Note 6 – Stock Options and Warrants

The Company has one active stock-based equity plan at February 28, 2017, the CytoDyn Inc. 2012 Equity Incentive Plan (the “2012 Plan”) and one stock-based equity plan that is no longer active, but under which certain prior awards remain outstanding, the CytoDyn Inc. 2004 Stock Incentive Plan (the “2004 Plan” and, together with the 2012 Plan, the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 stockholders at the Company’s 2012 annual meeting to replace the 2004 Plan. The 2012 Plan was amended by stockholder approval in February 2016 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. On February 12, 2017, the board of directors approved an amendment to the 2012 Plan to increase the number of shares available for issuance from 7,000,000 to 15,000,000 shares of common stock and modify certain other provisions in the 2012 Plan. The amendment is conditioned upon stockholder approval at the 2017 annual meeting of shareholders. As of February 28, 2017, the Company had 7,550,930 shares available for future stock-based grants under the 2012 Plan, subject to stockholder approval of the increase in the number of shares authorized for issuance under the 2012 Plan.

Stock Options

During the three months ended February 28, 2017, the Company’s Compensation Committee granted a Time-Based Option covering 550,000 shares of common stock to the Executive Chairman and a Milestone-Based Option covering 450,000 shares of common stock. The Time-Based Option has an exercise price of $0.76 and a ten-year term. The option vests in equal monthly installments over the next two years and has a grant date fair value of $0.64 per share. The grant of the Milestone-Based Option is conditioned on stockholder approval of the increase in the number of shares authorized for issuance under the 2012 Plan, as discussed above. The Milestone-Based Option will not be exercisable unless and until approval of the share increase, for the 2012 Plan, as discussed above, is obtained from the stockholders. At that time the vesting will be contingent upon the achievement of certain strategic milestones specified by the Compensation Committee.

During the nine months ended February 28, 2017, the Company granted annual stock option awards to directors to purchase a total of 300,000 shares of common stock with an exercise price of $1.09 per share. These option awards vest quarterly over one year and have a ten-year term. The grant date fair value related to these options was $0.78 per share. An additional stock option covering 100,000 shares of common stock was granted to a director. The option has an exercise price of $0.68 and vests 25% immediately with the remainder ratably over one year, has a ten-year term and grant date fair value of $0.53 per share.

During the nine months ended February 28, 2017, the Company granted options covering an aggregate of 1,050,000 shares of common stock to executive management and certain employees with exercise prices of $1.09 and $1.10 per share. The options vest annually over three years, have a ten-year term and grant date fair values of $0.75 and $0.76 per share, respectively.

Warrants

In connection with a private equity offering completed in June 2016, as fully described in Note 10, the Company issued common stock warrants covering 182,375 shares of common stock to investors. The warrants have a five-year term and an exercise price of $1.35 per share. During the nine months ended February 28, 2017, holders of warrants covering 774,097 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 $398,000. Additionally, warrants covering 138,864 shares with an exercise price of $0.75 per share were exercised pursuant to a cashless exercise provision.

In connection with a registered direct equity offering completed in September 2016, as fully described in Note 11, the Company issued common stock warrants covering 6,666,667 shares of common stock to investors. The investor warrants have a five-year term and an exercise price of $1.00 per share. In connection with this offering, the Company also issued common stock warrants covering 1,066,667 shares of common stock to the placement agent. The placement agent warrants have a five-year term and an exercise price of $0.825 per share.

On December 12, 2016, in connection with a registered direct equity offering, as fully described in Note 11, the Company issued common stock warrants covering 2,000,000 shares of common stock to investors. The investor warrants have a five-year term and an exercise price of $1.00 per share.

On January 31, 2017, in connection with a registered direct equity offering, as fully described in Note 11, the Company issued common stock warrants covering 767,498 shares of common stock to investors. The investor warrants have a five-year term and an exercise price of $1.00 per share. In connection with this offering, the Company also issued common stock warrants covering 122,799 shares of common stock to the placement agent. The placement agent warrants have a five-year term and an exercise price of $0.825 per share.

On February 28, 2017, in connection with a registered direct equity offering, as fully described in Note 11, the Company issued common stock warrants covering 2,835,323 shares of common stock to investors. The investor warrants have a five-year term and an exercise price of $1.00 per share. In connection with this offering, the Company also issued common stock warrants covering 453,652 shares of common stock to the placement agent. The placement agent warrants have a five-year term and an exercise price of $0.825 per share.

In January 2017, the Company determined to extend the expiration dates of certain warrants to May 31, 2017, covering an aggregate of 6,310,667 shares of common stock. The warrants were originally issued in connection with the sale of the 2013 Convertible Notes, as identified in Note 4. The warrants currently have an exercise price of $1.00 per share, and all but two warrants were exercisable through October 2016. One warrant, for the purchase of 186,667 shares of common stock, was exercisable through December 2016 and one warrant, for the purchase of 160,000 shares of common stock, was exercisable until January 15, 2017. The extended expiration date on all of these warrants is May 30, 2017. The extension was subject to the execution of a release of claims by each of the warrantholders. Pursuant to U.S. GAAP, the Company recognized non-cash interest expense of approximately $72,000 in connection with this extension, which represented the incremental increase in the fair value of the modified warrants.

Compensation expense related to stock options and warrants for the three and nine months ended February 28, 2017 and February 29, 2016 was approximately $297,000 and $985,000 and $955,000 and $1,546,000, respectively. The grant date fair value of options and warrants vested during the three and nine-month periods ended February 28, 2017 and February 29, 2016 was approximately $231,000 and $762,000 and $362,000 and 686,000, respectively. As of February 28, 2017, there was approximately $1,156,000 of unrecognized compensation expense related to share-based payments for unvested options, which is expected to be recognized over a weighted average period of 1.90 years.

The following table represents stock option and warrant activity, as of and for the nine-months ended February 28, 2017: