Document:

Exhibit
      10.1

    

    EMPLOYMENT
      AGREEMENT

    

    This
      EMPLOYMENT AGREEMENT is entered into by and between Aeolus Pharmaceuticals,
      Inc., a Delaware corporation, having a place of business at 23811 Inverness
      Place Laguna Niguel, California 92677 (“Aeolus”), and John
      L. McManus,
      having
      a place of business at 23811 Inverness Place, Laguna Niguel, CA 92677
      (“Employee”).

    

    WHEREAS,
      Aeolus wishes to engage Employee for certain services, and Employee wishes
      to
      provide such services, all subject to the terms and conditions of this
      Agreement.

    

    NOW,
      THEREFORE, in consideration of the mutual promises hereinafter set forth, and
      intending to be legally bound, Aeolus and Employee agree as
      follows:

    

    1. Services
      to be Provided.
      Employee shall have the title of President and Chief Operating Officer. During
      the term of this Agreement, Employee shall perform for Aeolus services related
      to duties and responsibilities commensurate with this title and the role of
      Principal Executive Officer. Specific projects or assignments shall be
      authorized on behalf of Aeolus by the Board of Directors of the
      Company.

    

    2. Compensation.
      

    

    (a) Aeolus
      shall compensate Employee $20,850.00 per month for the Services performed.
      On
      July 14th of each year the contract is in effect beginning on July 14, 2006,
      John L. McManus will be granted a stock option to purchase 250,000 shares of
      the
      Aeolus Pharmaceuticals, Inc. Common Stock, par value $0.01 per share, with
      an
      exercise price equal to the closing stock price on the date of grant. The stock
      option will vest on a monthly basis at a rate of 20,833 shares per month
      following the date of grant as long as Employee continues to be an employee
      of
      or consultant to the Company, except in the case of a Sale of the Company,
      in
      which case, the options shall fully vest and be immediately exercisable. The
      foregoing grants shall be subject to the Company’s standard form of stock option
      grant agreement and the Company’s then existing stock plan.

    

    During
      the term of this Agreement, if there is a change of control such that another
      entity acquires and/or merges with Aeolus, then Employee shall be entitled
      to
      receive a bonus of not less than $100,000 upon the execution and delivery of
      definitive and enforceable agreements representing the earliest to occur of
      a
      Corporate Partnership or a Sale of the Company (each as defined below) during
      the term of this agreement. 

    

    A
      “Corporate Partnership” means a development or partnership with another life
      sciences company for the joint development or commercialization of any of the
      Company’s owned or in-licensed patent rights. 

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    A
“Sale
      of Company” means a merger, business combination, reorganization,
      recapitalization or other transaction, which results in the stockholders of
      the
      Company who own at least fifty percent (50%) of the Company’s voting control
      immediately prior to such transaction owning less than fifty percent (50%)
      of
      the surviving entity’s voting control immediately after such transaction, and/or
      sale, transfer, lease or other disposition in any transaction or series of
      transactions of all or substantially all of the assets of the Company.

     

    (b) During
      the term of the agreement, John L. McManus will be entitled to all of the
      current customary employee benefits, subject to plan eligibility requirements.
      In particular, Company will pay your premium for family medical insurance
      coverage under the employee healthcare plan in place from time to time at the
      Company for its employees and provide customary life insurance benefits. The
      Company reserves the right to change or rescind its benefit plans and programs
      and alter employee contribution levels in its discretion. 

    

    (c) Aeolus
      shall reimburse Employee for out-of-pocket travel, hotel, telephone and meal
      expenses reasonably incurred by Employee in performing the Services, provided
      that the travel was approved in advance by Aeolus and the expenses are incurred
      in accordance with Aeolus’ customary reimbursement policies.

    

    3. Ownership
      of Results.
      

    

    (a)
       All
      findings, conclusions and data and all methods, inventions, discoveries, trade
      secrets, techniques, processes and know-how, whether or not patentable, that
      are
      made by Employee, either alone or with others, in the performance of the
      Services or which result, to any extent, from use of Aeolus’ materials, premises
      or other property (collectively, “Inventions”) shall become the exclusive
      property of Aeolus. Employee hereby assigns, transfers and conveys all of its
      right, title and interest in and to any and all Inventions. 

    

    (b)
       Upon
      the
      request and at the expense of Aeolus, Employee will execute and deliver any
      and
      all instruments and documents and take such other acts as may be necessary
      or
      desirable to document Aeolus’ rights or to enable Aeolus to apply for, prosecute
      and enforce patents, trademark registrations or copyrights in any jurisdiction
      with respect to any Inventions or to obtain any extension, validation, re-issue,
      continuance or renewal of any such intellectual property right.   

    

    4. Confidentiality.
      Employee will not, either during or for a period of ten (10) years after the
      term of this Agreement, disclose to any third person or use the results of
      the
      Services or any confidential or proprietary information of Aeolus or its
      collaborators (“Confidential Information”) for any purpose other than the
      performance of the Services, without the prior written authorization of Aeolus.
      This obligation shall not apply to information that:

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (a)
       is
      now,
      or hereafter becomes, through no act or failure to act on the part of Employee,
      generally known or available;

    

    
      
        (b) 
          is
          known
          by Employee at the time of receiving such information;

      

    

    

    (c)
       is
      hereafter furnished to Employee by a third party, which did not acquire such
      information directly or indirectly from Aeolus;

    

    (d)
       is
      independently developed by Employee without use or knowledge of such
      information; or

    

    (e)
       is
      required by law, or order of any court or governmental authority to be disclosed
      by Employee; in such event, however, Employee must give Aeolus sufficient
      advance written notice to permit it to seek a protective order or other similar
      order with respect to such Information and Employee may disclose only the
      minimum Information required to be disclosed in order to comply, whether or
      not
      a protective order or similar order is obtained.

    

    For
      purposes of this Section 4, “Confidential Information” includes, without
      limitation, the results of the Services and the structure and activity of
      chemical compositions, know-how, data, process, technique, formula
      work-in-process, patent applications, marketing methods and plans, pricing
      information, manufacturing or engineering information and any other unpublished
      information related to the business or financial condition of Aeolus and its
      affiliates and business partners. 

    

    5. Term
      and Termination.
      

    

    (a) The
      initial term of this Agreement shall begin as of July 1, 2006 and shall expire
      June 30, 2007. Thereafter, this Agreement will automatically renew for one
      (1)
      year periods, unless either party gives to the other written notice at least
      ninety (90) days prior to the commencement of the next year, of such party’s
      intent not to renew this Agreement.

    

    (b) This
      Agreement may be terminated at the option of Aeolus at any time for cause.
      For
      purposes of this Agreement, “cause" shall be defined as any of the following,
      provided however, that the board of directors of the Corporation by a duly
      adopted resolution has determined the presence of such cause in good faith:
      (i)
      John L. McManus’ material breach of any of its duties and responsibilities under
      this Agreement; or, (ii) John L. McManus' commission of an act of fraud or
      willful misconduct or gross negligence in the performance of its duties.

    

    Aeolus
      shall have the right to terminate this Agreement without cause at any time
      immediately upon written notice to John L. McManus, but any such termination
      shall be without prejudice to John L. McManus’ rights to receive all payments
      under this agreement. Such payment will be due and payable upon termination
      of
      this agreement. 

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    John
      L.
      McManus shall have the right to terminate this Agreement with or without cause
      at any time.

    

    In
      the
      event of a termination, Aeolus shall be responsible for any compensation owed
      to
      Employee under Section 3 for Services rendered prior to the effective date
      of
      such termination; and Employee shall return any materials in Employee’s
      possession that were supplied by Aeolus or generated by Employee under this
      Agreement. The provisions of Sections 4 and 5 shall survive termination of
      this
      Agreement and the completion of the Services. 

    

    

    6. No
      Conflicting Agreements.
      Employee represents that it/he/she is not a party to any existing agreement
      which would prevent Employee from entering into and performing this Agreement.
      Employee will not enter into any other agreement that is in conflict with
      Employee’s obligations under this Agreement, without Aeolus’ prior written
      consent.

    

    7. Entire
      Agreement, Amendment and Assignment.
      

    

    (a)
       This
      Agreement is the sole agreement between Employee and Aeolus with respect to
      the
      Services to be performed hereunder and it supersedes all prior agreements and
      understandings with respect thereto, whether oral or written.

     

    (b)
       No
      modification to any provision of this Agreement shall be binding on a party
      unless in writing and signed by the party to be bound.

    

    (c)
       All
      of
      the terms and provisions of this Agreement shall be binding upon and inure
      to
      the benefit of and be enforceable by the respective legal representatives,
      successors and assigns of the parties hereto, except that the duties and
      responsibilities of Employee hereunder are of a personal nature and may not
      be
      assigned or delegated in whole or in part.

