Exhibit 10.1

EXECUTION COPY

EMPLOYMENT AGREEMENT

This Employment Agreement (the “Agreement”), is effective as of August 1, 2010 (the “Effective Date”), and executed August 12, 2010, between Ampio Pharmaceuticals, Inc., a Delaware corporation headquartered at 8400 East Crescent Parkway, Suite 600, Greenwood Village, CO 80111 USA, hereinafter referred to as the “Company”), and David Bar-Or, M.D. (“Employee”).

RECITALS

WHEREAS, the Company is a duly organized Delaware corporation, with its principal place of business within the State of Colorado, and is in the business of developing and marketing pharmaceutical products; and

WHEREAS, the Company desires assurance of the continued association and services of the Employee in order to continue to retain the Employee’s experience, skills, abilities, background and knowledge, and is willing to continue to engage the Employee’s services on the terms and conditions set forth in this Agreement; and

WHEREAS, Employee desires to be in the continued employ of the Company, and is willing to accept such continued employment on the terms and conditions set forth in this Agreement.

NOW, THEREFORE, the parties hereto agree to the terms and conditions of this Agreement as follows:

1. Employment for Term. The Company hereby agrees to employ Employee and Employee hereby accepts such employment with the Company for the period of 36 months beginning on the Effective Date. The term of this Agreement (the “Term”) shall continue until the termination of Employee’s employment in accordance with the provisions of this Agreement. The termination of Employee’s employment under this Agreement shall end the Term but shall not terminate Employee’s or the Company’s other obligations that are intended to survive the termination of this Agreement (including without limitation, the payments under Section 7 and 8 and Employee’s obligations under Section 9).

2. Position and Duties. During the Term, Employee shall serve as Chief Scientific Officer and a Director of the Company, perform such duties as are consistent with his position and report to the Board of Directors of the Company. During the Term, Employee shall also hold such additional positions and titles as the Board of Directors of the Company (the “Board”) may determine from time to time. During the Term, Employee shall devote as much time as is necessary to satisfactorily perform his duties as the Chief Scientific Officer of the Company. Without limitation of the foregoing, the Company hereby acknowledges that it consents to Employee’s participation in those outside activities described on Exhibit A hereto. Employee may engage in any civic and not-for-profit activities so long as such activities do not materially interfere with the performance of his duties hereunder or present a conflict of interest with the Company. During the Term of this Agreement, Employee agrees not to acquire, assume or participate in, directly or indirectly, any position, investment or interest known by the Employee to be adverse or antagonistic to the Company, its business or prospects, its financial position, or otherwise or in any company, person or entity that is, directly or indirectly, in competition with the business of the Company or any of its affiliates.

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The Company shall nominate Employee, and use its best efforts to have Employee elected, to the Board of Directors of the Company (the “Board”) throughout the Term of this Agreement and, subject to the fiduciary duties of the Board and the Nominating Committee to act in the best interests of the stockholders, shall include him in the management slate for election as a director at every stockholders meeting during the Term at which his term as a director would otherwise expire. Employee agrees to accept election, and to serve during the Term, as director of the Company. On termination of Employee’s employment, regardless of the reason for such termination, Employee shall immediately (and with contemporaneous effect) resign any directorships, offices or other positions that Employee may hold in the Company or any affiliate, unless otherwise agreed in writing by the parties.

3. Compensation.

(a) Base Salary. The Company shall pay Employee a base salary of $227,500 per annum, payable at least monthly on the Company’s regular pay cycle for professional employees (the “Base Salary”). Payments of less than this amount shall be accrued, as well as unpaid salary from DMI Life Sciences and be paid at such time as the Company receives additional funding sufficient to execute the Company’s business plan as deemed by the Board of Directors. Following the execution and the completion of additional funding described above, the Base Salary shall automatically increase, without additional action by the Compensation Committee or Board, to $300,000 per annum, payable as described above. Except as specifically otherwise provided herein, the Base Salary may be increased only by recommendation of the Compensation Committee of the Board and ratified by the Compensation Committee or a majority of the independent members of the Board.

(b) Annual Review. The Base Salary shall be reviewed at the end of each calendar year (the first such review to occur at the end of calendar year 2010).

(c) Equity Compensation. In connection with the execution of this Agreement, the Company hereby agrees to grant initial equity compensation to Employee in the aggregate amount of 700,000 options to purchase shares of Company Common Stock. These options shall vest in accordance with the terms and schedule set forth in Exhibit B hereto. Such vesting schedule will be accelerated, to the extent provided in Section 8 of this agreement.

(d) Other and Additional Compensation. Subsections (a) and (c) above establish Employee’s compensation during the Term which shall not preclude the Board from awarding Employee a higher salary or any bonuses or stock options, restricted stock or other forms of additional equity awards in the discretion of the Board during the Term at any time. The Employee shall be eligible for an annual discretionary bonus (hereinafter referred to as the “Bonus”) with a target amount of fifty percent (50%) of the Base Salary , subject to standard deductions and withholdings, based on the Compensation Committee’s determination, in good faith, and based upon the Employee’s individual achievement and company performance objectives as set by the Board or the Compensation Committee, of whether the Employee has met such performance milestones as are established for the Employee by the Board or the Compensation Committee, in good faith, in consultation with the Employee (hereinafter referred to as the “Performance Milestones”). The Performance Milestones will be based on certain factors including, but not limited to, the Employee’s performance and the Company’s financial performance. The Employee’s Bonus target will be reviewed annually and may be adjusted by the Board or the Compensation Committee in its discretion, provided however, that the Bonus target may only be reduced upon Employee’s written consent. The Employee must be employed on the date the Bonus is awarded to be eligible for the Bonus, subject to the termination

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provisions hereof. Bonuses shall be paid during the calendar quarter following the calendar quarter for which such Bonus was earned when Performance Milestones are met during a calendar quarter. Fourth quarter Bonuses and Bonuses calculated on the basis of partial Performance Milestone satisfaction shall be paid within 120 days of fiscal year-end.

4. Employee Benefits. During the Term, Employee shall be entitled to participate at the same level as other senior executive officers of the Company in any group insurance, hospitalization, medical, health and accident, disability, fringe benefit and tax-qualified retirement plans or programs of the Company now existing or hereafter established to the extent that he is eligible under the general provisions thereof. For the term of this Agreement, Employee shall be entitled to paid vacation at the rate of (4) weeks per annum. In accordance with Company policy, unused vacation may not be carried over from year to year.

5. Expenses. The Company shall reimburse Employee for actual, reasonable out-of-pocket expenses incurred by him in the performance of his services for the Company upon the receipt of appropriate documentation of such expenses which shall be submitted in such form, and with such supporting documentation, as called for or required by Company policy.

6. Termination.

(a) General. The Term shall end immediately upon Employee’s death. Employee’s employment may also be terminated by the Company with or without Cause or as a result of Employee’s Disability, as defined in Section 7 or by Employee with or without Good Reason (as such terms are defined below).

(b) Notice of Termination. Either party shall give written notice of termination to the other party.

(c) Notification of New Employer. In the event that Employee leaves the employ of the Company, Employee grants consent to notification by the Company to Employee’s new employer about his rights and obligations under this Agreement and the PIA (hereinafter defined).

7. Severance Benefits.

(a) Cause Defined. “Cause” means (i) willful malfeasance or willful misconduct by Employee in connection with his employment; (ii) Employee’s gross negligence in performing any of his duties under this Agreement; (iii) Employee’s conviction of, or entry of a plea of guilty to, or entry of a plea of nolo contendre with respect to, any crime other than a traffic violation or infraction which is a misdemeanor; (iv) Employee’s willful and deliberate violation of a Company policy, (v) Employee’s unintended but material breach of any written policy applicable to all employees adopted by the Company which is not cured to the reasonable satisfaction of the Board of Directors within thirty (30) business days after notice thereof; (vi) the Employee’s unauthorized use or disclosure of any proprietary information or trade secrets of the Company or any other party as to which the Employee owes an obligation of nondisclosure as a result of the Employee’s relationship with the Company, (vii) the Employee’s willful and deliberate breach of his obligations under this Agreement, or (viii) any other material breach by Employee of any of his obligations in this Agreement which is not cured to the reasonable satisfaction of the Board of Directors within thirty (30) business days after notice thereof.

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(b) Disability Defined. “Disability” shall mean (i) Employee’s incapacity due to a physical or mental condition and, if reasonable accommodation is required by law, after any reasonable accommodation, that results in Employee being substantially unable to perform his duties hereunder for six consecutive months (or for six months out of any nine month period) or (ii) a qualified independent physician mutually acceptable to the Company and Employee determines that Employee is incapacitated due to a physical or mental condition and, if reasonable accommodation is required by law, after any reasonable accommodation so as to be unable to regularly perform the duties of his position and such condition is expected to be of a permanent or near-permanent duration. Until such time as Employee is terminated for Disability under this paragraph (b), Employee shall continue to receive his Base Salary hereunder, provided that if the Company provides Employee with disability insurance coverage, payments of Employee’s Base Salary shall be reduced by the amount of any disability insurance payments received by Employee due to such coverage. The Company shall give Employee written notice of termination due to Disability which shall take effect sixty (60) days after the date it is sent to Employee unless Employee shall have returned to the performance of his duties hereunder during such sixty (60) day period (whereupon such notice shall become void). In the event that the Company terminates Employee’s employment as a result of his Disability, Employee shall be entitled to the same benefits as if his employment had been terminated by the Company without Cause.

(c) Good Reason Defined. For purposes of this Agreement, “Good Reason” shall mean, without Employee’s written consent: (i) there is a material reduction of the level of Employee’s compensation (excluding any bonuses) (except where there is a general reduction applicable to the management team generally, provided, however, that in no case may the Base Salary be reduced below the amount stated in Section 3(a)), (ii) there is a material reduction in Employee’s overall responsibilities or authority, or scope of duties (it being understood that the occurrence of a Change in Control shall not, by itself, necessarily constitute a reduction in Employee’s responsibilities or authority); or (iii) there is a material change in the principal geographic location at which Employee must perform his services (it being understood that the relocation of Employee to a facility or a location within forty (40) miles of the State Capitol Building in Denver, Colorado shall not be deemed material for purposes of this Agreement). No event shall be deemed to be “Good Reason” if the Company has cured the event (if susceptible to cure) within 30 days of receipt of written notice from Employee specifying the event or events which, absent cure, would constitute “Good Cause.”

(d) Accrued Compensation Defined. Accrued Compensation shall mean an amount which shall include all amounts earned or accrued by Employee through the date of termination of this Agreement but not paid as of such date, including (i) Base Salary, (ii) reimbursement for business expenses incurred by the Employee on behalf of the Company, pursuant to the Company’s expense reimbursement policy in effect at such time, (iii) any expense allowance pursuant to Company policy, (iv) accrued but unused vacation pay per Company policy, and (v) bonuses and incentive compensation earned and awarded prior to the date of termination. Accrued Compensation shall be paid on the first regular pay date after the date of termination (or earlier, if required by applicable law).

(e) Termination.

(i) Cause; Without Good Reason; Death. If the Company ends the Term for Cause, if Employee resigns as an employee of the Company for reasons other than an event of Good Reason, or the Employee dies, then the Company shall pay to Employee the Accrued Compensation but shall have no obligation to pay Employee any amount,

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whether for salary, benefits, bonuses, or other compensation or expense reimbursements of any kind, accruing after the end of the Term, and such rights shall, except as otherwise required by law or pursuant to the applicable award agreement or plan, be forfeited immediately upon the end of the Term. For the sake of clarity, any stock options, restricted stock or other equity compensation shall, to the extent vested on the date of resignation without Good Reason, the date the Company ends the Term for Cause, or the date of Employee’s death, remain outstanding and exerciseable to the extent provided in the applicable award agreement or plan, by the Employee or his personal representative or executor.

(ii) Without Cause; Good Reason. In the event that the Company terminates Employee’s employment hereunder without Cause, Employee terminates his employment with Good Reason, he shall be entitled to the Accrued Compensation and, subject to Section 21 and 22 below,

(A) A lump sum payment equal to two times his Base Salary in effect at the date of termination, less applicable withholding.

(B) Continued participation (via state or federal insurance continuation laws such as COBRA, to the extent available) in the health and welfare plans (or comparable plans, if continued participation in the Company’s plans is not available) provided by the Company to Employee at the time of termination for a period of two years from the date of termination or, if earlier, until he is eligible for comparable coverage with a subsequent employer. The Company agrees to reimburse the payments Employee makes for such coverage, whether via continuation or separate comparable policy. Premium reimbursements shall be made by the Company to Employee consistent with the Company’s normal expense reimbursement policy, provided that Employee submits documentation to the Company substantiating his payments for insurance coverage. Employee shall give the Company prompt notice of his eligibility for comparable coverage.

(C) All vested stock options shall remain exercisable from the date of termination until the expiration date of the applicable award. So long as the Section 8 below does not apply, then all options which are unvested at the date of termination Without Cause or for Good Reason shall be accelerated as of the date of termination such that the number of option shares equal to 1/36 ^th the number of option shares multiplied by the number of full months of Employee’s employment hereunder shall be deemed vested and immediately exercisable by the Employee. Any unvested options over and above the foregoing shall be cancelled and of no further force or effect, and shall not be exercisable by the Employee.

(D) Any severance payments and/or other separation benefits contemplated by this Agreement are conditional on Employee: (i) continuing to comply with the terms of this Agreement and the PIA (as defined herein); (ii) delivering prior to or contemporaneously with any such severance payments, and not revoking, (x) a customary general release of claims relating to Employee’s employment and/or this Agreement against the Company or its successor, its subsidiaries and their respective directors, officers and stockholders and (y) a customary affirmation of Employee’s continuing obligations hereunder and under the PIA.

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Unless otherwise required by law, no severance payments and/or benefits under this Agreement will be paid and/or provided until after the expiration of any relevant revocation period.

8. Change in Control Payments. The provisions of this paragraph 8 set forth the terms of an agreement reached between Employee and the Company regarding Employee’s rights and obligations upon the occurrence of a “Change in Control” (as hereinafter defined) of the Company during the Term. These provisions are intended to assure and encourage in advance Employee’s continued attention and dedication to his assigned duties and his objectivity during the pendency and after the occurrence of any such Change in Control. The following provisions shall apply in the event of a Change in Control, in addition to any payment or benefit that may be required pursuant to Section 7.

(a) Equity. Upon the occurrence of a Change in Control, all stock options, restricted stock and other stock-based grants to Employee by the Company or that may be granted in the future shall, irrespective of any provisions of his award agreements, immediately and irrevocably vest and become exercisable and any restrictions thereon shall lapse. All stock options shall remain exercisable from the date of the Change in Control until the expiration of the term of such stock options.

(b) Definitions. For purposes of this paragraph 8, the following terms shall have the following meanings:

“Change in Control” shall mean any of the following:

(1) the acquisition by any individual, entity, or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (the “Acquiring Person”), other than the Company, or any of its Subsidiaries, of beneficial ownership (within the meaning of Rule 13d-3- promulgated under the Exchange Act) of 50% or more of the combined voting power or economic interests of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (excluding any issuance of securities by the Company in a transaction or series of transactions made principally for bona fide equity financing purposes, and any issuance of Company securities in connection with the proposed acquisition of DMI BioSciences, Inc.; or

(2) the acquisition of the Company by another entity by means of any transaction or series of related transactions to which the Company is party (including, without limitation, any stock acquisition, reorganization, merger or consolidation but excluding any issuance of securities by the Company in a transaction or series of transactions made principally for bona fide equity financing purposes, and also excluding the issuance of Company securities in connection with the acquisition of DMI BioSciences, Inc.) other than a transaction or series of related transactions in which the holders of the voting securities of the Company outstanding immediately prior to such transaction or series of related transactions retain, immediately after such transaction or series of related transactions, as a result of shares in the Company held by such holders prior to such transaction or series of related transactions, at least a majority of the total voting power represented by the outstanding voting securities of the Company or such other surviving or resulting entity (or if the Company or such other surviving or resulting entity is a wholly-owned subsidiary immediately following such acquisition, its parent); or

(3) the sale or other disposition of all or substantially all of the assets of the Company in one transaction or series of related transactions.

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9. Proprietary Information and Inventions Agreement . As a condition of Employee’s employment with the Company, Employee agrees to sign the Company’s standard form of Proprietary Information and Inventions Agreement (“PIA”).

10. Successors and Assigns.

(a) Employee. This Agreement is a personal contract, and the rights and interests that the Agreement accords to Employee may not be sold, transferred, assigned, pledged, encumbered, or hypothecated by him. All rights and benefits of Employee shall be for the sole personal benefit of Employee, and no other person shall acquire any right, title or interest under this Agreement by reason of any sale, assignment, transfer, claim or judgment or bankruptcy proceedings against Employee. Except as so provided, this Agreement shall inure to the benefit of and be binding upon Employee and his personal representatives, distributees and legatees.

(b) The Company. This Agreement shall be binding upon the Company and inure to the benefit of the Company and of its successors and assigns, including (but not limited to) any Company that may acquire all or substantially all of the Company’s assets or business or into or with which the Company may be consolidated or merged. Any such successor of the Company will be deemed substituted for the Company under the terms of this Agreement for all purposes. For this purpose, “successor” means any person, firm, corporation or other business entity which at any time, whether by purchase, merger or otherwise, directly or indirectly acquires all or substantially all of the assets or business of the Company.

11. Entire Agreement. This Agreement (together with the equity award agreements referred to herein) represents the entire agreement between the parties concerning Employee’s employment with the Company and supersedes all prior negotiations, discussions, understanding and agreements, whether written or oral, between Employee and the Company relating to the subject matter of this Agreement. In addition, this Agreement shall supersede in its entirety that certain Employment Agreement by and between DMI Life Sciences, Inc. and David Bar-Or, M.D. effective April 17, 2009 (the “Prior Employment Agreement”), which shall be deemed and is cancelled and of no further force or effect as of the date of execution hereof by mutual agreement of the parties hereto. Employee agrees that the consideration for the termination and cancellation of the Prior Employment Agreement is the Company’s issuance and execution of this Agreement, the receipt and sufficiency of which is hereby acknowledged. Employee and the Company further acknowledge and agrees that 2,700,000 shares of restricted stock issued to Employee under the Prior Employment Agreement have vested, but that any stock options issuable or issued to Employee under the Prior Employment Agreement have not vested and any hereby cancelled and of no further force or effect.

12. Amendment or Modification, Waiver. No provision of this Agreement may be amended or waived unless such amendment or waiver is agreed to in writing signed by Employee and by a duly authorized officer of the Company. No waiver by any party to this Agreement or any breach by another party of any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of a similar or dissimilar condition or provision at the same time, any prior time or any subsequent time.

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13. Notices. Any notice to be given under this Agreement shall be in writing and delivered personally or sent by overnight courier or registered or certified mail, postage prepaid, return receipt requested, addressed to the party concerned at the address indicated below, or to such other address of which such party subsequently may give notice in writing:

Any notice delivered personally or by overnight courier shall be deemed given on the date delivered and any notice sent by registered or certified mail, postage prepaid, return receipt requested, shall be deemed given on the date mailed.

14. Severability. If any provision of this Agreement or the application of any such provision to any party or circumstances shall be determined by any court of competent jurisdiction or arbitrator acting pursuant to Section 19 below to be invalid and unenforceable to any extent, the remainder of this Agreement or the application of such provision to such person or circumstances other than those to which it is so determined to be invalid and unenforceable shall not be affected, and each provision of this Agreement shall be validated and shall be enforced to the fullest extent permitted by law. If for any reason any provision of this Agreement containing restrictions is held to cover an area or to be for a length of time that is unreasonable or in any other way is construed to be too broad or to any extent invalid, such provision shall not be determined to be entirely null, void and of no effect; instead, it is the intention and desire of both the Company and Employee that, to the extent that the provision is or would be valid or enforceable under applicable law, any court of competent jurisdiction or arbitrator acting pursuant to Section 19 below shall construe and interpret or reform this Agreement to provide for a restriction having the maximum enforceable area, time period and such other constraints or conditions (although not greater than those contained currently contained in this Agreement) as shall be valid and enforceable under the applicable law.

15. Survivorship. The respective rights and obligations of the parties hereunder shall survive any termination of this Agreement to the extent necessary to the intended preservation of such rights and obligations.

16. Headings. All descriptive headings of sections and paragraphs in this Agreement are intended solely for convenience of reference, and no provision of this Agreement is to be construed by reference to the heading of any section or paragraph.

17. Withholding Taxes. All salary, benefits, reimbursements and any other payments to Employee under this Agreement shall be subject to all applicable payroll and withholding taxes and deductions required by any law, rule or regulation of and federal, state or local authority.

18. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together constitute one and same instrument. The parties agree that facsimile signatures shall have the same force and effect as original signatures.

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19. Applicable Law; Arbitration. The validity, interpretation and enforcement of this Agreement and any amendments or modifications hereto shall be governed by the laws of the State of Colorado, as applied to a contract executed within and to be performed in such State. The parties agree that any disputes shall be definitively resolved by binding arbitration before the American Arbitration Association in Denver, Colorado in accordance with its rules of arbitration procedure then in effect. The parties consent to the jurisdiction to the federal courts of the District of Colorado or, if there shall be no jurisdiction, to the state courts located in Arapahoe County, Colorado, to enforce any arbitration award rendered with respect thereto. Each party shall choose one arbitrator and the two arbitrators shall choose a third arbitrator. All costs and fees related to such arbitration (and judicial enforcement proceedings, if any) shall be borne by the Company unless Employee’s claim is deemed to be frivolous by the arbitrator(s) or judge.

21. Section 409A. Notwithstanding anything to the contrary in this Agreement, if Employee is a “specified employee” within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) and the final regulations and any guidance promulgated thereunder (“Section 409A”) at the time of Employee’s termination (other than due to death), and the severance payable to Employee, if any, pursuant to this Agreement, when considered together with any other severance payments or separation benefits which may be considered deferred compensation under Section 409A (together, the “Deferred Compensation Separation Benefits”) will not and could not under any circumstances, regardless of when such termination occurs, be paid in full by March 15 of the year following Employee’s termination, then only that portion of the Deferred Compensation Separation Benefits which do not exceed the Section 409A Limit (as defined below) may be made within the first six (6) months following Employee’s termination of employment in accordance with the payment schedule applicable to each payment or benefit. For these purposes, each severance payment is hereby designated as a separate payment and will not collectively be treated as a single payment. Any portion of the Deferred Compensation Separation Benefits in excess of the Section 409A Limit shall accrue and, to the extent such portion of the Deferred Compensation Separation Benefits would otherwise have been payable within the first six (6) months following Employee’s termination of employment, will become payable on the first payroll date that occurs on or after the date six (6) months and one (1) day following the date of Employee’s termination. All subsequent Deferred Compensation Separation Benefits, if any, will be payable in accordance with the payment schedule applicable to each payment or benefit. Notwithstanding anything herein to the contrary, if Employee dies following his termination but prior to the six (6) month anniversary of his termination, then any payments delayed in accordance with this paragraph will be payable in a lump sum as soon as administratively practicable after the date of Employee’s death and all other Deferred Compensation Separation Benefits will be payable in accordance with the payment schedule applicable to each payment or benefit. The foregoing provision is intended to comply with the requirements of Section 409A so that none of the severance payments and benefits to be provided hereunder will be subject to the additional tax imposed under Section 409A, and any ambiguities herein will be interpreted to so comply. The Company and Employee agree to work together in good faith to consider amendments to this Agreement and to take such reasonable actions which are necessary, appropriate or desirable to avoid imposition of any additional tax or income recognition prior to actual payment to Employee under Section 409A. For purposes of this Agreement, “Section 409A Limit” will mean the lesser of two (2) times: (A) Employee’s annualized compensation based upon the annual rate of pay paid to Employee during the Company’s taxable year preceding the Company’s taxable year of

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Employee’s termination of employment as determined under Treasury Regulation 1.409A-1(b)(9)(iii)(A)(1) and any Internal Revenue Service guidance issued with respect thereto; or (B) the maximum amount that may be taken into account under a qualified plan pursuant to Section 401(a)(17) of the Code for the year in which Employee’s employment is terminated.

22. Application of Internal Revenue Code Section 280G. If any payment or benefit Employee would receive pursuant to a Change in Control from the Company or otherwise (“ Payment ”) would (i) constitute a “parachute payment” within the meaning of Section 280G of the Code, and (ii) but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the “ Excise Tax ”), then such Payment shall be equal to the Reduced Amount. The “Reduced Amount” shall be either (x) the largest portion of the Payment that would result in no portion of the Payment being subject to the Excise Tax or (y) the largest portion, up to and including the total, of the Payment, whichever amount, after taking into account all applicable federal, state and local employment taxes, income taxes, and the Excise Tax (all computed at the highest applicable marginal rate), results in Employee’s receipt, on an after-tax basis, of the greater economic benefit notwithstanding that all or some portion of the Payment may be subject to the Excise Tax. If a reduction in payments or benefits constituting “parachute payments” is necessary so that the Payment equals the Reduced Amount, reduction shall occur in the manner that results in the greatest economic benefit for Employee. If more than one method of reduction will result in the same economic benefit, the items so reduced will be reduced pro rata.

In the event it is subsequently determined by the Internal Revenue Service that some portion of the Reduced Amount as determined pursuant to clause (x) in the preceding paragraph is subject to the Excise Tax, Employee agrees to promptly return to the Company a sufficient amount of the Payment so that no portion of the Reduced Amount is subject to the Excise Tax. For the avoidance of doubt, if the Reduced Amount is determined pursuant to clause (y) in the preceding paragraph, Employee will have no obligation to return any portion of the Payment pursuant to the preceding sentence.

Unless Employee and the Company agree on an alternative accounting firm, the accounting firm engaged by the Company for general tax compliance purposes as of the day prior to the effective date of the Change in Control shall perform the foregoing calculations. If the accounting firm so engaged by the Company is serving as accountant or auditor for the individual, entity or group effecting the Change in Control, the Company shall appoint a nationally recognized accounting firm to make the determinations required hereunder. The Company shall bear all expenses with respect to the determinations by such accounting firm required to be made hereunder.

The Company shall use commercially reasonable efforts to cause the accounting firm engaged to make the determinations hereunder to provide its calculations, together with detailed supporting documentation, to the Employee and the Company within fifteen (15) calendar days after the date on which Employee’s right to a Payment is triggered (if requested at that time by the Employee or the Company) or such other time as requested by Employee or the Company.

23. Indemnification. As a condition to the effectiveness of this Agreement, the Company and Employee shall enter into a mutually acceptable indemnification agreement.

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

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EXHIBIT A

Outside Activities

1. DMI Biosciences, Inc. Employee is an employee and/or equityholder of DMI Biosciences. Employee shall continue in such roles during the term of this Agreement.

2. Trauma Research LLC Employee serves as an employee, manager and member of Trauma Research. Employee shall continue in such roles during the term of this Agreement.

3. Institute for Molecular Medicine, Inc. Employee is an employee, officer, director and equityholder of IMM. Employee shall continue in such roles during the term of this Agreement.

Note: Neither of the possible outside activities may interfere with employee’s best efforts in meeting the responsibilities of CSO of Ampio Pharmaceuticals, Inc.

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EXHIBIT B

Terms of Compensation

Management equity grant :

Management milestones that affect cash bonuses

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Exhibit 10.2

THIS DEBENTURE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS DEBENTURE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THIS DEBENTURE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENTOR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO AMPIO PHARMACEUTICALS, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.

SENIOR UNSECURED MANDATORILY CONVERTIBLE DEBENTURE

FOR VALUE RECEIVED, AMPIO PHARMACEUTICALS, INC., a Delaware corporation (the “ Borrower ” or “A mpio ”), promises to pay to                      (the “ Holder ”) or his registered assigns or successors in interest, the sum of                      Thousand Dollars ($              ,000.00)(the “ Principal Amount ”), together with any accrued and unpaid interest hereon, on March 31, 2011.

The following terms shall apply to this Senior Unsecured Mandatorily Convertible Debenture (the “Debenture”):

ARTICLE I

INTEREST, MATURITY AND STATUS

1.1.  Interest and Warrant . This Debenture shall accrue interest at the rate of 8% per annum, with interest payable quarterly commencing with the quarter ending December 31, 2010. At Ampio’s discretion, interest may be paid in cash or by payment-in-kind (“ PIK ”) through the issuance of additional Debentures (the “ PIK Debentures ”) in the form of this Debenture, in an aggregate principal amount equal to the interest then payable to the Holder. In addition, on receipt of the Principal Amount, Ampio shall issue to the Holder warrants (the “ Warrants ”) that will entitle the Holder to acquire on exercise of the Warrants an aggregate number of Ampio shares of common stock (the “ Warrant Shares ”) equal to 20% of the Conversion Shares (defined below) issuable on conversion of this Debenture. The Warrant exercise price will be equal to the Conversion Price (defined below), and the Warrants will be exercisable for a period of three years from the date of the Offering (defined below).

