performance of their secured obligations, the pledgees or secured parties
      may offer and sell the shares of common stock, from time to time, under this
      prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or
      other applicable provision of the Securities Act amending the list of selling
      stockholders to include the pledgee, transferee or other successors in interest
      as selling stockholders under this prospectus. The selling stockholders also
      may
      transfer the shares of common stock in other circumstances, in which case the
      transferees, pledgees or other successors in interest will be the selling
      beneficial owners for purposes of this prospectus.

     

    
      
        
        

      

      
        D-1

        
          

        

      

      
        
        

      

    

     

    In
      connection with the sale of our 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 our 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
      aggregate proceeds to the selling stockholders from the sale of the common
      stock
      offered by them will be the purchase price of the common stock less discounts
      or
      commissions, if any. Each of the selling stockholders reserves the right to
      accept and, together with their agents from time to time, to reject, in whole
      or
      in part, any proposed purchase of common stock to be made directly or through
      agents. We will not receive any of the proceeds from this offering. Upon any
      exercise of the warrants by payment of cash, however, we will receive the
      exercise price of the warrants.

     

    The
      selling stockholders also may resell all or a portion of the shares in open
      market transactions in reliance upon Rule 144 under the Securities Act of 1933,
      provided that they meet the criteria and conform to the requirements of that
      rule.

     

    The
      selling stockholders and any underwriters, broker-dealers or agents that
      participate in the sale of the common stock or interests therein may be
      "underwriters" within the meaning of Section 2(11) of the Securities Act. Any
      discounts, commissions, concessions or profit they earn on any resale of the
      shares may be underwriting discounts and commissions under the Securities Act.
      Selling stockholders who are "underwriters" within the meaning of Section 2(11)
      of the Securities Act will be subject to the prospectus delivery requirements
      of
      the Securities Act.

     

    To
      the
      extent required, the shares of our common stock to be sold, the names of the
      selling stockholders, the respective purchase prices and public offering prices,
      the names of any agents, dealer or underwriter, any applicable commissions
      or
      discounts with respect to a particular offer will be set forth in an
      accompanying prospectus supplement or, if appropriate, a post-effective
      amendment to the registration statement that includes this
      prospectus.

     

    In
      order
      to comply with the securities laws of some states, if applicable, the common
      stock may be sold in these jurisdictions only through registered or licensed
      brokers or dealers. In addition, in some states the common stock may not be
      sold
      unless it has been registered or qualified for sale or an exemption from
      registration or qualification requirements is available and is complied
      with.

     

    
      
        
        

      

      
        D-2

        
          

        

      

      
        
        

      

    

     

    We
      have
      advised the selling stockholders that the anti-manipulation rules of Regulation
      M under the Exchange Act may apply to sales of shares in the market and to
      the
      activities of the selling stockholders and their affiliates. In addition, we
      will make copies of this prospectus (as it may be supplemented or amended from
      time to time) available to the selling stockholders for the purpose of
      satisfying the prospectus delivery requirements of the Securities Act. The
      selling stockholders may indemnify any broker-dealer that participates in
      transactions involving the sale of the shares against certain liabilities,
      including liabilities arising under the Securities Act.

     

    We
      have
      agreed to indemnify the selling stockholders against liabilities, including
      liabilities under the Securities Act and state securities laws, relating to
      the
      registration of the shares offered by this prospectus.

     

    We
      have
      agreed with the selling stockholders to keep the registration statement of
      which
      this prospectus constitutes a part effective until such time as all of the
      shares covered by this prospectus have been disposed of pursuant to and in
      accordance with the registration statement or until such earlier time that
      we
reasonably
      determine, based on the advice of counsel, that each selling stockholder, acting
      independently of all other selling stockholders, will be eligible to sell under
      Rule 144 of the Securities Act all shares covered by this prospectus then owned
      by such selling stockholder within the volume limitations imposed by Rule 144(e)
      in the three-month period immediately following the termination of the
      effectiveness of the registration statement of which this prospectus forms
      a
      part.

     

    
      
        
        

      

      
        D-3

        
          

        

      

       

    

     

    EXHIBIT
      E

     

    NOTICE
      AND QUESTIONNAIRE

     

    The
      undersigned beneficial holder of Registrable Securities of Aeolus
      Pharmaceuticals, Inc. (the “Issuer”)
      understands that the Issuer has filed or intends to file with the Securities
      and
      Exchange Commission (the “SEC”)
      a
      Registration Statement under the Securities Act of 1933, as amended (the
“Securities
      Act”),
      for
      the registration and resale of the Registrable Securities in accordance with
      the
      terms of the Subscription Agreement, dated as of June ___, 2006 (the
“Subscription
      Agreement”),
      by
      and among the Issuer and the purchasers of the Issuer’s securities thereunder.
      The Subscription Agreement is available from the Issuer upon request at the
      address set forth below. All capitalized terms used but not otherwise defined
      herein shall have the respective meanings given to them in the Subscription
      Agreement.

     

    Each
      beneficial owner of Registrable Securities that has agreed to be bound by
      certain provisions of the Subscription Agreement is entitled to the benefits
      of
      the Subscription Agreement under such provisions. In order to sell or otherwise
      dispose of any Registrable Securities pursuant to the Registration Statement,
      a
      beneficial owner of Registrable Securities generally will be required to be
      named as a selling securityholder in the related prospectus, deliver a
      prospectus to purchasers of Registrable Securities and be bound by those
      provisions of the Subscription Agreement applicable to such beneficial owner
      (including certain indemnification provisions as described below). Beneficial
      owners that do not complete this Notice and Questionnaire and deliver it to
      the
      Issuer as provided below will not be named as selling securityholders in the
      prospectus and therefore will not be permitted to sell any Registrable
      Securities pursuant to the Registration Statement.

     

    Certain
      legal consequences may arise from being named as selling securityholders 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
      Stockholder”)
      of
      Registrable Securities hereby requests that the Issuer include in the
      Registration Statement the Registrable Securities beneficially owned by it
      and
      listed below in Item 3 (unless otherwise specified under Item 3) pursuant to
      the
      Registration Statement. The undersigned Selling Stockholder, by signing and
      returning this Notice and Questionnaire, understands that it will be bound
      by
      the terms and conditions of this Notice and Questionnaire and the Subscription
      Agreement.

     

    The
      undersigned Selling Stockholder hereby provides the following information to
      the
      Issuer and represents and warrants that such information is accurate and
      complete:

    
      
        
        

      

      
        E-1

        
          

        

      

       

    

    Questionnaire

     

    
      	 	
              1.

            	
              (a)

            	
              Full
                Legal Name of Selling Stockholder:
                __________________________________________________

            	 

    

     

    
      	
            	(b)	
              Full
                legal name of registered holder (if not the same as (a) above) through
                which Registrable Securities 

              listed
                in (3) below are held:
                ______________________________________________________________

               

              _______________________________________________________________________________________

            

    

     

    
      	
            	(c)	
              Full
                legal name of broker-dealer or other third party through which Registrable
                Securities listed in (3) below
                are held:
                : _________________________________________________________________________________________________

               

              
                _________________________________________________________________________________________________

              

            

    

     

    
      	
            	(d)	
              Full
                legal name of DTC participant (if applicable and if not the same
                as (b) or
                (c) above) through which Registrable
                Securities listed in (3) below are held:
                ______________________________________________

               

              _______________________________________________________________________________________

            

    

     

    
      	
            	2.	
              Address
                for Notices to Selling Stockholder:

            

    

     

    Telephone:
      ___________________________________________________________________________

     

    Fax:
      __________________________________________________________________________________

     

    Contact
      Person: _________________________________________________________________________

     

    
      	 	
              3.

            	
              Beneficial
                ownership of Registrable
                Securities:________________________________________________________

              
                 

                _________________________________________________________________________________________________

                 

                
                  _________________________________________________________________________________________________

                

              

            	 

    

     

    Unless
      otherwise indicated in the space provided below, all shares of common stock
      listed in response to Item (3) above, including all shares of common stock
      issued or issuable upon exercise of the Warrants held by the Selling
      Stockholder, will be included in the Registration Statement. If the undersigned
      does not wish all such shares of common stock to be so included, please indicate
      below the principal amount or the number of shares to be included:
      ___________________________________________________________________________________

     

    
      	
            	4.	
              Beneficial
                Ownership of the Issuer’s securities owned by the Selling Stockholder:
                _________________________________________________________________________________________________

            

    

     

    Except
      as set forth below in this Item (4), the undersigned is not the beneficial
      or
      registered owner of any securities of the Issuer other than the Registrable
      Securities listed above in Item (3).

     

    
      	
            	(a)	
              Type
                and amount of other securities beneficially owned by the Selling
                Stockholder:
                _______________________________________________________________________________________

            

    

     

     

    
      
        
        

      

      
        E-2

        
          

        

      

      
        
        

      

    

     

    
      	
            	(b)	
              CUSIP
                No(s). of such other securities beneficially owned:
                ____________________________________________________________________

            

    

     

    
      	
            	5.	
              Relationship
                with the Issuer:

            

    

     

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

     

    State
      any
      exceptions to the foregoing here:
      _________________________________________________________

     

    The
      undersigned Selling Stockholder acknowledges that it understands its obligation
      to comply with the provisions of the Exchange Act, and the rules thereunder
      relating to stock manipulation, particularly Regulation M thereunder (or any
      successor rules or regulations) and the provisions of the Securities Act
      relating to prospectus delivery, in connection with any offering of Registrable
      Securities pursuant to the Registration Statement. The undersigned Selling
      Stockholder agrees that neither it nor any person acting on its behalf will
      engage in any transaction in violation of such provisions.

     

    The
      Selling Stockholder hereby acknowledges its obligations under the Subscription
      Agreement to indemnify and hold harmless certain persons set forth therein.
      Pursuant to the Subscription Agreement, the Issuer has agreed under certain
      circumstances to indemnify the Selling Stockholders against certain
      liabilities.

     

    In
      accordance with the undersigned Selling Stockholder’s obligation under the
      Subscription Agreement to provide such information as maybe required by law
      for
      inclusion in the Registration Statement, the undersigned Selling Stockholder
      agrees to promptly notify the Issuer 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. All notices hereunder
      and pursuant to the Subscription Agreement shall be made in writing at the
      address set forth below.

     

    In
      the
      event any Selling Stockholder transfers all or any portion of the Registrable
      Securities listed in Item (3) above after the date on which such information
      is
      provided to the Issuer, the Selling Stockholder will notify the transferees
      at
      the time of transfer of its rights and obligations under this Notice and
      Questionnaire and the Subscription Agreement.

     

    By
      signing below, the undersigned Selling Stockholder consents to the disclosure
      of
      the information contained herein in its answers to items (1) through (5) above
      and the inclusion of such information in the Registration Statement and any
      related prospectus. The undersigned Selling Stockholder understands that such
      information will be relied upon by the Issuer without independent investigation
      or inquiry in connection with the preparation or amendment of the Registration
      Statement and any related prospectus.