    

    8. Governing
      Law.
      This
      Agreement shall be governed by and interpreted in accordance with laws of the
      State of Delaware, without giving effect to any conflict of laws
      provisions.

    

    9. Notices.
      All
      notices and other communications hereunder shall be in writing and shall be
      deemed to have been given when hand delivered or mailed by registered or
      certified mail to the addresses specified in the initial paragraph or when
      delivered by facsimile, with proof of transmission.

    

    10. Counterparts.
      This
      Agreement shall become binding when any one or more counterparts hereof,
      individually or taken together, bears the authorized signatures of Employee
      and
      Aeolus. This Agreement may be executed in two or more counterparts, each of
      which shall be deemed to be an original as against any party whose signature
      appears thereon, but all of which together shall constitute but one and the
      same
      instrument.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, the undersigned authorized representative of each party
      intending to be legally bound, have each duly executed this Agreement as of
      the
      date signed below.

    
 

    AEOLUS
      PHARMACEUTICALS, INC.

     

    By:
       /s/
      David. Cavalier    

    Name:
      David C. Cavalier

    Title:
       Chairman
      of the Board

    Date:
       July
      14,
      2006

    

    

    EMPLOYEE

     

    By: /s/
      John L. McManus      

    Name:
      John L. McManus      

    Date:
       July
      14,
      2006Exhibit
      10.2

    McManus
      & Company, Inc.

    23811
      Inverness Place

    Laguna
      Niguel, California 92677

    (949)
      481-9820     Fax: (949)
      481-9829

    

    

    July
      10,
      2006

    

    David
      C.
      Cavalier

    Chairman
      of the Board

    Aeolus
      Pharmaceuticals, Inc.

    23811
      Inverness Place

    Laguna
      Niguel, California 92677

    

    Dear
      David:

    

    This
      will
      confirm the terms of our mutual understanding and agreement ("Agreement") in
      connection with the efforts of McManus & Company, Inc. ("M&C") to
      provide consulting services to Aeolus Pharmaceuticals, Inc. or its affiliates,
      sister companies or principals (collectively the "Company" or “Aeolus”) as
      follows:

    

    1.
      Appointment.

    

    The
      Company hereby authorizes M&C to provide the Company services in connection
      with the outsourcing of the accounting, finance and administration functions.
      These services shall include but are not limited to:

    

    
      	 	
              ·

            	
              Accounts
                payable/accounts receivable
                supervision

            

    

    
      	 	
              ·

            	
              Cash
                management

            

    

    
      	 	
              ·

            	
              Purchasing
                management

            

    

    
      	 	
              ·

            	
              Budgeting

            

    

    
      	 	
              ·

            	
              Audit
                coordination, facilitation and
                administration

            

    

    
      	 	
              ·

            	
              Human
                resources administration

            

    

    
      	 	
              ·

            	
              Insurance
                administration

            

    

    
      	 	
              ·

            	
              Contract
                administration

            

    

    
      	 	
              ·

            	
              Shareholder
                services

            

    

    
      	 	
              ·

            	
              Accounting

            

    

    
      	 	
              ·

            	
              Financial
                statement preparation

            

    

    
      	 	
              ·

            	
              Lease
                administration

            

    

    
      	 	
              ·

            	
              Legal
                coordination

            

    

    
      	 	
              ·

            	
              Board
                of directors facilitation/minutes, and

            

    

    
      	 	
              ·

            	
              Other
                corporate activities

            

    

    

    In
      addition, McManus & Company, Inc. will be responsible for hosting the
      Company’s corporate headquarters, corporate servers and administration files and
      records.

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Furthermore,
      it is agreed that M&C will become an agent of the Company. Michael P.
      McManus is appointed Chief Financial Officer, Treasurer and Secretary and will
      perform all duties typically associated with such position as well as be given
      all of the responsibilities. 

    

    It
      is
      understood that M&C is acting as a consultant only and is not a licensed
      securities or real estate broker or dealer. 

    

    M&C
      may, at M&C’s own expense, use employees or consultants to perform the
      Services under this Agreement.

    

    Michael
      P. McManus, as an officer of Aeolus will be covered under the Company’s
      insurance plans including its directors and officers policy.

    

    2.
      Compensation.

    

    Outsourcing
      Compensation

    

    The
      Company will pay M&C a monthly payment of $25,000 in cash for the duration
      of this agreement beginning on July 1, 2006. 