1.2.  Maturity . The aggregate principal amount outstanding under this Debenture (the “ Principal Amount ”) and any PIK Debentures, together with any accrued and unpaid interest on this Debenture and any PIK Debentures, shall automatically be paid through conversion into Ampio common stock at the earlier of (i) closing of a public or private equity financing (the “Offering”) in an amount exceeding $10 million, or (ii) March 31, 2011 (hereinafter, the “ Conversion Maturity Date ”).

1.3. Status . The Debentures are unsecured.

ARTICLE II

CONVERSION REPAYMENT

2.1.  Mandatory Conversion . Subject to the terms of this Article II, on the Conversion Maturity Date, this Debenture and any PIK Debentures issued in connection herewith shall automatically convert, without any further action by the Holder, into Ampio common stock at the Conversion Price. The shares of Ampio common stock to be issued upon such conversion and on conversion of any PIK Debentures are herein referred to as the “ Conversion Shares. ” The “ Conversion Price ” shall mean the lower of (i) $1.75 per share, or (ii) the per-share price at which Ampio’s common stock is sold in the Offering (or in the first tranche of the Offering if the Offering is split into tranches). The Conversion Price may be adjusted pursuant to the other terms of this Debenture.

2.2.  Voluntary Conversion . Subject to the terms of this Article II, commencing 30 days from the date of issuance and until the Conversion Maturity Date, the Holder may voluntarily convert this Debenture and any PIK Debentures issued in connection herewith into Ampio common stock at the Conversion Price.

2.3.  Mechanics of Conversion . Within three business days of the Conversion Maturity Date, Borrower shall provide irrevocable written instructions to Ampio’s transfer agent accompanied by an opinion of counsel to Borrower and shall cause the transfer agent to transmit the certificates representing the Conversion Shares to the Holder by physical delivery or crediting the account of the Holder’s designated broker with the Depository Trust Corporation (“ DTC ”) through its Deposit Withdrawal Agent Commission (“ DWAC ”) system. The Holder shall be treated for all purposes as the record holder of such Common Stock, unless the Holder provides Borrower written instructions to the contrary.

2.4.  Determination and Adjustment of Conversion Shares and Conversion Price .

(a) The number of Conversion Shares to be issued upon each conversion of this Debenture shall be determined by dividing that portion of the principal to be converted by the then applicable Conversion Price.

(b) The Conversion Price and number and kind of shares or other securities to be issued upon conversion shall be subject to adjustment from time to time upon the happening of certain events while this conversion right remains outstanding, as follows: If the Borrower at any time on or after the issuance date subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision will be proportionately reduced and the number of Conversion Shares will be proportionately increased. If the Borrower at any time on or after the issuance date combines (by combination, reverse stock split or otherwise) its outstanding shares of Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior to such combination will be proportionately increased and the number of Conversion Shares will be proportionately decreased. Any adjustment under this Section 2.4(b) shall become effective at the close of business on the date the subdivision or combination becomes effective. Notwithstanding the foregoing and any other terms of this Debenture , the issuance of shares of Ampio common stock (i) in the Offering (ii) in connection with the acquisition of DMI BioSciences, Inc. (“ BioSciences ”), and (iii) the issuance of additional debentures with terms identical or substantially equivalent to the terms hereof shall not be events which shall require any adjustment in the Conversion Price or the Conversion Shares.

(c) As described in subparagraph (b) above, the Borrower may issue additional debentures on terms identical or substantially equivalent to those set forth herein. If for any reason the Borrower issues additional debentures on terms that are more favorable to the holder(s) thereof than the terms of this Debenture are to the Holder, the Borrower agrees that it will ascribe “most favored nation” status to the Holder and will conform the terms of this Debenture such that the terms hereof are as favorable to the Holder as any other debenture issued to any other holder prior to the Public Offering.

2.5 Registration and Release of Prior Issued Shares From Lock-Up . Ampio shall include on the registration statement to be filed in connection with a public Offering, or shall file a separate registration statement if the Offering is undertaken privately (hereinafter, the “ Registration Statement ”), (i) the Conversion Shares issuable on conversion of this Debenture and any PIK Debentures, (ii) the shares of Ampio common stock issuable or issued to the Holder in connection with the BioSciences acquisition (the “ BioSciences Shares ”), if any, and (iii) the Warrant Shares (collectively, the Conversion Shares, the BioSciences Shares and the Warrant Shares are referred to as the “Shares”). Such registration shall be without cost to the Holder, except if the Holder desires to obtain his, her or its own counsel, in which case the fees of such counsel shall be paid by the Holder. If the Registration Statement is not declared effective by the Conversion Maturity Date, then Ampio shall obtain the effectiveness of such Registration Statement within 60 days thereafter. Failure to obtain the registration of the Shares shall be an Event of Default hereunder. Ampio shall release the Holder from any lockup applicable to the BioSciences Shares and shall not require the Holder to execute any lock-up agreement with respect to the Shares. It is understood by the parties that the release of the Holder from any lock-up of the BioSciences Shares, if any are held by the Holder, is specifically premised upon the Holder’s agreement to purchase this Debenture from Ampio.

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2.6.  Authorized Shares . The Borrower will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Shares upon the full conversion of this Debenture, any PIK Debentures, and the exercise of the Warrants, with such reservation remaining in effect at all time until this Debenture is repaid in full by conversion. The Borrower represents that upon issuance, such Shares will be duly and validly issued, fully paid and non-assessable shares of Ampio Common Stock with such rights and attributes as are pari passu to the rights and attributes of Ampio Common Stock presently outstanding and to be issued in the Offering. In addition, if the Borrower shall issue any securities or make any change to its capital structure which would change the number of Conversion Shares into which this Debenture shall be convertible at the then current Conversion Price or into which the Warrants may be exercised, the Borrower shall at the same time make proper provision so that thereafter there shall be a sufficient number of shares of Common Stock authorized and reserved for conversion of this Debenture and exercise of the Warrants. The Borrower (i) acknowledges that it will irrevocably instruct its transfer agent to issue certificates for the Common Stock issuable upon conversion of this Debenture and exercise of the Warrants, and (ii) agrees that its issuance of this Debenture shall constitute full authority to its officers and agents who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Common Stock in accordance with the terms and conditions of this Debenture and, upon exercise thereof, the Warrants.

2.7 Status of Shares . The Conversion Shares issued on conversion of this Debenture, the BioSciences Shares and the Warrant Shares shall be restricted stock until the Registration Statement is declared effective by the SEC. Accordingly, until such time as the Registration Statement is declared effective, the Shares shall be salable by the Holder only in accordance with the provisions of Rule 144 or other available exemption from Section 5 of the Securities Act of 1933, as amended, in accordance with the terms of such exemption. In connection with the Offering, Ampio will agree with the underwriters or placement agent thereof to timely file all required reports under the Securities Exchange Act of 1934, as amended, in order to ensure that the current public information requirement of Rule 144 is met by Ampio.

ARTICLE III

EVENTS OF DEFAULT

The occurrence of any of the following events set forth in Sections 3.1 through 3.9, inclusive, shall be an “ Event of Default ”:

3.1.  Breach of Covenant . Borrower breaches any covenant or other term or condition of this Debenture in any material respect and such breach, if subject to cure, continues for a period of five (5) days after the occurrence thereof and notice of breach being furnished to Borrower by Holder.

3.2.  Breach of Representations and Warranties . Borrower shall have breached in any material respect any representation or warranty of Borrower made herein, including failure to obtain the effectiveness of the Registration Statement by the Conversion Maturity Date or the extension period thereof, and such breach continues for a period of five (5) days after the occurrence thereof and notice of breach being furnished to Borrow by Holder.

3.3.  Stop Trade . An SEC stop trade order or Principal Market trading suspension of the Common Stock shall be in effect for five (5) consecutive days or five (5) days during a period of 10 consecutive days, excluding in all cases a suspension of all trading on a Principal Market, provided that Borrower shall not have been able to cure such trading suspension within 30 days of the notice thereof. For purposes hereof, the “ Principal Market ” for the Common Stock is the OTC Bulletin Board.

3.4.  Receiver or Trustee . The Borrower or any of its Subsidiaries shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business, or such a receiver or trustee shall otherwise be appointed.

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3.5.  Judgments . Any money judgment, writ or similar final process shall be entered or filed against the Borrower or any of its Subsidiaries or any of their respective property or other assets for more than $500,000 in the aggregate, which shall remain unvacated, unbonded or unstayed for a period of thirty (30) days.

3.6.  Bankruptcy . Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings or relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Borrower or any of its Subsidiaries, which proceedings are not dismissed within thirty (30) days of filing.

3.7.  Default Under Other Material Agreements . The occurrence of an Event of Default under any other material agreement to which the Borrower is party that evidences indebtedness of at least $500,000.

3.8.  Failure to Deliver Conversion Shares or Replacement Debenture . Borrower’s failure to timely deliver Conversion Shares to the Holder pursuant to and in the form required by this Debenture, if such failure to timely deliver Conversion Shares shall not be cured within five (5) business days or, if Borrower is required to issue a replacement Debenture to Holder, Borrower shall fail to deliver such replacement Debenture within seven (7) business days.

ARTICLE IV

DEFAULT PROVISIONS

4.1.  Default Interest Rate . Following the occurrence and during the continuance of an Event of Default, interest on this Debenture shall automatically be instated at a rate of 18% per annum, retroactive (and to be effective) as of the date of issuance of this Debenture, which interest shall be payable in cash or Conversion Shares, at the option of the Borrower.

4.2.  Conversion Privileges During Default . The conversion privileges set forth in Article II shall remain in full force and effect from the date hereof and until this Debenture is paid in full, including in the occurrence of an Event of Default.

4.3.  Cumulative Remedies . The remedies under this Debenture shall be cumulative.

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF THE BORROWER

The Borrower represents and warrants to the Holder as of the date hereof as follows:

5.1  Organization . Ampio is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to own its properties and carry on its business as now being conducted.

5.2  Authority; Enforceability . Ampio has the requisite corporate power and authority to execute and deliver this Agreement and to carry out its obligations hereunder. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Ampio and no other corporate proceedings on the part of Ampio are necessary to authorize this Agreement or to consummate the transactions so contemplated. This Agreement has been duly executed and delivered by Ampio and constitutes a valid and binding obligation of Ampio, enforceable against Ampio in accordance with its terms, except as (a) enforceability may be limited by applicable bankruptcy,

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insolvency, fraudulent transfer, moratorium or similar laws from time to time in effect affecting creditors’ rights generally, and (b) the availability of equitable remedies may be limited by equitable principles of general applicability.

5.3  Third Party Consents . No consent, authorization, order or approval of, or filing or registration with, any governmental authority or other person is required for the execution and delivery of this Debenture or the consummation by Ampio of any of the transactions contemplated hereby, except the effectiveness of the Registration Statement as described herein.

5.4  Disclosure . Ampio has filed with the Securities and Exchange Commission all of its required filings under the Securities Exchange Act of 1934 since the date of its merger with Chay Enterprises, Inc. in March 2010.

5.5  No Other Representations or Warranties . Except as set forth above in this Articles I and V hereof, no other representations or warranties, express or implied, are made by Ampio.

ARTICLE VI

MISCELLANEOUS

6.1  Accredited Investor Status . The Holder will deliver to Ampio on execution hereof a subscription agreement which shall evidence that the Holder is an accredited investor, as that term is defined by the federal securities laws. In addition, such accredited investor status excludes the value of the Holder’s principal residence, as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act.

6.2.  Failure or Indulgence Not Waiver . No failure or delay on the part of the Holder hereof in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. All rights and remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available.

6.3.  Notices . Any notice herein required or permitted to be given shall be in writing, addressed to the receiving party at the address noted below, and sent by U.S. mail or by confirmed facsimile transmission, to:

in the case of the Holder:

in the case of the Borrower:

Donald B. Wingerter, Jr., Chief Executive Officer

Ampio Pharmaceuticals, Inc.

8400 East Crescent Parkway, Suite 600

Greenwood Village, Colorado 80111

Facsimile: (303) 418-1001

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with a copy to:

Robert W. Walter, Esq.

Richardson & Patel, LLP

Colorado location: 9660 East Prentice Circle

Greenwood Village, Colorado 80111

Facsimile: (720) 221-8162

6.4.  Amendment Provision . The term “ Debenture ” and all reference thereto, as used throughout this instrument, shall mean this instrument as originally executed, or if later amended or supplemented, then as so amended or supplemented, and any successor instrument as it may be amended or supplemented.

6.5.  Assignability . This Debenture shall be binding upon the Borrower and its successors and assigns, and shall inure to the benefit of the Holder and its successors and assigns, and may not be assigned by the Holder without the prior written consent of the Borrower, which consent will not be unreasonably withheld by Borrower.

6.6.  Cost of Collection . If default is made in the payment of this Debenture, Borrower shall pay the Holder hereof reasonable costs of collection, including reasonable attorneys’, expert witness and arbitration fees. If an Event of Default occurs, then this Section 6.6 shall prevail over Section 6.7 with respect to responsibility for all costs and fees in the event the Holder initiates a collection action.

6.7.  Governing Law; Consent to Jurisdiction; Waiver of Jury Trial . This Debenture shall be governed by, and construed in accordance with, the internal laws of the State of Colorado, without regard to principles of conflicts of law. HOLDER AND BORROWER WAIVE ANY RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS DEBENTURE OR ANY TRANSACTION CONTEMPLATED HEREIN, INCLUDING CLAIMS BASED ON CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER COMMON LAW OR STATUTORY BASES. Each party hereby submits to the exclusive jurisdiction of the state and federal courts located in the County of Denver, State of Colorado. If the jury waiver set forth in this Section is not enforceable, then any dispute, controversy or claim arising out of or relating to this Debenture or any of the transactions contemplated herein will be finally settled by binding arbitration in Denver, Colorado in accordance with the then current Commercial Arbitration Rules of the American Arbitration Association by one arbitrator appointed in accordance with said rules. The arbitrator shall apply Colorado law to the resolution of any dispute, without reference to rules of conflicts of law or rules of statutory arbitration. Judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. Notwithstanding the foregoing, the parties may apply to any court of competent jurisdiction for preliminary or interim equitable relief, or to compel arbitration in accordance with this paragraph. The expenses of the arbitration, including the arbitrator’s fees and expert witness fees, incurred by the parties to the arbitration, may be awarded to the prevailing party, in the discretion of the arbitrator, or may be apportioned between the parties in any manner deemed appropriate by the arbitrator. Unless and until the arbitrator decides that one party is to pay for all (or a share) of such expenses, both parties shall share equally in the payment of the arbitrator’s fees as and when billed by the arbitrator.

