CytRx Announces Tax Value of Distributed Shares of RXi Common Stock

CytRx Corporation (NASDAQ:CYTR), a biopharmaceutical company engaged in the development and commercialization of human therapeutics, today announced that for tax purposes it has valued the shares of common stock of RXi Pharmaceuticals Corporation (NASDAQ:RXII) distributed to CytRx stockholders on March 11, 2008 at $8.84 per share. The value was based in part on the assessment of an independent third party valuation firm that considered, among other factors, the volume weighted average price of RXi common stock in the period immediately following the distribution, as well as the market value of comparable companies. As previously reported, each CytRx stockholder who received RXi shares is treated for tax purposes as having received a distribution in an amount equal to the sum of the fair market value of the RXi shares on March 11, 2008, plus any cash received in lieu of fractional shares. This amount is taxable as a dividend to the extent of CytRx’s current-year earnings and profits, if any, allocable to the stockholder’s CytRx shares. The current year’s earnings and profits will be CytRx’s taxable income, determined by including the gain it recognized on the distribution of RXi shares, subject to adjustments as provided under the Internal Revenue Code of 1986, as amended (the "Code”) and U.S. Treasury regulations. Based upon CytRx’s anticipated results of operations for 2008, CytRx expects to have current-year earnings and profits and, therefore, a portion of the value of the distribution amount received by CytRx stockholders is likely to be taxable to them as a dividend. CytRx, itself, expects to pay no federal income taxes this year because of available tax loss carryovers. For most U.S. non-corporate taxpayers, dividend income is currently taxed for federal income tax purposes at the maximum rate of 15%. The excess of the distribution amount received by CytRx stockholders over the allocable portion of any current-year earnings and profits of CytRx will be treated first as a non-taxable return of capital, causing a reduction in the adjusted tax basis of the stockholders’ CytRx shares with respect to which the dividend was paid, with any remaining excess taxable as capital gain. A CytRx stockholder’s basis in each RXi share received in the distribution will equal the $8.84 determined value per share as of the distribution date. Illustration of the Effect of the Distribution For purposes of illustration only, assume that after accounting for the distribution and CytRx’s results of operations for the full year in 2008, CytRx will have current-year earnings and profits for tax purposes of $10 million. Based upon approximately 90 million shares of CytRx common stock outstanding on the record date, CytRx’s current-year earnings and profits are assumed to be approximately $0.11 per share. Using this example, a hypothetical individual U.S. CytRx stockholder who held 10,000 shares of CytRx stock as of March 6, 2008 (the record date for the distribution) that were purchased for $1.00 per share (resulting in an initial basis of $10,000) would have received approximately 500 shares of RXi common stock in the distribution. Based on the determined value of $8.84 per RXi share, the total distribution amount received by the hypothetical stockholder would therefore be approximately $4,420.00. The first $1,111.00 of the distribution amount, representing CytRx’s earnings and profits for 2008 attributable to the stockholder’s 10,000 CytRx shares, would be treated as dividend income subject to federal income tax at the current dividend rate of a maximum of 15%. The remaining $3,309.00 distribution value ($4,420.00 – $1,111.00) would reduce the stockholder’s basis in his or her CytRx shares from $10,000 to $6,691. The preceding discussion describes certain hypothetical U.S. federal income tax consequences of the distribution of shares of RXi common stock on March 11, 2008. The discussion is for general information only and does not purport to represent the actual tax consequences to any CytRx stockholder or to address all aspects of federal income tax law that may be relevant to CytRx or its stockholders. The discussion applies only to U.S. persons, not to foreign stockholders. The tax consequences to any particular CytRx stockholder may differ depending upon the stockholder’s own circumstances and tax position. The discussion applies only to stockholders who held CytRx shares as capital assets within the meaning of Section 1221 of the Code. The discussion does not address matters that may be relevant to certain stockholders subject to special treatment under the Code, such as financial institutions, insurance companies, S corporations, partnerships and other pass-through entities, trusts, stockholders liable for the alternative minimum tax, dealers in securities or currencies, traders who elect to apply a mark-to-market method of accounting, tax-exempt organizations, U.S. expatriates, directors, employees, former employees or other persons who acquired their shares as compensation, including upon the exercise of employee stock options, and persons who are holding shares as part of a straddle, conversion, constructive sale, hedge or hedging or other integrated transaction. The discussion also does not consider the effect of any applicable estate tax, gift tax, state, local or foreign tax laws. In addition, this discussion is based upon the Code, applicable U.S. Treasury regulations, administrative pronouncements and judicial decisions in effect on the date of this document, all of which are subject to change, possibly with retroactive effect. Each stockholder is urged to consult his or her tax advisor as to the particular tax consequences to such stockholder of the distribution, including the application of state, local and foreign tax laws and possible tax law changes. TO COMPLY WITH IRS CIRCULAR 230, YOU ARE HEREBY NOTIFIED THAT: (A) ANY DISCUSSION OF FEDERAL TAX ISSUES CONTAINED OR REFERRED TO HEREIN IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED BY YOU, FOR THE PURPOSES OF AVOIDING PENALTIES THAT MAY BE IMPOSED ON YOU UNDER THE CODE; AND (B) YOU SHOULD SEEK ADVICE BASED ON YOUR PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR. About CytRx Corporation CytRx Corporation is a biopharmaceutical research and development company engaged in the development of high-value human therapeutics. The Company owns three clinical-stage compounds based on its small-molecule "molecular chaperone" co-induction technology. In September 2006, CytRx announced that arimoclomol was shown to be safe and well-tolerated at all three doses tested in its Phase IIa clinical trial in patients with ALS. The Company's Phase IIb clinical trial with arimoclomol for ALS was placed on clinical hold by the FDA in January 2008. The FDA has granted Fast Track designation and Orphan Drug status to arimoclomol for the treatment of ALS, which also has been granted orphan medicinal product status for the treatment of ALS from the European Medicines Agency. The Company has announced plans to commence a Phase II clinical trial with its next drug candidate, iroxanadine, for diabetic foot ulcers in the second half of 2008, subject to FDA clearance. The Company has also announced plans to commence a Phase II clinical trial for arimoclomol in stroke recovery in the second half of 2008, subject to FDA clearance and resolution of certain matters related to the clinical hold on the Company’s clinical trial for ALS. CytRx operates a dedicated research and development facility in San Diego. For more information on the Company, visit www.cytrx.com. Forward-Looking Statements This press release may contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Statements that include the words "expect,” "intend,” "plan,” "believe,” "project,” "estimate,” "may,” "should,” "anticipate,” "will” and similar statements of a future or forward-looking nature identify forward-looking statements, but the absence of these words does not necessarily mean that a statement is not forward-looking. All forward-looking statements involve inherent risks and uncertainties, and there are or will be important factors that could cause actual results to differ from those indicated in these statements. We believe that these factors include, but are not limited to, risks or uncertainties related to the possibility that taxing authorities might not agree with our tax valuation of RXi shares in the distribution, as well as other risks or uncertainties described in CytRx's most recently filed SEC documents, such as its most recent annual report on Form 10-K. All forward-looking statements are based upon information available to CytRx on the date the statements are first published. CytRx undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.