Aeolus Pharmaceuticals raises $1.65 million from existing institutional shareholders

Aeolus Pharmaceuticals, Inc. (OTC Bulletin Board:AOLS) announced today that it has completed a $1.65 million financing with several existing institutional shareholders, all of which are affiliates of Xmark Opportunity Partners, LLC. Under the terms of the financing, Aeolus received $1.65 million in gross proceeds in exchange for 5,892,857 Units (the “Units”), with each Unit comprised of one share of Aeolus Pharmaceuticals common stock, and a seven year warrant to purchase up to two additional shares of Aeolus Pharmaceuticals common stock at an initial exercise price of $0.28 per share, for a per Unit purchase price of $0.28. The proceeds from the transaction will be used to fund animal efficacy studies in Acute Radiation Syndrome, further development of AEOL 10150 and for general corporate purposes.

The Company also granted to the investors the option to acquire, collectively, up to an additional 5,892,857 Units at the $0.28 per Unit price (the “Call Option”). In addition, the investors granted to the Company the option to require the investors, severally and not jointly, to acquire up to an additional 5,892,857 Units, less any additional Units acquired under the Call Option, at the $0.28 per Unit price (the “Put Option”). The Call Option is exercisable at any time, and from time to time, on or prior to June 30, 2010. The Put Option is exercisable at any time from June 30, 2010 to July 30, 2010. However, the investors shall have the right to terminate the Put Option if the investors reasonably determine that a material adverse event, condition or circumstance has occurred with respect to the prospects of the Company’s AEOL 10150 drug candidate for acute radiation syndrome; provided that the Company’s failure to receive a grant or financing shall not, by itself, constitute a material adverse event, condition or circumstance with respect thereto.

In addition, the investors agreed to convert all $1,000,000 of the Company’s Senior Convertible Notes issued in August 2008 into the Common Stock at a rate of $0.35 per share and to exchange their remaining option to purchase an additional $4,000,000 in Senior Convertible Notes for warrants to purchase up to 14,285,714 shares of Common Stock in substantially the same of form and terms of warrants issued in the current financing. As consideration for the investors to convert the Notes and exchange their option to acquire additional Notes, the Company agreed to exchange warrants to purchase up to 17,542,857 shares of Common Stock issued to the investors and one of their affiliates in the Company’s November 2005, August 2008 and March 2009 financings for new warrants to purchase an aggregate of 17,542,857 shares of Common Stock in substantially the same form and terms of warrants issued in the current financing.

“Given our success in reducing our overhead and administrative costs and our research and development partnerships with the NIH and our academic research partners, this financing provides us with a significant period of time to move our lead compound toward FDA approval under the ‘animal rule’,” stated John L. McManus, President and Chief Executive Officer of Aeolus Pharmaceuticals, Inc. “We will continue to operate efficiently in order to maximize our financial resources and keep our focus on the successful development of our lead compound AEOL 10150.”