Note 5 – Stock Options and Warrants

The Company has one active stock-based equity plan at May 31, 2016, the CytoDyn Inc. 2012 Equity Incentive Plan (the “2012 Plan”) and one stock-based equity plan that is no longer active, but under which certain prior awards remain outstanding, the CytoDyn Inc. 2004 Stock Incentive Plan (the “2004 Plan” and, together with the 2012 Plan, the “Incentive Plans”). The 2012 Plan was approved by shareholders at the Company’s 2012 annual meeting to replace the 2004 Plan. The 2012 Plan was and was subsequently amended by shareholder approval in February 2015 to increase the number of shares available for issuance from 3,000,000 to 5,000,000 shares of common stock and in March 2016 to increase the number of shares available for issuance from 5,000,000 to 7,000,000 shares of common stock. As of May 31, 2016, the Company had 2,000,930 shares available for future stock-based grants under the 2012 Plan.

Stock Options

During the year ended May 31, 2016, the Company granted annual stock option awards to directors to purchase a total of 350,000 shares of common stock with an exercise price of $0.975 per share. These option awards vest quarterly over one year. The grant date fair value related to these options was $0.49 per share.

During the year ended May 31, 2016, the Company granted a director a stock option, covering 250,000 shares of common stock. The option has a per share exercise price of $0.97, a term of five years and was fully vested upon grant date. The grant date fair value related to this option award was $0.43 per share. In addition, the Company granted another director a stock option, covering 100,000 shares of common stock, with a per share exercise price of $0.84, a five-year term that vests equally upon issuance date and one year from issuance date. The grant date fair value related to this option award was $0.58 per share.

During the year ended May 31, 2016, the Company granted options to executive management and employees to purchase a total of 2,054,000 shares of common stock. The exercise prices range from $0.75 to $0.90 per share. Of these option grants 1,554,000 shares vest based on certain performance targets, as set forth in the stock option agreements, of which 50% was achieved as of May 31, 2016. The remaining 500,000 shares vest as follows; 400,000 annually over three years and 100,000 vest 50% upon issuance and 50% on the first anniversary of the grant date. Each of the foregoing options has a ten-year term and grant date fair values which range from $0.48 to $0.61 per share.

During the year ended May 31, 2016, the Compensation Committee of the Board of Directors of the Company determined to extend the expiration dates of certain outstanding stock option awards under the 2004 Plan and 2012 Plan. For each outstanding award issued to a current employee or director of the Company under the Incentive Plans that had an original five-year term, whether such award was vested or unvested, the term was extended by an additional five years, but only to the extent that the award was not “in-the-money” based upon the closing price of the Company’s Common Stock, or $0.81 per share. The other terms and conditions of such stock option awards, and all of the terms and conditions of any other stock option awards outstanding under the Incentive Plans, remained unchanged. The Company recognized a non-cash stock-based compensation expense of approximately $548,000 in the current period in connection with this extension.

In total, the Company extended the expiration dates on stock options covering 1,924,513 shares, with a weighted average exercise price of approximately $1.39 per share.

Warrants

During the year ended May 31, 2016, in connection with private equity offerings, as fully described in Notes 3 and 7, the Company issued common stock warrants to investors and placement agent, covering 28,214,535 shares of common stock. The warrants have an exercise price of $0.75 or $1.35 per share, a five-year term and are exercisable immediately.

During the year ended May 31, 2016, in connection with debt conversion, as fully described in Note 3, the Company issued a warrant covering 1,000,000 shares of common stock to AVCP. The warrant has an exercise price of $0.675, a five-year term and is immediately exercisable.

Additionally, the Company granted warrants to consultants covering a total of 1,870,000 shares of common stock at exercise prices ranging from $0.81 to $1.35 per share. The warrants are subject to various vesting schedules, have an expiration date of five or ten years and grant date fair values range from $0.25 to $0.60 per share.

During the year ended May 31, 2016, holders of warrants covering 795,593 shares of common stock exercised the right to purchase such shares at either $0.50 or $0.75 per share and the Company received proceeds of approximately $549,000. Additionally, 254,708 warrants at $0.75 per share were subject to a cashless exercise.

Compensation expense related to stock options and warrants issued as compensation was approximately $2,353,000 and $631,000 for the year ended May 31, 2016 and 2015, respectively. The grant date fair value of options and warrants vested during the years ended May 31, 2016 and 2015, was approximately $1,711,500 and $886,000, respectively. As of May 31, 2016, there was approximately $712,000 of unrecognized compensation costs related to share-based payments for unvested options, which is expected to be recognized over a weighted-average period 1.10 years.

The following table represents stock option and warrant activity for the periods ended May 31, 2016 and 2015: