Note 7. Equity Awards and Warrants

Stock option and warrants activity is presented in the table below:

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As of February 28, 2022, approximately 11.3 million outstanding stock options were vested, approximately 7.4 million outstanding stock options were unvested, and all outstanding warrants were exercisable.

In the three and nine months ended February 28, 2022 and 2021, stock-based compensation expense related to equity instruments discussed herein totaled $(0.4) million and $4.2 million, and $1.9 million and $9.1 million, respectively, presented in general and administrative expense in the Company’s consolidated statements of operations. Stock-based compensation expense recognized in general and administrative expense for three and nine months ended February 28, 2022 included approximately $1.3 million of forfeitures of unvested equity awards related to the termination of the Company’s former CEO see Former CEO Severance in Common Stock below for further information. For the three and nine months ended February 28, 2022, approximately $6.6 million of stock-based compensation expense related to warrants issued of 15 million under the Backstop Agreement and recorded as a finance charge in the accompanying consolidated statement of operations, see Private Placement of Warrants under Surety Bond Backstop Agreement below for further information.

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Equity Incentive Plan

As of February 28, 2022, the Company had one active stock-based equity plan, the CytoDyn Inc. Amended and Restated 2012 Equity Incentive Plan (the “2012 Plan”), and one stock-based equity plan that is no longer active, but under which certain prior awards remain outstanding. As of May 31, 2021, the 2012 Plan covered a total of 50 million shares of common stock. Effective June 1, 2021, the available shares under the 2012 Plan increased by approximately 6.3 million shares due to a provision in the 2012 Plan under which the total number of shares available to be issued automatically increases on the first day of each fiscal year in an amount equal to 1% of the total outstanding shares on the last day of the prior fiscal year, unless the Board determines otherwise before the fiscal year end. On February 21, 2022, the Board released 15.0 million shares from reservation under the 2012 Plan to permit their use for general purposes leaving approximately 10.3 million shares available for future stock-based grants under the 2012 Plan as of February 28, 2022.

Stock Options and Other Equity Awards

During the nine months ended February 28, 2022, the Company granted stock options covering a total of approximately 11.2 million shares of common stock to employees with exercise prices ranging from $0.58 to $2.23 per share. The stock options generally vest over three years, have a ten-year term, and a grant date fair value between $0.45 and $1.71 per share.

During the nine months ended February 28, 2022, the Company issued approximately 0.5 million shares of common stock in connection with the exercise of stock options. The stated exercise price was between $0.63 and $1.06 per share, which resulted in aggregate gross proceeds of $0.4 million to the Company.

During the nine months ended February 28, 2022, the Company issued approximately 0.4 million shares of common stock in connection with the vesting of performance stock units (“PSUs”) awarded in June 2020. The PSUs were subject to the Compensation Committee’s determination of the level of achievement of certain performance conditions set forth in the respective award agreements. The original awards covered a total of 4.35 million PSUs, of which approximately 3.9 million PSUs were forfeited. In connection with the approximate 0.4 million vested shares, the Company recognized $1.3 million in stock-based compensation expense in the fourth quarter of fiscal year 2021.

During the nine months ended February 28, 2022, the Company issued approximately 0.4 million shares of common stock in connection with the time-based vesting of restricted stock units (“RSUs”) for which it recognized $0.4 million in stock-based compensation expense. Also, during the nine months ended February 28, 2022, certain members of management received shares of fully vested common stock in lieu of a portion of their cash bonus for services in fiscal year 2021 totaling approximately 0.2 million shares of common stock. The Company recognized $0.3 million of expense for these shares in lieu of cash bonus during the fourth quarter of fiscal year 2021.

Private Placement of Shares of Common Stock and Warrants

During the nine months ended February 28, 2022, the Company entered into privately negotiated warrant exchange agreements with certain accredited investors, pursuant to which the investors purchased shares of common stock at exercise prices ranging from $0.40 to $1.00 per share. The Company issued approximately 3.5 million shares of common stock under the original warrants, as well as additional shares as an inducement to equity holders to exercise their warrants, for a total of approximately 7.9 million shares of common stock. In connection with these transactions, the Company recognized $5.2 million of inducement interest expense in the nine months ended February 28, 2022 (none in the three months ended February 2022). The total proceeds were $5.4 million.

During the nine months ended February 28, 2022, the Company issued in a private placement to accredited investors a total of approximately 23.5 million shares of common stock, together with warrants, to purchase a total of approximately 7.3 million shares of common stock. The warrants have a five-year term and are immediately exercisable. The securities were issued with a combined purchase price of between $0.40 and $1.80 per fixed combination of one

share of common stock and one quarter of one warrant to purchase one share of common stock. The total proceeds were $22.4 million. Together with the common stock offering through a placement agent described below, in which the Company issued 11.4 million shares of common stock, the Company issued 34.9 million shares of common stock in the nine months ended February 28, 2022.

During the three months ended February 28, 2022, in connection with the private placement to accredited investors described above, certain accredited investors who participated in previous private placements purchased 6.3 million shares of common stock, together with warrants with exercise prices ranging from $0.40 to $1.00 per share, to purchase a total of approximately 2.8 million shares of common stock. In connection with these purchases, the Company modified agreements related to issuances in the previous private placement, effectively lowering the purchase price of common shares, lowering the exercise price of the underlying warrants, and increasing the warrant coverage on the common stock purchased, resulting in the issuance of an additional 1.2 million shares of common stock and 0.6 million warrants with exercise prices of $0.45 to $1.00. As the result of these modifications, the Company recorded inducement interest expense of approximately $1.0 million for the three months ended February 28, 2022.

