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Note 7. Equity Awards

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

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The fair value of the equity awards granted is estimated using the Black-Scholes option-pricing model based on the closing stock prices at the grant date and the assumptions specific to the underlying award. Expected volatility assumptions are based on the historical volatility of the Company’s common stock. The expected term assumption is based on the contractual and vesting term of the equity award. The risk-free interest rate is based on the U.S. Treasury yield curve with a maturity equal to the expected life assumed at the grant date. The following table summarizes the assumptions used in the determination of fair value:

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In fiscal year ended May 31, 2022, 2021, and 2020, stock-based compensation expense related to equity instruments totaled $6.2 million, $8.8 million, and $6.5 million, respectively; stock-based compensation expense is presented in general and administrative expense in the Company’s consolidated statements of operations. The grant date fair value of options and warrants vested during the same periods was approximately $3.9 million, $4.7 million, and $3.3 million, respectively. As of May 31, 2022, there was approximately $6.5 million of unrecognized compensation expense related to share-based payments for unvested options, which is expected to be recognized over a weighted-average period of approximately 1.18 years. Stock-based compensation expense for the year ended May 31, 2022 included approximately $1.6 million of forfeitures of unvested equity awards related to the termination of the Company’s former CEO.

For the year ended May 31, 2022, approximately $6.6 million of stock-based compensation expense related to 15 million warrants issued under the Backstop Agreement is recorded as a finance charge in the accompanying consolidated statement of operations.

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Equity Incentive Plan

As of May 31, 2022, the Company had one active equity incentive plan, the CytoDyn Inc. Amended and Restated 2012 Equity Incentive Plan (the “2012 Plan”), and one inactive equity incentive plan, the CytoDyn Inc. 2004 Stock Incentive Plan (the “2004 Plan”) under which certain previously issued awards remain outstanding (together referred to as the “Incentive Plans”). The 2012 Plan contains an “evergreen provision” whereby the total number of shares available to be issued automatically increases annually on the first day of each fiscal year in an amount equal to 1.0% of the total outstanding shares on the last day of the prior fiscal year, unless the Board determines otherwise before the fiscal year end. As of May 31, 2022, the 2012 Plan covered a total of 56.3 million shares of common stock.

By action taken on February 21, 2022, and May 23, 2022, the Board released 15.0 million and 7.0 million shares of common stock, respectively, from reservation under the 2012 Plan to permit their use for general purposes, leaving approximately 3.9 million shares available for future stock-based grants under the 2012 Plan as of May 31, 2022. As of May 31, 2022, the Board also made a determination to waive the “evergreen provision” that would have automatically increased the number of shares subject to the 2012 Plan effective June 1, 2022, by an amount equal to 1% of the total outstanding shares on May 31, 2022. The Board has called a special meeting of stockholders to be held on August 31, 2022, to vote on an amendment to the Company’s Certificate of Incorporation to increase the total number of shares of common stock authorized for issuance by 350 million shares. If the proposal is approved by the stockholders, the Board intends to restore the 22 million shares reserved for future awards under the 2012 Plan.

Stock Options and Other Equity Awards

During the fiscal year ended May 31, 2022, the Company granted stock options, covering a total of approximately 3.0 million shares of common stock to non-executive employees and consultants, with exercise prices ranging between $0.43 and $2.23 per share. These stock option awards vest annually over three years, with a ten-year term and grant date fair values ranging between $0.33 and $1.71 per share. During the same period, the Company also issued approximately 0.5 million shares of common stock in connection with the exercise of stock options. The stated exercise prices ranged from $0.63 to $1.06 per share which resulted in aggregate gross proceeds of approximately $0.4 million to the Company. As of May 31, 2022 and 2021, approximately 9.9 million and 12.8 million vested stock options and approximately 7.5 million and 5.8 million unvested stock options were outstanding, respectively.

In January 2020, the Company awarded approximately 11.7 million performance shares to certain of its directors and executive officers outside of the 2012 Plan (“January 2020 Performance Shares”) with awards vesting and be settled in shares of common stock of the Company if the Company achieved FDA Breakthrough Therapy designation for cancer within six months of the award date, among other things. The awards were forfeited on July 28, 2020 when the performance conditions were not met.

In July 2020, the Company awarded approximately 0.3 million shares of common stock to Nader Z. Pourhassan, Ph.D., Chief Executive Officer at that time, of which approximately 0.2 million were tendered back to the Company to cover income tax withholding requirements. The Company recorded approximately $1.6 million in stock compensation expense.

In September 2020, the Company issued to its executives non-qualified stock options covering 3.35 million shares of common stock, time-vesting restricted stock units (“RSUs”) covering 1.12 million shares of common stock, and performance-based stock units (“PSUs”) covering 4.35 million shares of common stock. The RSUs vest equally over three years, and the PSUs vest over the fiscal year ending May 31, 2021 only if certain performance conditions set forth in the awards are met. The options vest equally over three years. The issuance of common stock underlying the PSUs granted for performance in fiscal year ending May 31, 2021 are subject to the Compensation Committee’s determination if certain performance conditions set forth in the awards are met.

During the fiscal year ended May 31, 2022, the Company issued approximately 0.4 million shares of common stock to executives in connection with the time-based vesting of RSUs granted in June Additionally, the Company issued approximately 0.4 million shares of common stock in connection with the vesting of PSUs awarded in June 2020. The PSUs are subject to the Compensation Committee’s determination of the level of achievement of performance conditions set forth in the respective award agreements. Of the 4.35 million of original PSU awards, approximately 3.9 million PSUs were forfeited. Further, certain members of management received a total of approximately 0.2 million shares of fully vested shares of common stock in lieu of a portion of their cash bonus for services in fiscal year 2021.

In order to preserve cash resources, in April 2022, the Board of Directors approved the issuance to executive officers of shares of common stock with a value equal to 25 percent of salary in lieu of cash, net of payroll deductions and withholding taxes. During the fiscal year ended May 31, 2022, a total of 317,441 shares of common stock were issued pursuant to this cash preservation program. The number of shares issued was based on the closing price of the common stock on each payroll date.

Private Offerings of Shares of Common Stock and Warrants Directly by the Company

In private placements to accredited investors conducted directly by the Company during the period from August 2021 through April 2022, the Company issued a total of approximately 26.7 million shares of common stock, together with warrants, to purchase a total of approximately 8.9 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 $23.6 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 38.1 million shares of common stock in the year ended May 31, 2022.

In connection with the private placements to accredited investors described above, certain accredited investors who participated in previous private placements purchased 8.8 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 4.1 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 2.3 million shares of common stock and 0.9 million warrants with exercise prices of $0.45 to $1.00 per share. As the result of these modifications, the Company recorded inducement interest expense of approximately $1.5 million in the year ended May 31, 2022.

Additionally, during the fiscal year ended May 31, 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 $0.45 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 year ended May 31, 2022. The total proceeds were $5.4 million.

In February 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 year ended May 31, 2022.

Legal Settlement Issuances

During the fiscal year ended May 31, 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 part of the 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.

Private Warrant Exchanges

During the fiscal year ended May 31, 2021, the Company also entered into private warrant exchanges in which certain accredited investors purchased shares of common stock at a reduced warrant exercise price ranging from $0.21 to $0.90 per share as compared to the original stated exercise prices ranging from $0.30 to $1.50 per share. The Company issued a total of approximately 35.8 million shares of common stock upon the exercise of exchanged warrants, and approximately 0.4 million additional shares as an inducement to exercise warrants, for a total of approximately 36.2 million shares. Of these shares, 34.9 million shares were issued in exchange for 32.6 million warrants to purchase common stock. Aggregate gross proceeds from the private warrant exchanges were approximately $16.2 million, after

total offering costs of approximately $0.5 million. In connection with these transactions, the Company recognized approximately $14.0 million in non-cash inducement interest expense.

For the year-ended May 31, 2022 the Company recorded non-cash inducement interest expense of approximately $6.7 million in connection with the private warrant exchanges. For the fiscal year-ended May 31, 2021 the Company recorded non-cash inducement interest expense totaling approximately $13.9 million in connection with the private warrant exchanges.

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 (the “Surety”) with respect to the Company’s obligations under the Surety Bond through August 13, 2022. As consideration for the Indemnitors’ agreement to indemnify the Surety, the Company agreed (i) to issue to 4-Good Ventures LLC, an affiliate of the Indemnitors (“4-Good”), a warrant for the purchase of 15,000,000 shares of common stock as a backstop fee (the “Initial Warrant”), (ii) to issue to 4-Good a warrant for the purchase of an additional 15,000,000 shares, to be exercisable only if the Indemnitors are required to make any payment to the Surety (the “Make-Whole Warrant” and, together with the Initial Warrant, the “4-Good Warrants”), and (iii) if the Indemnitors are required to make a payment to the Surety, (A) within 90 days of such payment, to reimburse the Indemnitors for any amount paid to the Surety and (B) to pay to the Indemnitors an indemnification fee in an amount equal to 1.5 times the amount paid by the Indemnitors to the Surety. The payment obligations of the Company to the Indemnitors will bear interest at 10% per annum and are secured by substantially all of the patents held by the Company. The Company recognized a finance charge of approximately $6.6 million related to the warrant issuance for the year ended May 31, 2022.

Pursuant to an amendment to the Backstop Agreement executed on July 18, 2022 (the “Backstop Amendment”), (i) the obligation of the Indemnitors to indemnify the Surety was extended from August 13, 2022 to November 15, 2022, (ii) each of the 4-Good Warrants has a five-year term from the date of issuance and an exercise price of $0.20 per share (reduced from $0.30 per share), (iii) the Make-Whole Warrant was amended to be fully exercisable immediately, (iv) the deadline for the Company to use its commercially reasonable efforts to file a Registration Statement on Form S-3 with the Securities and Exchange Commission (the “SEC”) that is intended to register for resale the shares underlying the 4-Good Warrants was extended to December 31, 2022, (v) the Indemnitors and 4-Good agreed to waive the requirement to reserve for issuance the shares subject to the Make-Whole Warrant pending stockholder approval of an increase in the authorized shares of common stock and (vi) upon the exercise in full of the 4-Good Warrants, the Company agreed to take reasonable steps to cause the Indemnitors to be released from their indemnity obligations by an amount equal to the exercise proceeds.

Private Placement of Common Stock and Warrants through Placement Agent

During the fiscal year ended May 31, 2022, the Company conducted two private placements of common stock and warrants to accredited investors through a placement agent. The first private placement was completed on November 24, 2021, resulting in the issuance of a total of approximately 11.4 million shares, together with warrants to purchase a total of approximately 5.0 million shares. The securities were issued at a purchase price of $1.00 per fixed combination (unit) 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 approximately $11.4 million and $10.0 million, respectively. The Company paid the placement agent a cash fee equal to 12% of the gross proceeds of the offering, or approximately $1.4 million, as well as a one-time non-accountable expense fee of $50,000. The Company also issued warrants to the placement agent or its designees to purchase a total of 1.4 million shares, representing 12% of the total number of shares sold in the offering. The warrants are fully exercisable and have an exercise price of $1.00 per share and a 10-year term.

The second private placement conducted through a placement agent during the fiscal year ended May 31, 2022, began in April 2022 and was completed on June 24, 2022. As of May 31, 2022, the Company had sold a total of 34.6 million units, with each unit comprising a fixed combination of one share of common stock and three-quarters of one

warrant to purchase one share of common stock for a purchase price of $0.255 per unit, for gross proceeds of $8.8 million and net proceeds of $7.6 million. The warrants issued to investors in the private placement have a five-year term and an exercise price of 120% of the final unit price, or $0.30 per share, and are immediately exercisable. The Company agreed to pay the placement agent a cash fee in an amount equal to 13% of the gross proceeds of the offering, as well as a one-time non-accountable expense fee of $50,000, and to issue to the placement agent or its designees warrants with an exercise price of $0.255 per share and a 10-year term to purchase shares of common stock equal to 13% of the total number of shares, including shares subject to warrants, sold in the offering. The issuance of the warrants is subject to the approval by the Company’s stockholders of an increase in authorized shares of common stock. The Board has called a special meeting of stockholders to be held on August 31, 2022, to vote on an amendment to the Company’s Certificate of Incorporation to increase the total number of shares of common stock authorized for issuance by 350 million shares.

Also refer to Note 13, Subsequent Events - Private Placement of Common Stock and Warrants through Placement Agent.

Payment of Severance to Former Executive Officers in Common Stock

During the fiscal year ended May 31, 2022, the Board terminated the employment of our CEO and General Counsel. Under the terms of their respective employment agreements, the Company was obligated to pay severance equal to 18 months of salary to our former CEO and 12 months of salary to our former General Counsel. As permitted by the employment agreements, in March 2022, the Board authorized the severance payments to our former CEO and the remaining severance payments to be made to our General Counsel to be made through the issuance of shares of common stock. On March 25, 2022, the Company issued 908,418 shares to our former CEO in satisfaction of our obligation to make an initial lump sum payment equal to 12 months’ salary, subject to tax withholding and other payroll deductions. As of May 31, 2022, a total of 155,612 shares had been issued to our former General Counsel in satisfaction of our obligation to pay $12,500 in severance each payroll period, net of tax withholding and other payroll deductions. The number of shares issued was based on the closing price of the Common Stock on each payroll date.

Warrants

During the fiscal year ended May 31, 2022, the Company issued approximately 1.4 million shares of common stock in connection with the exercise of an equal number of warrants. The stated exercise prices ranged from $0.45 to $1.35 per share, which resulted in aggregate gross proceeds of approximately $1.0 million. Additionally, during the fiscal year ended May 31, 2022, the Company issued approximately 0.2 million shares of common stock in connection with the cashless exercise of approximately 0.3 million warrants with stated exercise prices ranging from $0.40 to $0.83. In connection with various private warrant exchange agreements during the fiscal year ended May 31, 2022, the Company issued approximately 7.9 million shares of common stock in connection with the exercise of approximately 3.5 million warrants.