6.8.  Maximum Payments . Nothing contained herein shall be deemed to establish or require the payment of a rate of interest or other charges in excess of the maximum permitted by applicable law. In the event that the rate of interest required to be paid or other charges hereunder exceed the maximum permitted by such law, any payments in excess of such maximum shall be credited against amounts owed by Borrower to the Holder and thus refunded to the Borrower.

6.9.  Independent Legal Advice . All parties acknowledge and represent that: (a) they have read this Debenture; (b) they clearly understand this Debenture and each of its terms; (c) they fully and unconditionally consent to the terms of this Debenture; (d) all parties have had the benefit and advice of counsel of their own selection, and the Holder has not relied upon the advice or counsel of Richardson & Patel, LLP, counsel to the Borrower, with respect to this Debenture; (e) they have executed this Debenture, freely, with knowledge, and without influence or duress; (f) they have not relied upon any other representations, either written or oral, express or implied, made to them by any person, except as is specifically set forth herein; and (g) the consideration received by them has been actual, adequate, sufficient, and received.

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6.10.  Construction . Each party acknowledges that it or its own independent legal counsel participated in the preparation of this Debenture and, therefore, stipulates that the rule of construction that ambiguities are to be resolved against the drafting party shall not be applied in the interpretation of this Debenture to favor either party against the other.

[Balance of page intentionally left blank; signature page follows.]

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IN WITNESS WHEREOF , Borrower has caused this Senior Unsecured Mandatorily Convertible Debenture to be signed in its name effective as of this      day of              , 2010.

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Ampio Pharmaceuticals, Inc. a Delaware corporation (the “ Company ” or “ Ampio ”) , hereby certifies that for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged,                      , the registered holder hereof or his permitted assigns (the “ Holder ”), is entitled, subject to the terms set forth below, to purchase from the Company, at a per-share exercise price (the “ Exercise Price”) which shall be equal to the conversion price (the “Conversion Price”) as defined in the Senior Unsecured Mandatorily Convertible Debenture (the “ Debenture ”) issued to the Holder contemporaneously herewith, subject to adjustment as provided below, upon surrender of this Warrant to Purchase Common Stock (including any Warrants to Purchase Common Stock issued in exchange, transfer or replacement hereof, the “ Warrant ”), at any time or times on or after the date hereof, but not after 11:59 p.m., Mountain Time, on December 31, 2013 (the “ Expiration Date ”), the number of fully paid nonassessable shares of Common Stock (the “ Warrant Shares ”) which shall upon initial issuance of this Warrant equal 20% of the Conversion Shares (as such term is defined in the Debenture. Capitalized terms used in this Warrant that are not defined herein shall have the same meanings as set forth in the Debenture. This Warrant may be one of a series of warrants to purchase Common Stock (the “ Warrants ”) issued to the Holder and other holders of debentures of like tenor.

1. EXERCISE OF WARRANT.

(a) Warrant Shares . This Warrant shall be exercisable for up to              shares of Common Stock until the Expiration Date, determined as described above. Merely by way of example, if the Debenture issued to the Holder is in the principal amount of $100,000 and the Conversion Price is $1.75, then the number of Warrants Shares issuable on exercise of this Warrant will be 11,429 Warrant Shares (i.e ., $100,000÷ $1.75x 20%).

(b)  Mechanics of Exercise . Subject to the terms and conditions hereof (including, without limitation, the limitations set forth in Section 1(g)), this Warrant may be exercised by the Holder, in whole or in part, by (i) delivery of a written notice, in the form attached hereto as Exhibit A (the “ Exercise Notice ”), of the Holder’s election to exercise this Warrant and (ii) payment to the Company of an amount equal to the applicable Exercise Price multiplied by the number of Warrant Shares as to which this Warrant is being exercised (the “ Aggregate Exercise Price ”) in cash or by wire transfer of immediately available funds. The Holder shall not be required to deliver the original Warrant in order to effect an exercise hereunder. Execution and delivery of the Exercise Notice with respect to less than all of the Warrant Shares shall have the same effect as cancellation of the original Warrant and issuance of a new Warrant evidencing the right to purchase the remaining number of Warrant Shares. On or

before the first Business Day following the date on which the Company has received each of the Exercise Notice and the Aggregate Exercise Price (the “ Exercise Delivery Documents ”), the Company shall transmit by facsimile an acknowledgment of confirmation of receipt of the Exercise Delivery Documents to the Holder and the Company’s transfer agent (the “ Transfer Agent ”). On or before the third Business Day following the date on which the Company has received all of the Exercise Delivery Documents (the “ Share Delivery Date ”), the Company shall cause the Transfer Agent to issue and dispatch by overnight courier to the address as specified in the Exercise Notice, a certificate, registered in the Company’s share register in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder is entitled pursuant to such exercise or, alternatively, the Company shall cause the Transfer Agent to credit the account of the Holder’s designated broker with DTC through the DWAC system. Upon delivery of the Exercise Notice and Aggregate Exercise Price referred to in clause (ii) above, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of the certificates evidencing such Warrant Shares. If this Warrant is submitted in connection with any exercise pursuant to this Section 1(b) and the number of Warrant Shares represented by this Warrant is greater than the number of Warrant Shares being acquired upon an exercise, then the Company shall as soon as practicable and in no event later than three Business Days after any exercise and at its own expense, issue a new Warrant (in accordance with Section 7(d)) representing the right to purchase the number of Warrant Shares purchasable immediately prior to such exercise under this Warrant, less the number of Warrant Shares with respect to which this Warrant is exercised. This Warrant may not be exercised for less than 100 shares (as appropriately adjusted for stock splits, combinations and similar events). No fractional shares of Common Stock are to be issued upon the exercise of this Warrant, but rather the number of shares of Common Stock to be issued shall be rounded up to the nearest whole number. The Company shall pay any and all taxes which may be payable with respect to the issuance and delivery of Warrant Shares upon exercise of this Warrant.

(c) Exercise Price . For purposes of this Warrant, “ Exercise Price ” means the per-share price equal to the Conversion Price, subject to adjustment as provided herein. If for any reason the Offering is not completed on or before June 30, 2011, then the Exercise Price will thereafter be set at $1.75.

(d) Disputes . In the case of a dispute as to the determination of the Exercise Price or the arithmetic calculation of the Warrant Shares, the Company shall promptly issue to the Holder the number of Warrant Shares that are not disputed and resolve such dispute in accordance with Section 12.

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

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

3.  NONCIRCUMVENTION . The Company hereby covenants and agrees that the Company will not, by amendment of its Certificate of Incorporation, Bylaws or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, and will at all times in good faith carry out all the provisions of this Warrant and take all action as may be required to protect the rights of the Holder. Without limiting the generality of the foregoing, the Company (i) shall not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the Exercise Price then in effect, (ii) shall take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant, and (iii) shall, so long as any of the Warrants are outstanding, take all action necessary to reserve and keep available out of its authorized and unissued shares of Common Stock, solely for the purpose of effecting the exercise of the Warrants, a sufficient number of shares of Common Stock as shall from time to time be necessary to effect the exercise of the Warrants then outstanding (without regard to any limitations on exercise).

