Item 1.01 Entry into a Material Definitive Agreement.
Effective December 1, 2022, CytoDyn Inc. (the “Company”) entered into an amendment (the “Second Amendment”) to the Surety Bond Backstop Agreement, as previously amended on July 18, 2022 (the “First Amendment”), and initially entered into by the Company with David Fairbank Welch, both individually and in his capacity as trustee of a revocable trust, LRFA, LLC, a Delaware limited liability company, and certain other related parties (collectively, the “Indemnitors”), effective February 14, 2022. The Surety Bond Backstop Agreement, as amended by the First Amendment and the Second Amendment, is referred to herein as the “Backstop Agreement.”
As previously reported in the Company’s Current Report on Form 8-K filed on February 18, 2022, 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, by, among other things, agreeing to indemnify the issuer of the Surety Bond with respect to the Company’s obligations under the Surety Bond. As previously reported in the Company’s Current Report on Form 8-K filed on July 25, 2022, the First Amendment provided, among other things, for the extension of the obligation of the Indemnitors to indemnify the Surety from August 13, 2022 to November 15, 2022.
The Second Amendment provides for the extension of the obligation of the Indemnitors to indemnify the Surety from November 15, 2022 to January 31, 2023; provided that the Company will relieve the Indemnitors of a minimum of $1,500,000 of cash collateral currently pledged by the Indemnitors in support of the Surety Bond by January 5, 2023, with the balance of the cash collateral ($5,000,000) to be relieved by January 31, 2023; and provided further that, if the balance of the cash collateral on January 31, 2023, has been reduced to $1,000,000 or less, the Company, in its sole discretion, may elect to require the Indemnitors to accept shares of common stock or warrants to purchase shares of common stock in exchange for the remaining balance.
The Second Amendment also provides, among other things, for: (i) the further reduction of the exercise price of the warrants to purchase a total of 30,000,000 shares of common stock issued under the original Backstop Agreement from $0.20 to $0.10 per share; (ii) the issuance to the Indemnitors of a fully exercisable new warrant to purchase 7,500,000 shares of common stock at an exercise price of $0.10 per share; and (iii) the issuance of a second warrant to the Indemnitors covering up to 7,500,000 shares of common stock with an exercise price of $0.10 per share. Except as provided in the Second Amendment, the terms of the warrants will be similar to the warrants issued under the original Backstop Agreement, filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on February 17, 2022. The ultimate number of shares to be covered by the second warrant will be calculated on or before February 14, 2023, based on a formula relating to how quickly the Company relieves the balance of cash collateral pledged by the Indemnitors. The shares covered by the additional warrants are entitled to registration rights.
Following the execution of the Second Amendment, Dr. Welch is deemed to beneficially own in excess of five percent of the Company’s outstanding shares of common stock. The foregoing description of the terms of the Second Amendment is qualified in its entirety by reference to the complete text of the Second Amendment, a copy of which is filed as Exhibit 10.1 to this Current Report on Form 8-K.
Item 3.02 Unregistered Sales of Equity Securities.
On November 30, 2022, the Company concluded a private warrant exchange in which four accredited investors holding outstanding warrants to purchase a total of approximately 1.2 million shares of common stock with an original exercise price of $1.00 per share received a total of approximately 9.5 million shares of common stock upon exercise of the warrants, including approximately 8.4 million shares issued as an inducement for the exercise. Gross cash proceeds from the private warrant exchange totaled approximately $2.1 million. The Company relied on the exemption provided by Rule 506 of Regulation D and Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), for the sales of securities in the private warrant exchange.
Also, as disclosed in Item 1.01 of this Current Report on Form 8-K, on December 1, 2022, the Company agreed to issue to an accredited investor a fully exercisable warrant to purchase 7,500,000 shares of common stock at an exercise price of $0.10 per share. The warrant has a five-year term. The Company relied on the exemption provided by Section 4(a)(2) of the Securities Act for the issuance of the warrant in exchange for the consideration specified in the Second Amendment.