     

    [REMAINDER
      OF PAGE INTENTIONALLY LEFT BLANK]

     

    
      
        
        

      

      
        E-3

        
          

        

      

      
        
        

      

    

     

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

    
      	 	 	 
	 	Selling
              Stockholder:
	 
 	 
 	 
 
	 	By:  	 
	 	
              
Name:
	 	Title:

    

     

    Dated:
      _______________  

     

    PLEASE
      RETURN THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE
      TO:

     

    Aeolus
      Pharmaceuticals, Inc.

    c/o
      Michael P. McManus

    23811
      Inverness Place

    Laguna
      Niguel, CA 92677

     

    
      
        
        

      

      
        E-4

        
          

        

      

      
        
        

      

    

    EXHIBIT
      F

     

    CONVERSION
      AGREEMENT

     

    
      
        
        

      

      
        F-1

        
          

        

      

      
        
        

      

    

    EXHIBIT
      G

     

    WAIVER
      AND ACKNOWLEDGMENT

     

    
      
        
        

      

      
        G-1EXHIBIT
      10.2

     

    CONVERSION
      AGREEMENT 

     

    THIS
      CONVERSION
      AGREEMENT
      (this
“Agreement”)
      is made
      and entered into as of June 5, 2006, by
      and
      among AEOLUS
      PHARMACEUTICALS,
      INC.,
      a
      Delaware corporation (the “Company”),
      and
      the parties who are signatories hereto.

     

    RECITALS

     

    WHEREAS,
      the
      Company is contemplating the issuance and sale of shares (the “Shares”)
      of its
      common stock (the “Common
      Stock”)
      and
      warrants to purchase shares of Common Stock in a private placement (the
“Private
      Placement”)
      to
EFFICACY
      BIOTECH MASTER FUND LTD.
      (“Efficacy”)
      and
      RONIN CAPITAL, LLC (“Ronin”)
      pursuant to that certain Subscription Agreement, dated as of even date herewith,
      by and among the Company, Efficacy and Ronin (the “Subscription
      Agreement”);

     

    WHEREAS,
      the
      Subscription Agreement contemplates that the Shares shall be sold at a purchase
      price of $0.50 per share;

     

    WHEREAS,
      pursuant to Section 6(d) of the Company’s Certificate of Designations,
      Preferences and Rights of Series A Convertible Preferred Stock to the
      Company’s Amended and Restated Certificate of Incorporation (the “Certificate
      of Designations”),
      in the
      event the Company shall issue or sell (or be deemed to have issued or sold)
      certain shares of its Common Stock (a
      “Trigger
      Security”)
      for a
      consideration per share that is less than the then-applicable conversion price
      (the “Conversion
      Price”)
      of the
      Company’s Series A Preferred Stock (the “Series
      A Preferred”),
      then
      effective as of the close of business on the first effective date of such sale
      or issuance (the “Effective
      Time”),
      the
      Conversion Price shall be automatically reduced to the lowest price per share
      at
      which any such Trigger Security was issued or sold or deemed to have been issued
      or sold; 

     

    WHEREAS,
      the
      Conversion Price is currently $1.00 per share;

     

    WHEREAS,
      each
      Share shall be a Trigger Security pursuant to the terms of the Certificate
      of
      Designations, whereby the sale of the Shares at a purchase price (the
“Purchase
      Price”)
      of less
      than $1.00 per share in the Private Placement shall trigger an automatic
      reduction of the Conversion Price to the Purchase Price, effective as of the
      Effective Time;

     

    WHEREAS,
      it is a
      condition to consummate the Private Placement that the holders of all of the
      Company’s outstanding shares of Series A Preferred (the “Series
      A Holders”)
      execute
      and deliver this Agreement whereby they agree that all of their outstanding
      shares of Series A Preferred shall automatically convert into shares of Common
      Stock immediately after the Conversion Price is reduced to $0.50 per share
      in
      accordance with Section 6(a) of the Certificate of Designations as a result
      of
      the first sale or issuance of the Shares in the Private Placement;
      and

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    WHEREAS,
      the
      Series A Holders wish to assist the Company in proceeding with the Private
      Placement and, in connection therewith, desire to effect the conversion of
      their
      Series A Preferred into Common Stock as set forth herein.

     

    AGREEMENT

     

    NOW,
      THEREFORE,
      the
      parties to this Agreement, for good and valuable consideration, the receipt
      and
      sufficiency of which are acknowledged and agreed, hereby agree as
      follows: 

     

    1.  Agreement
      to Convert.
      Provided
      Efficacy and Ronin purchase at least $5 million of Shares from the Company
      in
      the Private Placement in the aggregate, then, in
      accordance with Section 6(a) of the Certificate of Designations, each
      Series
      A
      Holder hereby converts all shares of its Series A Preferred into shares of
      Common Stock, effective immediately following and contingent upon the
      effectiveness of the adjustment of the Conversion Price from $1.00 per share
      to
      $0.50 per share triggered by the first closing of the Private Placement (the
      “Adjustment”),
      as
      provided under Section 6(d) of the Certificate of Designations. Subject to
      the
      foregoing sentence, this Agreement constitutes written notice to the Company
      by
      each Series A Holder that such Series A Holder elects to convert its shares
      of
      Series A Preferred into Common Stock, as required under Section 6(a) of the
      Certificate of Designations.

     

    2.  Third
      Party Beneficiaries. 
      It is the clear intent of the Company and the Series A Holders that Efficacy
      and
      Ronin be the intended third party beneficiaries for purposes of this Agreement
      and that the principal benefits and remedies under or by reason of this
      Agreement be conferred upon Efficacy and Ronin.  This Agreement will be
      fully enforceable in every respect, at law or in equity, by Efficacy and Ronin,
      or either of them as the intended third party beneficiaries hereunder. 
This Section 2 shall survive the termination of this Agreement.

     

    3.  Sunset.
      Notwithstanding
      anything to the contrary set forth herein, this Agreement and all obligations
      hereunder shall terminate at 5:00 p.m. Pacific Time on June 30, 2006 if
      none of the Shares have been issued or sold as of such time.

     

    4.  Registration
      of Additional Shares. The
      Company hereby acknowledges that pursuant to Section 2(a)(ii) of that certain
      Registration
      Rights Agreement made and entered into as of November 21, 2005, by and among
      the
      Company and certain investors listed on the signature pages thereto, the Company
      is required to effect a registration for resale pursuant to a registration
      statement filed with the Securities and Exchange Commission the additional
      shares of Common Stock issuable upon conversion of the Series A Preferred as
      a
      result of the Adjustment.

     

    5.  Miscellaneous.

     

    (a)  Entire
      Agreement; Binding Effect.
      This
      Agreement constitutes the entire agreement of the parties hereto related to
      the
      matters set forth in Sections 1 through 4 hereof, and supersedes all prior
      agreements between such parties, whether written or oral, related to such
      subject matter. The terms and conditions of this Agreement shall inure to the
      benefit of and be binding upon the respective successors and assigns of the
      parties hereto.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (b)  Amendment;
      Waiver.
      Neither
      this Agreement nor any term hereof may be amended, waived, discharged or
      terminated other than by a written instrument signed by each of the parties
      hereto.

     

    (c)  Governing
      Law.
      This
      Agreement shall be governed by and construed in accordance with the laws of
      the
      State of California as applied to contracts among California residents entered
      into and performed entirely within California. 

     

    (d)  Counterparts;
      Facsimile.
      This
      Agreement may be executed in two or more counterparts, each of which shall
      be
      deemed an original, but all of which together shall constitute one and the
      same
      instrument.
      Facsimile signatures shall be as effective as original signatures.

     

    (e)  Further
      Assurances.
      Each
      party hereto agrees to execute and deliver, or cause to be executed and
      delivered, such further instruments or documents or take such other actions
      as
      may be reasonably necessary to consummate the transactions contemplated by
      this
      Agreement.

     

    [REMAINDER
      OF PAGE INTENTIONALLY LEFT BLANK]

    
      
        
        

      

      
        
        

        
          

        

      

       

    

    IN
      WITNESS
      WHEREOF,
      the
      parties hereto have executed this CONVERSION
      AGREEMENT as
      of the
      date first written above.

    
      	 	 	 
	 	
              COMPANY:

               

              AEOLUS
                PHARMACEUTICALS,
                INC.

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

              Its:
                Chief Executive Officer

            

    

    
      	 	 	 
	 	 	 
	 	
              EFFICACY:

               

              EFFICACY
                BIOTECH
                MASTER
                FUND
                LTD.

               

            
	 
 	By:
 	
              /s/ Efficacy
                Capital Ltd.
Its: Investment Manager

               

            
	 	By:  	/s/ Mark
              P. Lappe
	 	
              Name:
                Mark
                P. Lappe

              Title:
                Managing Partner

            

    

    
       

    

    
      	 	 	 
	 	
              RONIN:

               

              RONIN
                CAPITAL,
                LLC

            
	 
 	 
 	 
 
	 	
              By:  

            	/S/ John
              Stafford
	 	Name:
	John
              Stafford III
	 	Title:	CEO

    

     

     

    
[SIGNATURE
      PAGE
      TO
CONVERSION
      AGREEMENT] 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	 	
              SERIES A HOLDERS:

               

              XMARK OPPORTUNITY FUND, L.P.

               

               

            
	 	By: 	/s/
              David C. Cavalier 
	 	Name: 	David
              C. Cavalier
	 	
              Its:
                

            	COO 

    

     

    
      	
            	
               

              XMARK OPPORTUNITY FUND, LTD.

              
 

            
	 	By: 	/s/
              David C. Cavalier 
	 	Name: 	David
              C. Cavalier
	 	
              Its:
                

            	COO
	 

    

    
      	
            	
               

              XMARK JV INVESTMENT PARTNERS, LLC

              
 

            
	 	By: 	/s/
              David C. Cavalier 
	 	Name: 	David
              C. Cavalier
	 	
              Its:
                

            	COO

    

    
[SIGNATURE
      PAGE
      TO
CONVERSIONAGREEMENT] 

     

    
      
        
        

      

      
        
        

        
          

        

      

       

    

     

    
      	
            	
               

              BIOTECHNOLOGY VALUE FUND, L.P.

              
By: BVF
                Partners L.P., its General Partner

               

            
	 	By: 	/s/
              Mark Lampert
	 	Name: 	Mark
              Lampert 
	 	
              Title:
                

            	President 

    

     

     

      	
            	
              BIOTECHNOLOGY VALUE FUND II, L.P.

              
By: BVF
                Partners L.P., its General Partner

               

            
	 	By: 	/s/
              Mark Lampert
	 	Name: 	Mark
              Lampert 
	 	
              Title:
                

            	President 

    

     

     

    
      	
            	
              BVF INVESTMENTS, L.L.C.

              

                By: BVF
                  Partners L.P., its Managing Partner

                By: BVF
                  Inc., its General Partner

              

               

            
	 	By: 	/s/
              Mark Lampert
	 	Name: 	Mark
              Lampert 
	 	
              Title:
                

            	President 

    

     

    
      	
            	
              INVESTMENT 10 L.L.C.

              

                
                  By: BVF
                    Partners L.P., its Managing Partner

                  By: BVF
                    Inc., its Attorney-In-Fact

                   

                

              

            
	 	By: 	/s/
              Mark Lampert
	 	Name: 	Mark
              Lampert 
	 	
              Title:
                

            	President 

     

    [SIGNATURE
      PAGE
      TO
CONVERSION
      AGREEMENT]

    
      
        
        

      

      
        
        

        
          

        

      

       

    

    
      	
            	
               

              BIOMEDICAL OFFSHORE VALUE FUND, LTD.

              

                
                   

                   

                

              

            
	 	By: 	/s/
              David P. Gerber 
	 	Name: 	David
              P. Gerber 
	 	
              Its:
                

            	Chief
              Financial Officer 

    

     

     [SIGNATURE
      PAGE
      TO
CONVERSION
      AGREEMENT]

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00105-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00105-of-00352.parquet"}]]