4.  WARRANT HOLDER NOT DEEMED A SHAREHOLDER . Except as otherwise specifically provided herein, the Holder, solely in such Person’s capacity as a holder of this Warrant, shall not be entitled to vote or receive dividends or be deemed the holder of share capital of the Company for any purpose, nor shall anything contained in this Warrant be construed to confer upon the Holder, solely in such Person’s capacity as the Holder of this Warrant, any of the rights of a shareholder of the Company or any right to vote, give or withhold consent to any corporate action (whether any reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise, prior to the issuance to the Holder of the Warrant Shares which such Person is then entitled to receive upon exercise of this Warrant. In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on the Holder to purchase any securities (upon exercise of this Warrant or otherwise) or as a shareholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company. Notwithstanding this Section 4, the Company shall provide the Holder with copies of the same notices and other information given to the shareholders of the Company generally, contemporaneously with the giving thereof to the shareholders.

5.  REISSUANCE OF WARRANTS .

(a)  Transfer of Warrant . If this Warrant is to be transferred, the Holder shall surrender this Warrant to the Company, whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Warrant (in accordance with Section 5(d)), registered as the Holder may request, representing the right to purchase the number of Warrant Shares being transferred by the Holder and, if less than the total number of Warrant Shares then underlying this Warrant is being transferred, a new Warrant (in accordance with Section 5(d)) to the Holder representing the right to purchase the number of Warrant Shares not being transferred. Applicable transfer taxes, if any, shall be paid by the Holder. If the Holder proposes to transfer this Warrant to multiple Persons or entities, the Company shall have the right to condition any such transfers on the receipt of a legal opinion from counsel to the Holder that such transfers are in compliance with the provisions of the Securities Act of 1933, as amended.

(b)  Lost, Stolen or Mutilated Warrant . Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant, and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in customary form and, in the case of mutilation, upon surrender and cancellation of this Warrant, the Company shall execute and deliver to the Holder a new Warrant (in accordance with Section 5(d)) representing the right to purchase the Warrant Shares then underlying this Warrant.

(c)  Exchangeable for Multiple Warrants . This Warrant is exchangeable, upon the surrender hereof by the Holder at the principal office of the Company, for a new Warrant or Warrants (in accordance with Section 5(d)) representing in the aggregate the right to purchase the number of Warrant Shares then underlying this Warrant, and each such new Warrant will represent the right to purchase such portion of such Warrant Shares as is designated by the Holder at the time of such surrender; provided, however, that no Warrants for fractional shares of Common Stock shall be given.

(d)  Issuance of New Warrants . Whenever the Company is required to issue a new Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall be of like tenor with this Warrant, (ii) shall represent, as indicated on the face of such new Warrant, the right to purchase the Warrant Shares then underlying this Warrant (or in the case of a new Warrant being issued pursuant to Section 5(a) or Section 5(c), the Warrant Shares designated by the Holder which, when added to the number of shares of Common Stock underlying the other new Warrants issued in connection with such issuance, does not exceed the number of Warrant Shares then underlying this Warrant), (iii) shall have an issuance date, as indicated on the face of such new Warrant which is the same as the Issuance Date, and (iv) shall have the same rights and conditions as this Warrant.

6.  NOTICES . Whenever notice is required to be given under this Warrant, unless otherwise provided herein, such notice shall be given in accordance with Section 6.3 of the Debenture. The Company shall provide the Holder with prompt written notice of all actions taken pursuant to this Warrant, including in reasonable detail a description of such action and the reason therefore. Without limiting the generality of the foregoing, the Company

will give written notice to the Holder (i) immediately upon any adjustment of the Exercise Price, setting forth in reasonable detail, and certifying, the calculation of such adjustment and (ii) at least fifteen days prior to the date on which the Company closes its books or takes a record with respect to any dividend or distribution upon the shares of Common Stock.

7. AMENDMENT AND WAIVER . Except as otherwise provided herein, the provisions of this Warrant may be amended and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company has obtained the written consent of the Holder to such action or performance. No such amendment shall be effective to the extent that it applies to less than all of the holders of the Warrants then outstanding.

8. GOVERNING LAW . This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of Colorado without regard to the choice of law principles thereof.

9. CONSTRUCTION; HEADINGS . This Warrant shall be deemed to be jointly drafted by the Company and all the Holder and shall not be construed against any Person as the drafter hereof. The headings of this Warrant are for convenience of reference and shall not form part of, or affect the interpretation of, this Warrant.

10. DISPUTE RESOLUTION . In the case of a dispute as to the determination of the Exercise Price or the arithmetic calculation of the Warrant Shares, the Company shall submit the disputed determinations or arithmetic calculations via facsimile within two Business Days of receipt of the Exercise Notice giving rise to such dispute, as the case may be, to the Holder. If the Holder and the Company are unable to agree upon such determination or calculation of the Exercise Price or the Warrant Shares within three Business Days of such disputed determination or arithmetic calculation being submitted to the Holder, then the Company shall, within two Business Days submit via facsimile (a) the disputed determination of the Exercise Price to an independent, reputable investment bank selected by the Company and approved by the Holder, or (b) the disputed arithmetic calculation of the Warrant Shares to the Company’s independent, outside accountant. The Company shall cause at its expense the investment bank or the accountant, as the case may be, to perform the determinations or calculations and notify the Company and the Holder of the results no later than ten Business Days from the time it receives the disputed determinations or calculations. Such investment bank’s or accountant’s determination or calculation, as the case may be, shall be binding upon all parties absent manifest error.

11. TRANSFER . This Warrant may be offered for sale, sold, transferred or assigned without the consent of the Company, except as may otherwise be prohibited by U.S. or other applicable securities laws.

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

(a) “ Business Day ” means any day other than Saturday, Sunday or other day on which commercial banks in the State of Colorado are authorized or required by law to remain closed.

(b) “ Common Stock ” means (i) the Company’s shares of Common Stock, par value $0.0001 per share, and (ii) any share capital into which such Common Stock shall have been changed or any share capital resulting from a reclassification of such Common Stock.

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

13. REGISTRATION RIGHTS . The Company will cause the common stock issuable to the Holder hereunder (the “ Registrable Warrant Shares ”) to be included with the securities to be covered by the registration statement proposed to be filed by the Company in connection with the Offering or in a separate registration statement covering the Conversion Shares. Notwithstanding the foregoing provisions, the Company may withdraw or delay or suffer a delay of any registration statement referred to in this Section 13 without thereby incurring any liability to the Holder due to such withdrawal or delay.

[Signature Page Follows]

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

EXHIBIT A

EXERCISE NOTICE

TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

WARRANT TO PURCHASE COMMON STOCK

OF

AMPIO PHARMACEUTICALS, INC.

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

1. Exercise Price . The Holder hereby elects to exercise the Warrant to purchase              Warrant Shares for an aggregate cash exercise price of $              , and a copy of documents evidencing the payment of such amount to the Company is included with this Exercise Notice.

2. Delivery of Warrant Shares . The Company shall deliver the foregoing Warrant Shares to the Holder in accordance with the terms of the Warrant.

Date:                                ,

Name of Registered Holder

ACKNOWLEDGMENT

The Company hereby acknowledges this Exercise Notice and hereby directs [ Insert Name of Transfer Agent ] to issue the above indicated number of shares of Common Stock in accordance with the Transfer Agent Instructions dated                      from the Company and acknowledged and agreed to by [ Insert Name of Transfer Agent ].