    

    Incentive
      Compensation.

    

    On
      July
      10th of each year the contract is in effect begging on July 10, 2006, Michael
      P.
      McManus will be granted a stock option to purchase 90,000 shares of the Aeolus
      Pharmaceuticals, Inc. Common Stock, par value $0.01 per share, with an exercise
      price equal to the closing stock price on the date of grant. The stock option
      will vest on a monthly basis at a rate of 7,500 shares per month following
      the
      date of grant as long as Consultant continues to be a consultant to or employee
      of the Company, except in the case of a Sale of the Company, in which case,
      the
      options shall fully vest and be immediately exercisable. The foregoing grants
      shall be subject to the Company’s standard form of stock option grant agreement
      and the Company’s then existing stock plan.

    

    During
      the term of this Agreement, M&C will be entitled to:

    

    
      	 	
              ·

            	
              A
                cash payment in the amount of $20,000 upon the declaration of the
                effectiveness of a Registration Statement on Form S-1, S-2, S-3 or
                S-4
                with the United States Securities and Exchange
                Commission;

            

    

    
      	 	
              ·

            	
              A
                cash payment in the amount of $15,000 upon the filing of a Preliminary
                Proxy Statement with the United States Securities and Exchange Commission
                except for the Proxy Statement related to the Company’s Annual Shareholder
                meeting.

            

    

    
      	 	
              ·

            	
              A
                cash payment in the amount of $50,000 upon a Change of Control such
                that
                another entity acquires and/or merges with
                Aeolus.

            

    

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    A
“Change
      in Control” means a merger, business combination, reorganization,
      recapitalization or other transaction, which results in the stockholders of
      the
      Company who on at least fifty percent (50%) of the Company’s voting control
      immediately prior to such transaction owning less than fifty percent (50%)
      of
      the surviving entity’s voting control immediately after such transaction, and/or
      sale, transfer, lease or other disposition in any transaction or series of
      transactions of all or substantially all of the assets of the
      Company.

    

    Other
      Compensation

    

    Michael
      P. McManus shall also be entitled to receive any other compensation given to
      other executive officers of the Company at a level commensurate with his level
      of responsibilities and at a value determined by the board of directors. Other
      compensation would include but not be limited to stock option grants, long-term
      incentive plans and cash bonuses.

    

    Out-of-Pocket
      Expenses

    

    Aeolus
      will reimburse M&C for actual and reasonable out-of-pocket expenses on a
      monthly basis.

    

    3.
      Fees.

    

    The
      fees
      due M&C as set forth in Section 2 above shall be paid by bank or cashier's
      check.

    

    
      
        4.
          Term

      

    

    

    The
      initial term of this Agreement shall begin as of July 1, 2006 and shall expire
      June 30, 2008. Thereafter, this Agreement will automatically renew for one
      (1)
      year periods, unless either party gives to the other written notice at least
      ninety (90) days prior to the commencement of the next year, of such party’s
      intent not to renew this Agreement.

    

    5.
      Termination.

    

    This
      Agreement may be terminated at the option of Aeolus at any time for cause.
      For
      purposes of this Agreement, “cause" shall be defined as any of the following,
      provided however, that the board of directors of the Corporation by a duly
      adopted resolution has determined the presence of such cause in good faith:
      (i)
      M&C’s material breach of any of its duties and responsibilities under this
      Agreement; or, (ii) M&C's commission of an act of fraud or willful
      misconduct or gross negligence in the performance of its duties. 

    

    Aeolus
      shall have the right to terminate this Agreement without cause at any time
      immediately upon written notice to M&C, but any such termination shall be
      without prejudice to M&C’s rights to receive all payments under this
      agreement. Such payment will be due and payable upon termination of this
      agreement. 

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    M&C,
      Inc. shall have the right to terminate this Agreement with or without cause
      at
      any time. 

    

    6.
      Indemnification

    

    The
      Company agrees to indemnify and hold M&C and each of its
      respective

    affiliates
      and their respective directors, officers, employees, agents and controlling
      persons harmless from and against any loss, damage, expense (including legal
      and
      other related fees and expenses), liability or claim arising out of negligent
      or
      other wrongful actions or inactions by the Company, its affiliates or its
      officers or employees. M&C shall advise the Company in writing of any such
      claim of liability within a reasonable time after first receipt of any notice
      or
      other information which would suggest the likelihood of such claim or
      action.

    

    While
      representing itself as an agent of the Company, M&C agrees to indemnify and
      hold the Company harmless from and against any loss, damage, expense (including
      legal and other related fees and expenses), liability or claim arising out
      of
      negligent or other wrongful actions by M&C or its officers or employees
      under this Agreement. The Company shall advise M&C in writing of any such
      claim of liability within a reasonable time after first receipt of any notice
      or
      other information which would suggest the likelihood of such claim or
      action.

    

    7.
      Accurate
      Information.

    

    The
      Company hereby represents and warrants that all information provided M&C
      pertaining to the Company shall be true and correct; and the Company shall
      hold
      M&C harmless from any and all liability, expenses or claims arising from the
      disclosure or use of such information.

    

    8.
      Applicable
      Law.

    

    This
      Agreement is governed by and construed under the laws of the State of
      California, and any action brought by either party against the other party
      to
      enforce or interpret this Agreement shall be brought in an appropriate court
      of
      such State. In the event of any such action, the prevailing party shall recover
      all costs and expenses thereof, including reasonable attorney's fees from the
      losing party.

    

    9.
      Notices.
      

    

    Any
      notice, request, instruction or other document to be given under this Agreement
      by either party to the other party shall be in writing and (a) delivered
      personally; (b) sent by telecopy; (c) delivered by overnight express (charges
      prepaid); or (d) sent by registered or certified mail, postage
      prepaid:

    

    
      	
            	If
              to Company to:	
              Aeolus
                Pharmaceuticals, Inc., 23811 Inverness Place,

            

      	 	 	Laguna Niguel, CA
              92677 

    

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    
      	
            	
              If to M&C to:

            	
              McManus
                & Company, Inc., 23811 Inverness Place,

            

      	 	 	Laguna Niguel, CA 92677 

    

    

    or
      at
      such other address for a party as shall be specified by like notice. Any notice
      which is delivered personally, telecopied or sent by overnight express in the
      manner provided in this section 8 shall be deemed to have been duly given to
      the
      party to whom it is addressed upon actual receipt by such party. Any notice
      which is addressed and mailed in the manner herein provided shall be
      conclusively presumed to have been given to the party to whom it is addressed
      at
      the close of business, local time of the recipient, on the third business day
      after it is so placed in the mail.

    

    10.
      Complete
      Understanding.

    

    This
      Agreement shall constitute the entire agreement and understanding between the
      parties and supersedes all prior agreements and understanding, both written
      and
      oral, between the parties hereto with respect to the subject
      matter.

    

    11.
      Headings
      and Capitalized Terms.
      

    

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

    

    

    12.
      Successors
      and Assigns.
      

    

    The
      terms
      and conditions of this Agreement shall insure to the benefit of and be binding
      upon the parties and their respective successors and permitted assigns. Neither
      M&C nor Company may assign their rights or delegate their obligations under
      this Agreement without the prior written consent of the other.

    

    13.
      Modification
      and Waiver.

    

    None
      of
      the terms or conditions of this Agreement may be waived except in writing by
      the
      party that is entitled to the benefits thereof. No supplement, modification
      or
      amendment of this Agreement shall be binding unless executed in writing by
      M&C and Company. No waiver of any of the provisions of this Agreement shall
      be deemed or shall constitute a waiver of any other provision (whether or not
      similar) nor shall such waiver constitute a continuing waiver.

    

    14.
      Invalid
      Provisions.

    

    If
      any
      provision of this Agreement is held to be illegal, invalid or unenforceable
      under present or future laws by any court of competent jurisdiction, such
      illegality, invalidity or unenforceability shall not affect the legality,
      enforceability or validity of any other provisions or of the same provision
      as
      applied to any other fact or circumstance and such illegal, unenforceable or
      invalid provision shall be modified to the minimum extent necessary to make
      such
      provision legal, valid or enforceable, as the case may be. 

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    If
      the
      foregoing correctly sets forth our Agreement, please sign and return the
      enclosed copy of this letter.

     

     

    
      	 	 	Sincerely,
	 	 	 
	 	 	/s/
              Michael P. McManus
	 	 	Michael P. McManus
	 	 	Executive Vice President
	 	 	McManus & Co.,
              Inc

    

    

     

    

    AGREED
      TO
      AND ACCEPTED AS OF THE DATE HEREOF

    

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

            	 	 
	
              Chairman
                of the Board

            	 	 
	
              Aeolus
                Pharmaceuticals, Inc.

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