During the nine months ended February 28, 2022, the Company settled a dispute with a placement agent in part by the issuance of warrants covering 1.6 million shares of common stock that expire in seven years and have a stated exercise price of $0.40 per share. The expense is presented as legal settlement expense in the accompanying consolidated statement of operations and consists of a $0.2 million cash payment and $1.7 million of non-cash expense related to the issuance of warrants.

On February 16, 2022, the Company issued to a third-party consultant as consideration for services a warrant to purchase 25,000 shares of common stock at an exercise price of $1.04 per share and with a term expiring on December 6, 2031. The warrant is fully vested as to 15,000 shares with the remainder vesting on December 6, 2022, subject to forfeiture if the consultant ceases to provide services to the Company prior to that date. The Company recognized $14 thousand in stock-based compensation related to this award in the three months ended February 28, 2022.

Private Placement of Warrants under Surety Bond Backstop Agreement

On February 14, 2022, the Company entered into a Surety Bond Backstop Agreement (the “Backstop Agreement”) with an accredited investor in his individual capacity and as trustee of a revocable trust as well as certain other related parties (collectively, the “Indemnitors”). Pursuant to the Backstop Agreement, the Indemnitors agreed to assist the Company in obtaining a surety bond (the “Surety Bond”) for posting in connection with the Company’s ongoing litigation with Amarex Clinical Research, LLC ("Amarex”), by, among other things, agreeing to indemnify the issuer of the Surety Bond with respect to the Company’s obligations under the Surety Bond. Under the Backstop Agreement, as consideration for the Company’s indemnity of the Surety Bond, the Company agreed to issue a warrant for the purchase of 15.0 million shares of common stock as a backstop fee (the “Initial Warrant”), and to issue an additional warrant for the purchase of 15.0 million shares of common stock, with the additional warrant to be exercised only if the Indemnitors are required to make any payment to the issuer of the Surety Bond as a result of their indemnification (the “Make-Whole Warrant”). If the Indemnitors are required to make any such payment within 90 days of the payment by the Indemnitors, the Company has agreed to reimburse the Indemnitors for any amount paid by them to the issuer of the Surety Bond and to pay to the Indemnitors an indemnification fee in an amount equal to 1.5 times the amount paid by the Indemnitors to the issuer of the Surety Bond. The Initial Warrant has a five-year term. The Make-Whole Warrant is exercisable, if at all, beginning on the date that payment by the Indemnitors to the issuer of the Surety Bond is required (the “Commencement Date”) and ending on the later of (i) five years following the date of issuance of the Make- Whole Warrant and (ii) five years following the Commencement Date if such date occurs within two years following issuance of both warrants. The exercise price of the warrants is $0.30 per share. The payment obligations of the Company to the Indemnitors under the Backstop Agreement bear interest at 10% per annum and are secured by a security interest granted by the Company to the Indemnitors on substantially all of the patents of the Company. For further description of the Backstop Agreement, refer to the Company’s Current Report on Form 8-K filed with the SEC on February 17, 2022. The Company recognized approximately a $6.6 million finance charge related to the warrant issuance for the three months ended February 28, 2022.

Private Placement of Common Stock and Warrants through Placement Agent

During the nine months ended February 28, 2022, the Company issued in a private placement to accredited investors an aggregate of approximately 11.4 million shares of common stock, together with warrants to purchase an aggregate of approximately 5.0 million shares of common stock at an exercise price of $1.00 per share. The securities were issued at a combined purchase price of $1.00 per fixed combination of one share of common stock and three-tenths of one warrant to purchase one share of common stock, for aggregate gross and net proceeds to the Company of $11.4 million and $10.0 million, respectively. The warrants have a five-year term and are immediately exercisable. A copy of the form of warrant was filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 7, 2021. The Company paid a cash fee to the placement agent in an amount equal to 12% of the gross proceeds received from qualified investors in the offering, as well as a one-time non-accountable expense fee of $50,000. The Company also issued warrants with an exercise price of $1.00 per share and a 10-year term to purchase shares in an amount equal to 12% of the total shares of common stock sold to qualified investors in the offering. In satisfaction of the fees, the Company issued warrants for shares of common stock.

Former CEO Severance in Common Stock

On January 24, 2022, the Board of Directors terminated the employment of the Company’s President and Chief Executive Officer, Nader Z. Pourhassan, Ph.D. (the “former CEO”), and removed him as an officer of the Company. Under the terms of his employment agreement, Dr. Pourhassan was also deemed to resign, without any further action or notice, from all positions held with the Company and its subsidiaries, including, without limitation, as a member of the Board. Under the terms of the severance agreement and in accordance with the employment agreement, as amended, with the former CEO, the Company is obligated to pay severance within 60 days of separation, as a lump sum, in the amount of 12 months of salary in effect at the time of separation, and another six months of salary paid in monthly installments beginning 180 days after the termination date. The employment agreement permits the severance payments to be made in whole or in part through the issuance of shares of common stock. As of February 28, 2022, the amount of severance was recorded in Accrued liabilities and compensation in the consolidated balance sheet. Effective March 8, 2022, Dr. Pourhassan and the Company entered into a separation and release of claims agreement with terms consistent with his employment agreement. On March 25, 2022, the Company issued 908,418 shares of common stock in satisfaction of the lump sum amount.