SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission (as permitted by Rule 14A-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14A-11(c) or Rule 14A-12
CYTODYN, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] $125 per Exchange Act Rules O-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[ ] Fee computed on table below per Exchange Act Rules 14A-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
CYTODYN, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 15, 2007
TO OUR SHAREHOLDERS:
You are cordially invited to the Annual Meeting of Shareholders of CytoDyn,
Inc., a Colorado Corporation. The meeting will be held on Sunday April 15, 2007
at 10:00 a.m., local time, at the Albuquerque Marriott Pyramid North, 5151 San
Francisco Road NE, Albuquerque, NM 87109 for the following purposes (as more
fully described in the Proxy Statement accompanying this Notice):
1. To elect Five (5) Board of Directors to serve a 1 year term until the
next Annual Meeting.
2. To ratify the appointment of Pender Newkirk & Company, LLP as auditors
for the year ending May 31, 2007.
3. To approve the terms of a private placement of $3.25 million for 6.5
millions shares of our common stock at a price of $.50 per share and
the terms of our agreement with placement agent Capital Growth
Resources for this private placement.
4. To Amend the 2005 Stock Incentive Plan by increasing the number of
shares of our common stock available for grant by one million
(1,000,000) in order to attract and retain key personnel
5. To transact such other business as may properly come before the Annual
Meeting or any adjournment thereof.
Our Board of Directors recommends that you vote in favor of the foregoing
items of business, which are more fully described in the Proxy Statement
accompanying this notice.
Only the our Shareholders of record at the close of business on February
15, 2007 are entitled to notice of and to vote at the Annual Meeting.
All Shareholders are cordially invited to attend the Annual Meeting in
person. However, to ensure your representation at the Annual Meeting, you are
urged to mark, sign, date and return the enclosed Proxy Statement as promptly as
possible in the postage-prepaid envelope enclosed for that purpose. Any
Shareholder attending the Annual Meeting may vote in person even if he or she
has returned a Proxy Statement.
FOR THE BOARD OF DIRECTORS
/s/ Allen D. Allen
Allen D. Allen, Chairman
Executive Officer and Director
YOUR VOTE IS IMPORTANT
IN ORDER TO ENSURE YOUR REPRESENTATION AT THE ANNUAL MEETING, YOU ARE REQUESTED
TO COMPLETE, SIGN AND DATE THE ENCLOSED PROXY STATEMENT AS PROMPTLY AS POSSIBLE
AND RETURN IT IN THE ENCLOSED ENVELOPE.
CYTODYN, INC.
________________
PROXY STATEMENT FOR THE 2006
ANNUAL MEETING OF SHAREHOLDERS
APRIL 15, 2007
________________
INFORMATION CONCERNING SOLICITATION AND VOTING
General
The enclosed Proxy Statement is solicited on behalf of the Board of
Directors of CytoDyn, Inc., for use at the Annual Meeting of Shareholders to be
held Sunday April 15, 2007 at 10:00 a.m., local time, or at any postponement or
adjournment thereof (the "Annual Meeting"), for the purposes set forth herein
and in the accompanying Notice of Annual Meeting. The Annual Meeting will be
held at the Albuquerque Marriott Pyramid North, 5151 San Francisco Road NE,
Albuquerque, NM 87109. The telephone number at that location is 505-821-3333.
Record Date and Principal Share Ownership
Holders of Shares of our common stock of record at the close of business on
February 15, 2007 (the "Record Date") are entitled to notice of and to vote at
the Annual Meeting. The Shares of our common stock are our only class of voting
securities. As of the Record Date, approximately 11,297,264 Shares of our common
stock were issued and outstanding and held of record by approximately 385
Shareholders.
Revocability of Proxies
Shareholders who execute proxies retain the right to revoke them at any
time before they are voted. Any Proxy Statement given by a Shareholder may be
revoked or superseded by executing a later dated Proxy Statement, by giving
notice of revocation to Secretary, CytoDyn, Inc., 227 E Palace, Suite M, Santa
Fe, New Mexico 87501 in writing prior to or at the Annual Meeting or by
attending the Meeting and voting in person.
Shareholders Sharing the Same Last Name and Address
In accordance with notices we sent to certain Shareholders, we are sending
only one copy of our Annual Report and Proxy Statement to Shareholders who share
the same last name and address, unless they have notified us that they want to
continue receiving multiple copies. This practice, known as "householding," is
designed to reduce duplicate mailings and save significant printing and postage
costs as well as natural resources.
If you received a householded mailing this year and you would like to have
additional copies of Annual Report and/or Proxy Statement mailed to you or you
would like to opt out of this practice for future mailings, please submit your
request to Secretary, CytoDyn, Inc., 227 E. Palace Ave, Suite M, Santa Fe, NM
87501.
Voting and Solicitation
Each Shareholder is entitled to one vote for each Share held as of the
Record Date. Shareholders will not be entitled to cumulate their votes in the
election of Directors.
The cost of soliciting proxies will be borne by us. We expect to reimburse
brokerage firms and other persons representing beneficial owners of Shares for
their expenses in forwarding solicitation material to such beneficial owners.
Proxies may also be solicited by our directors, officers, and regular employees,
without additional compensation, personally or by telephone or facsimile.
Quorum; Abstentions; Broker Non-votes
Votes cast by Proxy or in person at the Annual Meeting will be tabulated by
the Inspector of Elections appointed for the Annual Meeting who will determine
whether or not a quorum is present.
The required quorum for the transaction of business at the Annual Meeting
is a majority of the votes eligible to be cast by holders of Shares of our
common stock issued and outstanding on the Record Date. Shares that are voted
"FOR," "AGAINST" or "WITHHELD FROM" a matter are treated as being present at the
meeting for purposes of establishing a quorum and are also treated as Shares
entitled to vote at the Annual Meeting with respect to such matter.
Abstentions and broker non-votes are each included in the determination of
the number of Shares present and voting for the purpose of determining whether a
quorum is present. Broker non-votes occur when Shares held by a broker for a
beneficial owner are not voted with respect to a particular proposal because (1)
the broker does not receive voting instructions from the beneficial owner, and
(2) the broker lacks discretionary authority to vote the Shares.
Abstentions will be treated as Shares present and entitled to vote for
purposes of any matter requiring the affirmative vote of a majority or other
proportion of the Shares present and entitled to vote. Accordingly, abstentions
will have the same effect as a vote against the proposal. With respect to Shares
relating to any Proxy Statement as to which a broker non-vote is indicated on a
proposal, those Shares will not be considered present and entitled to vote with
respect to any such proposal. Thus, a broker non-vote will not affect the
outcome of the voting on a proposal. Abstentions or broker non-votes or other
failures to vote will have no effect in the election of Directors, who will be
elected by a plurality of the affirmative votes cast.
Any Proxy Statement which is returned using the form of Proxy Statement
enclosed and which is not marked as to a particular item will be voted for the
election of Five (5) Board of Directors to serve a 1 year term until the next
Annual Meeting, for the ratification of the appointment of Pender Newkirk &
Company, LLP as auditors for the year ending May 31, 2007, for the approval of
the terms of a private placement of $3.25 million for 6.5 million shares of our
Common Stock at a price of $.50 per share and the terms of our agreement with
placement agent Capital Growth Resources for this private placement, for
amending the 2005 Stock Incentive Plan by increasing the number of Shares
available for grant by one million (1,000,000) in order to attract and retain
key personnel, and to transact such other business as may properly come before
the Meeting or any adjournment thereof and as the Proxy holders deem advisable
on other matters that may come before the Annual Meeting, as the case may be,
with respect to the items not marked.
Other Business; Shareholder Proposals
We do not intend to present any other business for action at the Annual
Meeting and do not know of any other business to be presented by others.
Pursuant to our bylaws, in order for business to be properly brought by a
Shareholder before an Annual Meeting, our Secretary must receive, at our
corporate office, written notice of the matter not less than 120 days prior to
the first anniversary of the date our Proxy Statement was released to
Shareholders in connection with the preceding year's Annual Meeting. We did not
receive any such notices from our Shareholders for matters to be considered at
the Annual Meeting.
Under Rule 14a-4 promulgated under the Securities Exchange Act of 1934, as
amended, if a proponent of a proposal fails to notify us at least 45 days prior
to the current year's anniversary of the date of mailing of the prior year's
Proxy Statement, then we will be allowed to use our discretionary voting
authority under Proxies solicited by us when the proposal is raised at the
Annual Meeting, without any discussion of the matter in the Proxy Statement. We
were not notified of any Shareholder proposals to be addressed at our Annual
Meeting, and will therefore be allowed to use our discretionary voting authority
if any Shareholder proposals are raised at the Annual Meeting.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of our common stock
as of May 31, 2006, by (i) each person or entity who is known by us to own
beneficially more than 5% of the outstanding shares of common stock, (ii) each
of our Directors, (iii) each of the Executive Officers named in the Summary
Compensation Table, and (iv) all of our Directors and Executive Officers as a
group.
Amount And Nature of Approximate
Name And Address of Beneficial Owner (1) Beneficial Ownership (2)(3) Percent Owned
--------------------------------------------- --------------------------- -------------
DIRECTORS AND NAMED EXECUTIVE OFFICERS
Allen D. Allen 2,170,087 18.8%
Wellington A. Ewen 202,734 1.76%
Corinne E. Allen 1,632,093 14.2%
Gregory A. Gould 29,609 *
Stacia Andrews 19,226 *
Ronald J. Tropp 85,000 *
UTEK Corporation - (not officers or directors) 2,040,000 18%
All Officers and Directors as a Group 4,138,749 34.76%
______________________
* Less than 1%
(1) Unless otherwise indicated, the business address of each Shareholder is c/o
CytoDyn, Inc., 227 E. Palace Ave, Suite M, Santa Fe, New Mexico 87501.
(2) Each Shareholder has sole voting and investment power for the Shares they
beneficially own. This table is based upon information supplied by
Officers, Directors, Principal Shareholders, and Schedules 13D and 13G
filed with the SEC. Beneficial ownership is determined in accordance with
the rules of the Securities and Exchange Commission. Shares of common stock
subject to options and warrants currently exercisable, or exercisable
within 60 days of March 1, 2007, are deemed outstanding for computing the
ownership percentage of the person holding such options or warrants, but
are not deemed outstanding for computing the ownership percentage of any
other person. Except as otherwise noted, we believe that each of the
Shareholders named in the table have sole voting and investment power with
respect to all Shares of common stock shown as beneficially owned by them,
subject to applicable community property laws.
(3) Includes options that have been granted and vested :
Mr. Allen has options to purchase 75,000 Shares of common stock., 38,672
have vested, none have been exercised to date.
Mr. Ewen has options to purchase 150,000 Shares of common stock in
connection with an employment agreement. Mr. Ewen's also received another
75,000 options for his service on the Board of Directors, 202,734 Shares
have vested, none have yet been exercised to date.
Ms. Allen has options to purchase 75,000 Shares of common stock. 38,672
have vested. None have been exercised to date.
Mr. Gould has options to purchase 50,000 Shares of common stock, 24,609
have vested. None have been exercised to date.
Mrs. Andrews has options to purchase 35,000 Shares of common stock, 18,281
have vested. None have been exercised to date.
Mr. Tropp has options to purchase 85,000 Shares for his prior service on
the Board. All 85,000 Shares have vested. None have been exercised to date.
We know of no arrangements concerning anyone's ownership of Stock, which
may, at a subsequent date, result in a change of control.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
our Directors, Officers and beneficial owners of more than 10% of our common
stock to file reports of ownership and reports of changes in the ownership with
the Securities and Exchange Commission. Such persons are required by Securities
and Exchange Commission regulations to furnish us with copies of all Section
16(a) forms they file.
Based solely on our review of the copies of such forms submitted to us
during the year ended May 31, 2006, we believe that all Section 16(a) filing
requirements applicable to our Officers and Directors were complied with.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Director and Nominees for Director
Our Board of Directors currently consists of five persons, all of whom are
standing for reelection at the Annual Meeting. In the event that any person
nominated as a Director becomes unavailable or declines to serve as a Director
at the time of the Annual Meeting, the proxy holders will vote the Proxy
Statements in their discretion for any nominee who is designated by the current
Board of Directors to fill the vacancy. It is not expected that any of the
nominees will be unavailable to serve.
The name of the nominees for election to the Board of Directors at the
Annual Meeting, age as of the Record Date, and certain information are set forth
below.
Name Age Principal Occupation
--------------------- --- ------------------------------------
Allen D. Allen 70 Chief Executive Officer, CytoDyn
Corinne E. Allen 39 Vice President Business Development,
Treasurer, CytoDyn
Gregory A. Gould 40 CPA
Ronald J. Tropp 63 Corporate Attorney
Wellington A. Ewen 66 Chief Financial Officer, CytoDyn
Allen D. Allen. Mr. Allen has been Chairman of our Board,President and
Chief Executive Officer since October, 2003. Before joining CytoDyn, he was the
Chairman of the Board of Directors and Chief Executive Officer of CytoDyn of New
Mexico, Inc., since its inception in 1994. From 1990 to 1994 he was a research
associate with Olive View-UCLA Medical Center where he collaborated and
published with various medical professors original research on HIV, dermatology
and general immunology and was the co-investigator on an autologous vaccine
study. From1986 to 1990 Mr. Allen was director of scientific affairs, Center for
Viral Diseases, Northridge, California, where he conducted and published
original research on a large cohort of patients with complex constellations of
neuroimmunologic complaints. From 1971 to 1986 he was president of Algorithms,
Incorporated where he conducted and published original research in the areas of
artificial intelligence, perception, man and machine systems and societal
engineering. Over the past thirty years, he has published numerous papers in the
peer review science and medical journals. He has also served as an investigator
on clinical research sponsored by major pharmaceutical companies, such as Ortho
Biotech, Johnson & Johnson, and Sanofi-Winthrop. Mr. Allen invented and patented
the family of HIV/AIDS therapies licensed to CytoDyn. He is a member of the
American Physical Society and the American Federation of Scientists, a life
member of the Institute of Electrical and Electronics Engineers, and a founding
member of the Editorial Board of Physics Essays. Mr. Allen received an
Associates of Arts degree from the University of California at Berkeley in 1957
and attended the University of California at Los Angeles from 1957 to 1959. In
1953 he received a national ARS Student Award in aeronautics from the American
Rocket Society (now the Institute of Aeronautics and Astronautics). Mr. Allen is
the father of Corinne E. Allen, our Vice President of Business Development.
Corinne E. Allen, CPA. Ms. Allen has been a Director and Treasurer since
October 2003, and was until May 2004, the Chief Financial Officer and until
September 2006 the Secretary. In May 2004, Ms. Allen became the Vice President
of Business Development. From April 1995 to October 2003, she served as
Secretary and Treasurer of CytoDyn of New Mexico, Inc. where she was also a
Director from June, 1994 to October 2003. Ms. Allen is a licensed Certified
Public Accountant. From 1999 to 2003, Ms. Allen was employed as a senior manager
at Deloitte & Touche, and, from 1992 to 1998 was a CPA at Hallquist Jones P.C.
She has over 17 years experience in the accounting industry. Ms. Allen received
a B.S. in Business Administration from California State University Northridge
with a specialty in Accounting Theory and Practice in 1992. She has been a
Certified Public Accountant since January 1997. Ms. Allen is the daughter of
Allen D. Allen.
Wellington A. Ewen, CPA, MBA. Mr. Ewen, has been Chief Financial Officer
since May 6, 2004. From 1988 until 2000, Mr. Ewen was owner of Wellington Ewen &
Associates in Malibu, California, which represented many clients as financial
and accounting consultants. He also served as financial and accounting officer
for several development stage pharmaceutical companies, including Entropin, Inc.
from April 1998 to June, 2000. From February, 1999 until his resignation in
2000, he was the chief financial officer of Amerimmune, Inc. From January, 2000
to July, 2000, he also served as a manager at PriceWaterHouseCoopers in Los
Angeles, California. Mr. Ewen is currently licensed as a CPA in Oregon. He
received his Bachelor of Science in 1963 and Master of Business Administration
from Cornell University in 1964.
Gregory A. Gould, CPA, Director, Audit Committee Mr. Gould has worked in
the life sciences industry for the past decade as a senior executive. Until its
acquisition by QLT, Inc. for approximately $850 million in November of 2004, Mr.
Gould served as Chief Financial Officer, Treasurer and Secretary of Atrix
Laboratories, Inc. Atrix was a Nasdaq company with over $60 million in
annualized revenues and 160 employees in two countries From February of 1996
until its acquisition by KRG Capital Partners in October of 2003, Mr. Gould was
the Director of Finance, and then Chief Financial Officer and Treasurer of
Colorado MEDtech, a Nasdaq company with over $77 million in annualized revenues
and 500 employees located in four States. Mr. Gould received his B.S. in
Business Administration form the University of Colorado at Boulder in 1989. He
is a Certified Public Accountant in Colorado and a member of the Colorado
Society of Certified Public Accountants.
Ronald J. Tropp, Esq. Mr. Tropp is an attorney admitted to practice in New
York and California. He is a graduate of Swarthmore College and the University
of Wisconsin at Madison Law School. He has been a Director since October, 2003,
and, prior to that time, served as Director for CytoDyn of New Mexico, Inc. He
is an attorney, admitted to practice in New York and California. He has
practiced entertainment and transactional law for over 25 years and has been
representing CytoDyn of New Mexico, Inc. since the Fall of 1999. Previously, he
served as corporate counsel and director for Pacific Coast Medical Enterprises,
which owned five acute care hospitals in Southern California.
Vote Required
The nominees receiving the highest number of affirmative votes of the
Shares present or represented and entitled to be voted for them shall be elected
to the Board of Directors. Votes withheld from any Director are counted for
purposes of determining the presence or absence of a quorum for the transaction
of business, but have no other legal effect under Colorado law.
Recommendation of the Board of Directors
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE NOMINEES SET
FORTH ABOVE.
Board Meetings, Committees and Directors Compensation
Although we have no formal policy requiring Director attendance at Annual
Meetings of Shareholders, Directors are encouraged to attend the Annual Meetings
of Shareholders.
Audit Committee
The Audit Committee assists the full Board of Directors in its general
oversight of our financial reporting, internal controls, and audit functions,
and is directly responsible for the appointment, compensation and oversight of
the work of our independent registered public accounting firm. The members of
the Audit Committee are Gregory A. Gould, Corinne E. Allen and Wellington Ewen.
The Board of Directors has determined that Mr. Gould is an "audit committee
financial expert" as defined by SEC regulations.
Compensation Committee
Gregory A. Gould and Ronald J. Tropp, Esq. are members of our Compensation
Committee. The Compensation Committee, among other things, sets executive
compensation guidelines, recommends the compensation of our Chief Executive
Officer and Board of Directors and approves the compensation of other executive
officers.
Nominating Committee
We do not have a separate Nominating Committee. Instead, the full Board of
Directors reviews and makes recommendations regarding candidates for service on
the Board of Directors.
It is our policy that Director candidates recommended by Shareholders will
be given appropriate consideration in the same manner as other Director
candidates presented to the Board of Directors. Shareholders who wish to submit
a Director candidate for consideration by the Board of Directors may do so by
submitting a comprehensive written resume of the recommended nominee's business
and educational experience and background and a consent in writing signed by the
recommended nominee that he or she is willing to be considered as a nominee and
if nominated and elected, he or she will serve as a Director. Shareholders
should send their written recommendations of nominees accompanied by the
candidate's resume and consent to: Board of Directors, c/o CytoDyn, 227 E.
Palace Ave, Suite M, Santa Fe, New Mexico 87501. No director nominations by
Shareholders have been received as of the filing of this Proxy Statement.
Shareholder Communications to the Board of Directors
Shareholders may submit communications to our Board of Directors or any
individual members of the Board of Directors by addressing a written
communication to: Board of Directors, c/o CytoDyn, Inc., 227 E Palace Avenue,
Suite M, Santa Fe, New Mexico 87501. Shareholders should identify in their
communication the addressee whether it is our Board of Directors or any
individual member of the Board of Directors. Shareholder communications will be
forwarded to our Secretary. Our Secretary will acknowledge receipt to the
sender, unless the sender has submitted the communication anonymously, and
forward a copy of the communication to the addressee on our Board of Directors
or if the communication is addressed generally to our Board of Directors to our
Chairperson of the Board of Directors.
Compensation of Directors
Our Directors receive 25,000 stock options each year for their services as
Directors. The Shares vest 25% immediately and the remaining Shares vest monthly
over twelve months. The Directors receive no cash compensation.
Option/SAR Grants in Last Fiscal Year
Individual Employee Grants
(a) (b) (c) (d) (e)
% of Total
Options/SARS
Number of Granted to Exercise
Underlying Employees in Price
Options/SARS Fiscal Year per Shares Expiration
Name Granted (#) 5/31/06 ($/Sh) Date
----------------------------------------------------------------------------------------------
Allen D. Allen, CEO 25,000 4% 2.95 3/20/2016
Wellington Ewen, CFO, Director 25,000 4% 2.68 3/20/2016
Corinne Allen Vice President, Director 25,000 4% 2.95 3/20/2016
Gregory A Gould, Director 25,000 4% 2.28 3/20/2016
Ronald J. Tropp, Director 85,000 13% 2.28 3/20/2016
Aggregated Option/SAR Exercises in Last Fiscal Year
And FY-End Option/SAR Values
(a) (b) (c) (d) (e)
# of Securities Value of
Underlying Unexercised
Unexercised In-the-money
Options at FYE Options at
Shares May 31, 2006 (#) FYE ($) (1)
Acquired On Value Exercisable/ Exercisable/
Name Exercise (#) Realized ($) Unexercisable Unexercisable
Allen D. Allen, CEO 0 0 10,547/14,453 0/0
Wellington Ewen, CFO, Director 0 0 110,547/64,453 175,000/0
Corinne Allen Vice President, Director 0 0 10,547/14,453 0/0
Gregory A Gould, Director 0 0 10,547/14,453 2,320/3,180
Ronald J. Tropp, Director 0 0 85,000/0 18,700/0
(1) Represents the difference between the fair market value of common stock
underlying the option and the exercise price at FYE May 31, 2006 Fair market
value of the common stock on May 31, 2006 was $2.50 per Share.
Compensation Committee Interlocks and Insider Participation
During fiscal 2006, no member of our Board of Directors or Executive
Officer served as a member of the Board of Directors or Compensation Committee
of any entity that has an executive officer serving as a member of our Board of
Directors.
RELATED PARTY AND CERTAIN TRANSACTIONS
Related Party Transactions, Actual or Proposed, In Last 2 Years. We propose
to be, or during the last two years were, party to certain transactions
involving amounts in excess of $120,000, in which our Directors, Executive
Officers, others hold more than 5% of any class of our securities, or their
immediate family members, had or will have a material interest. The interested
parties and transactions are described below.
Services Provided by Ronald J. Tropp. Director, Ronald J. Tropp, Esq., has
provided legal services to us and to CytoDyn of New Mexico, Inc. for a number of
years. Currently, we owe him the sum of $46,985 for these services. Mr. Tropp
received 60,000 options as partial payment of his services. We anticipate that
Mr. Tropp will provide additional legal services to us in the future.
Note Given and Debt Owed to Allen D. Allen. In January 2004 we issued to
Allen D. Allen, our President, Chief Executive Officer and the Chairman of our
Board of Directors, a non interest bearing promissory note, payable on demand,
in the original principal amount of $22,788 The note reflects advances made to
us by Mr. Allen during the years ending on May 31, 2003 and May 31, 2004.. The
sum owed does not bear interest and is payable on demand. As of May 31, 2006
debt owed to Allen D. Allen increased by an additional $9,681 The total debt
owed to Mr. Allen is $32,468.
Notes Given to Corinne Allen. In January 2004, we issued to Corinne E.
Allen, our Vice President of Business Development, Treasurer and Director, two
non interest bearing promissory notes, each payable on demand, in the original
principal amounts of $50,000 and $38,906. The notes reflected advances made to
us by Ms. Allen during the years ending on May 31, 2003 and May 31, 2004. The
$50,000 note was paid in full in February, 2004. The $38,906 note remains
outstanding and does not bear interest.
EXECUTIVE OFFICER COMPENSATION
The following table provides an overview of compensation that we paid to
our Named Executive Officers for the fiscal years ended May 31, 2006, 2005, 2004
and 2003
Long-Term
Compensation
Awards
Annual Compensation Securities All Other
------------------- Underlying Compensation
Name and Principal Position Year ($)Salary (1) Bonus ($) Options (2) ($)*
--------------------------- ---- ------------- --------- ----------- ----
Allen D. Allen 2004 98,000 0 0 0
President and Chief Executive Officer 2005 98,000 0 0 0
2006 150,000 0 50,000 0
Wellington Ewen, Chief Financial Officer 2004 0 0 50,000 0
2005 0 0 50,000 0
2006 0 0 150,000 0
Corinne E. Allen 2004 50,000 0 0 0
Vice President Business Development 2005 60,000 0 0 0
2006 100,000 0 50,000 0
(1) Salaries listed above are as approved by Board of Directors, although the
actually salaries paid was $ 0 $32,668 $90,333 for Mr. Allen fiscal years 2004,
2005, 2006 and Ms. Allen was approved for salary of $100,000 February 2006, she
was paid $55,833 for the fiscal year 2006 and the remainder was accrued. In
prior years her salary was under $100,000.
(2) Total number of shares granted, as awarded under our 2005 Stock Incentive
Plan or other Employment Agreement.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Notwithstanding anything to the contrary in any of our previous or future
filings under the Securities Act of 1933, as amended, or the Securities Exchange
Act of 1934, as amended, that might incorporate this Proxy Statement or future
filings with the Securities and Exchange Commission, in whole or in part, the
foregoing Compensation Committee Report shall not be "soliciting material" or
"filed" with the Securities and Exchange Commission, nor shall such information
be incorporated by reference into any such filing.
The Compensation Committee of the Board of Directors, comprising two
non-employee directors, oversees our executive compensation programs. These
programs include base salary for executive officers and both annual and
long-term incentive compensation programs. Our compensation programs are
designed to provide a competitive level of total compensation and include
incentive and equity ownership opportunities linked to our performance and
stockholder return.
Compensation Philosophy. Our overall executive compensation philosophy is
based on a series of guiding principles derived from our values, business
strategy, and management requirements. These principles are summarized as
follows:
o Provide competitive levels of total compensation which will
enable us to attract and retain the best possible executive
talent;
o Motivate executives to achieve optimum performance for us;
o Align the financial interest of executives and stockholders
through equity-based plans; and
o Provide a total compensation program that recognizes individual
contributions as well as overall business results.
Compensation Program. The Compensation Committee is responsible for
reviewing and recommending to the Board of Directors the compensation and
benefits of our Chief Executive Officer and for approving the compensation and
benefits of our other executive officers. In addition, the Compensation
Committee sets our executive compensation guidelines and reviews, approves and
evaluates our executive compensation plans, policies and programs. There are two
major components to our executive compensation: base salary, as well as
potential long-term compensation in the form of equity awards, which may include
stock options and shares of restricted stock. The Compensation Committee
considers the total current and potential long-term compensation of each
executive officer in recommending and approving each element of compensation.
1. Base Salary. In recommending compensation levels for our Chief
Executive Officer or setting compensation levels for our other executive
officers, the Compensation Committee reviews competitive information relating to
compensation levels for comparable positions at pharmaceutical and other life
sciences companies. In addition, the Compensation Committee may, from time to
time, hire compensation and benefit consultants to assist in developing and
reviewing overall salary strategies. Individual executive officer base and
potential bonus compensation may vary based on time in position, assessment of
individual performance, salary relative to internal and external equity and
critical nature of the position relative to our success.
2. Long-Term Incentives. Our 2005 Stock Incentive Plan provides for the
grant of stock options, restricted stock awards and performance shares to
qualified employees and officers. Equity awards, which may include stock options
and restricted stock grants, are provided to our executive officers and other
employees both as a reward for past individual and corporate performance and as
an incentive for future performance. The Compensation Committee believes that
stock-based performance compensation arrangements are essential in aligning the
interests of management and the stockholders in enhancing the value of our
equity.
2005 Compensation for the Chief Executive Officer. In recommending Mr.
Allen's salary for 2006 for Board approval, the Compensation Committee
considered competitive compensation data for chief executive officers and
presidents of similar companies within the life sciences industry, taking into
account Mr. Allen's experience and knowledge. Based upon this review, the
Compensation Committee found that Mr. Allen's total compensation (and, in the
case of severance and change-in-control scenarios, the potential payouts) in the
aggregate to be reasonable and not excessive. Mr. Allen's annual salary for
fiscal year May 31, 2006 was $150,000, however due to our cash constraints, he
was paid $90,333 and the remainder has been accrued.
Section 162(m) of the Internal Revenue Code Limitations on Executive
Compensation. Section 162(m) of the United States Internal Revenue Code of 1986,
as amended, (the "Code") may limit our ability to deduct for United States
federal income tax purposes compensation in excess of $1,000,000 paid to the our
Chief Executive Officer and our four other highest paid executive officers in
any one fiscal year. None of our executive officers received any such
compensation in excess of this limit during fiscal 2006.
Section 162(m) of the Code places limits on the deductibility for United
States federal income tax purposes of compensation paid to certain of our
executive officers. In order to preserve our ability to deduct the compensation
income associated with equity awards granted to such person, for the purposes of
Section 162(m) of the Code, the 2005 Stock Incentive Plan provides that no
employee may be granted, in any of one calendar year, options relating to more
than 400,000 shares of common stock and restricted shares and performance shares
relating to more than 100,000 shares of common stock. In addition, the 2005
Stock Incentive Plan provides that in connection with an employee's initial
employment, the employee may be granted options relating to up to 800,000 shares
of common stock and restricted shares and performance shares relating to up to
200,000 shares of common stock. To the extent grants under the 2005 Stock
Incentive Plan are in excess of these limitations, such excess shall not be
exempt from the deductibility limits of Section 162(m) of the Code.
Respectfully submitted,
Gregory A. Gould, CPA
Ronald J. Tropp, Esq.
STOCK PERFORMANCE GRAPH
Please See Exhibit 99.1
PROPOSAL NO. 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Approval of Services. The Board of Directors has resolved to establish an
Audit Committee composed of Wellington Ewen, our Chief Financial Officer,
Corinne Allen, a Director and our Vice President of Business Development, and
Gregory A. Gould, Director.
Audit Fees. The aggregate fees billed during the fiscal years ended May 31,
2006 and 2005 for professional services rendered by our prior principal
accounting firm, Cordovano and Honeck, P.C., for the audit of the financial
services included in the Form 10-KSB, and for the review of the interim
condensed financial statements included in the Form 10-QSB, were approximately
$15,900 and $9,780, respectively. Included are fees associated with the review
by Cordovano and Honeck, P.C. of a registration statement filed with the SEC and
the related issuance of independent accountant consent letters.
Audit Related Fees. The aggregate fees billed during the fiscal years ended
May 31, 2006 and 2005 for assurance and related services rendered by our prior
principal accounting firm, Cordovano and Honeck, P.C., were approximately $0 and
$0 respectively. Assurance and related service fees include the audit of
employee benefit plan financial statements and audit-related due diligence
assistance on potential acquisitions.
Tax Compliance/Preparation Fees. The aggregate fees billed during the
fiscal years ended May 31, 2006 and 2005 for professional services rendered by
our prior principal accounting firm, Cordovano and Honeck, P.C., for tax
compliance, tax advice, and tax planning were approximately $0 & $0,
respectively. Tax compliance services include the preparation of income tax
returns filed with the Internal Revenue Service. Tax advice and planning
services included assistance with implementation of tax planning strategies and
consultation on other tax matters.
All Other Fees. The aggregate fees billed during the fiscal years ended May
31, 2006 and 2005 for all other professional services rendered by our prior
principal accounting firm, Cordovano and Honeck, P.C., were approximately $0 and
$896, respectively. Other services consisted of assistance with the
interpretation of new accounting standards and other related services.
The following is a summary of the fees billed to us by Cordovano and
Honeck, P.C. for professional services rendered for the fiscal years ended May
31, 2006 and 2005:
Fiscal Fiscal
2006 2005
Fee Category Fees Fees
------------ ---- ----
Audit Fees $15,900 $ 9,780
Audit Related Fees $ 0 $ 0
Tax Fees $ 0 $ 0
All Other Fees $ 0 $ 896
------- -------
Total Fees $15,900 $10,676
======= =======
Cordovano and Honeck, P.C. audited our financial statements annually from
May, 2002 through May 31, 2006. We have retained Pender Newkirk & Co as our
independent accounting firm for fiscal year May 31, 2007, after approval by the
Audit Committee. Fees are $4,000 per month and will be billed for any additional
work done outside the scope of any quarterly reviews or annual audit.
Vote Required
Ratification of the appointment of Pender Newkirk & Company, LLP as our
independent registered public accounting firm for the fiscal year ending May 31,
2007 will require the affirmative vote of the majority of the shareholders
present in person or by Proxy Statement at the Annual Meeting and entitled to
vote. Proxy Statements solicited by management for which no specific direction
is included will be voted "for" the ratification of Pender Newkirk & Company,
LLP as our independent registered public accounting firm for the fiscal year
ending May 31, 2007.
Recommendation of the Board of Directors
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE RATIFICATION
OF THE APPOINTMENT OF PENDER NEWKIRK & COMPANY, llp AS OUR INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING May 31, 2007.
PROPOSAL NO. 3
APPROVAL OF PRIVATE PLACEMENT MEMORANDUM AND CAPITAL GROWTH
RESOURCES AS PLACEMENT AGENT TO RAISE $3.25 MILLION IN CAPITAL
We intend to offer for sale Memorandum a minimum of 500,000 shares of our
common stock and up to a maximum of 6,500,000 shares of common stock at a price
of $0.50 per share. The minimum investment is $25,000.
The Shares would be sold in the U.S. through Capital Growth Resources, the
Placement Agent, who has entered into a Private Placement Agreement with us,
whereby the Placement Agent will be compensated with a cash commission of ten
percent (10%) and a cash non-accountable expense fee of three percent (3%) of
the purchase price of the Shares as well as warrants to purchase, at a strike
price of $0.50, 13% of the total number of Shares sold in the Offering, which
will be exercisable for five years.
This Offering is limited to "accredited investors", as that term is defined
under Regulation D as promulgated under the Securities Act of 1933, and will
commence on the date of the Private Placement Memorandum and will terminate 180
days from the date of the Memorandum unless extended by us for an additional 90
days. Minimum Investment is 50,000 Shares.
The Shares will be issued as restricted securities. The Offering is being
made initially solely to accredited investors pursuant to Regulation D, Rule
505, promulgated under the Securities Act of 1933. As a result, the Shares will
be subject to restrictions on transfer and will be transferable only if they are
registered or an exemption from registration is available. We may later amend
the Offering to permit a limited number of non-acccredited investors.
We will use our best efforts to register all of the Shares purchased in the
Offering within sixty (60) days after the close of the Offering once a minimum
of $2,000,000 has been raised.
USE OF PROCEEDS
We expect to use the proceeds of the Offering substantially as follows and
to apply the proceeds in the following order of priority:
Minimum Maximum
Proceeds % Proceeds %
-------- ---- ---------- ----
Total Proceeds $250,000 100 $3,250,000 100
Less:
Commissions 25,000 10 325,000 10
Nonaccountable Expense Fee 7,500 3 97,500 3
Offering Expenses 20,000 8 20,000 0.6
Total Offering Expenses 52,500 21 442,500 13.6
Net Proceeds from Offering $197,500 79% $2,807,500 86.4%
Use of Proceeds: allocation of net allocation of net
Domestic and European patents 25,000 25,000
Legal & accounting fees 32,000 88,000
Registration of shares 0 40,000
Repayment of debt 0 337,000
Executive salaries 91,000 250,000
Investor Relations 11,500 35,000
Phase 1 Trial of DNA Plasmid 0 2,000,000
Working Capital 38,000 32,500
Total $197,500 $2,807,500
This is our best estimate of the allocation of the net proceeds from the
Offering. If we receive the total proceeds from the Offering, we should have
enough financing to be able to operate for about 12 months. The Board of
Directors may decide to reallocate proceeds and priorities if the needs of our
operations change.
Dilution
Dilution is the difference between the purchase price paid by the investors
for their Stock and the net tangible book value of the securities after the
Offering. The net tangible book value of a security is equal to our tangible net
worth (tangible assets minus total liabilities) divided by the total number of
shares of the security outstanding. Before the Offering, our tangible net worth
was $(.05). The following table illustrates the dilution on a per share basis of
our common stock, assumes the sale of all 6,500,000 Shares offered.
Investors' offering price per Share of common stock $0.50
Net tangible book value per Share of common stock prior to
the Offering $(.05)
Increase to common stock's book value attributable to the sale
of the Shares offered herein and exercise $0.20
Pro forma net tangible book value after the Offering $0.15
Dilution to the investors $0.15
Vote Required
Approval to increase the number of Shares authorized will require the
affirmative vote of the holders of a majority of the Shares present in person or
by Proxy Statement at the Annual Meeting and entitled to vote. Proxy Statements
solicited by management for which no specific direction is included will be
voted "for" the approval of the proposal.
Recommendation of the Board of Directors
OUR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE TERMS OF A PRIVATE PLACEMENT
OF $3.25 MILLION FOR 6.5 MILLION SHARES OF OUR COMMON STOCK AT A PRICE OF $.50
PER SHARE AND THE TERMS OF OUR AGREEMENT WITH PLACEMENT AGENT CAPITAL GROWTH
RESOURCES FOR THIS PRIVATE PLACEMENT.
PROPOSAL NO. 4
APPROVAL OF FIRST AMENDMENT AND RESTATEMENT
OF THE 2005 STOCK INCENTIVE PLAN
Introduction
The 2005 Stock Incentive Plan, as amended (the "2005 Plan"), was originally
approved by our Board of Directors in October 2005 and by our stockholders in
January 2006. In September 2006, our Board of Directors approved, subject to and
effective upon stockholder approval, the First Amendment and Restatement of the
2005 Stock Incentive Plan (the "First Amended 2005 Plan"). The First Amended
2005 Plan proposes to increase the shares of our common stock available under
the 2005 Plan by 1,000,000 shares or from 1,800,000 to 2,800,000 shares.
As of the Record Date, 565,878 shares of our common stock remained
available for equity awards under the 2005 Plan. We believe that equity awards
under our 2005 Plan are a key component to our ability to attract and retain
qualified employees, directors and consultants and that the proposed increase in
shares under the First Amended 2005 Plan is needed to continue to provide us
with the ability to attract and retain qualified employees, non-employee
directors and other service providers. If the First Amended 2005 Plan is
approved by the stockholders, then it will be effective as of the date of the
Annual Meeting. Otherwise, the 2005 Plan, as amended, will remain in effect in
its current form, subject to amendment from time to time as provided therein.
A summary of the First Amended 2005 Plan is set forth below. The summary is
qualified in its entirety by reference to the full text of the First Amended
2005 Plan which is attached as Appendix B to this Proxy Statement.
Description of the First Amended 2005 Plan
General. The purpose of the First Amended 2005 Plan is to enable us to
attract, retain and motivate our employees and consultants, as well as our
non-employee directors, by providing for or increasing the proprietary interests
of such employees, consultants or non-employee directors in CytoDyn, Inc. The
maximum number of shares of common stock that may be issued pursuant to awards
under the 2005 Plan is currently 1,800,000. It is proposed that, through the
adoption of the First Amended 2005 Plan, the maximum number of shares of common
stock that may be issued pursuant to awards under the 2005 Plan be increased by
1,000,000 shares, or from 1,800,000 to 2,800,000 shares. The above increases in
the number of authorized shares is the only proposed changes in the First
Amended 2005 Plan to the 2005 Plan currently in effect.
Shares Reserved for Issuance. Stockholder approval of the First Amended
2005 Plan will authorize us to grant options and/or rights to purchase or
otherwise acquire up to an additional 1,000,000 shares, or an aggregate of
2,800,000 shares of common stock.
In the event that all or any portion of any option, restricted stock or
performance shares granted or offered under the First Amended 2005 Plan can no
longer under any circumstances be exercised or, with respect to restricted stock
or performance shares solely, is reacquired by us, the shares of common stock
allocable to the unexercised portion of such option or such stock purchase
agreement, or, with respect to restricted stock or performance shares solely,
the shares so reacquired, will become available for grant or issuance under the
First Amended 2005 Plan. Additionally, the number of shares available for
issuance under the First Amended 2005 Plan will be subject to adjustment in the
event of stock splits, stock dividends or certain other similar changes in our
capital structure.
Administration. The 2005 Stock Incentive Plan is to be administered by an
"Administrator," which, under the 2005 Stock Incentive Plan, shall be either the
Board of Directors or a committee appointed by the Board of Directors. Subject
to the provisions of the 2005 Stock Incentive Plan, the Administrator has full
authority to implement, administer and make all determinations necessary under
the 2005 Stock Incentive Plan.
The Board of Directors may from time to time alter, amend, suspend or
terminate the 2005 Stock Incentive Plan in such respects as the Board of
Directors may deem advisable; provided, however, that no such alteration,
amendment, suspension or termination shall be made that would substantially
affect or impair the rights of any person under any option granted to such
person without his or her consent.
Eligibility. The 2005 Stock Incentive Plan provides that awards may be
granted to employees, officers, directors, consultants, independent contractors
and advisors of CytoDyn or of any parent or subsidiary corporation of CytoDyn,
whether now existing or hereafter created or acquired (an "Affiliated Company"),
as may be determined by the Administrator. In no event may any employee be
granted options under the 2005 Stock Incentive Plan for more than 800,000 shares
of our common stock in any one calendar year.
Terms of Stock Options. As discussed above, the Administrator determines
many of the terms and conditions of awards granted under the 2005 Stock
Incentive Plan, including whether an option will be an "incentive stock option"
(ISO) or a "non-qualified stock option" (NQSO). Each option is evidenced by any
agreement in such form as the Administrator approves and is subject to the
following conditions (as described in further detail in the 2005 Stock Incentive
Plan):
o Vesting and Exercisability: Options become vested and exercisable,
as applicable, within such periods as determined by the
Administrator and as set forth in the related stock option
agreement, provided that options must expire no later than ten
years from the date of grant (or five years with respect to ISOs
granted to optionees who own more than 10% of the outstanding
common stock). Option agreements may also provide that options
shall become vested upon the achievement of certain performance
goals, as determined by the Administrator.
o Exercise Price: The exercise price must be at least 100% of the
fair market value of a share of common stock at the time such
option is granted, provided that the exercise price of any ISO
granted to an optionee that owns more than 10% of the outstanding
common stock shall not be less than 110% of the fair market value
of a share of common stock at the time of grant.
o Method of Exercise: Payment of the exercise price may be made, in
the discretion of the Administrator, in cash, by check, by
delivery of shares of our common stock, through a broker-assisted
"cashless exercise," or any combination of the foregoing methods
of payment or any other consideration or method of payment as
shall be permitted by applicable corporate law.
o Termination of Service: Options cease vesting on the date of
termination of service or the death or disability of the optionee,
unless provided otherwise in the applicable option agreement or
unless otherwise determined by the Administrator. Under applicable
law, ISOs granted under the 2005 Stock Incentive Plan generally
expire no later than three months after the termination of the
optionee's service, except in the case of death or disability, in
which case the awards generally may be exercised up to 12 months
following the date of death or termination of service due to
disability.
o Change of Control: In the event of a change in control of CytoDyn
(as defined in the 2005 Stock Incentive Plan), the Administrator
may at its discretion provide for vesting arrangements in option
agreements, including arrangements which provide for full
acceleration of vesting upon a change in control whether or not
the acquiring entity agrees to assume or substitute for existing
options in such change in control.
o Additional Restrictions. No ISOs may be granted to an optionee
under the 2005 Stock Incentive Plan if the aggregate fair market
value (determined at the time of grant) of the stock with respect
to which ISOs first become exercisable by such optionee in any
calendar year under our stock option plans and any Affiliated
Company exceeds $100,000. To the extent an ISO exceeds this
$100,000 limit, that portion of the option in excess of such
limitation shall be treated as an NQSO. Options are
nontransferable, other than by will and the laws of descent and
distribution or in any manner permitted by the Administrator that
is not prohibited by the Code.
Summary of Federal Income Tax Consequences of the 2005 Stock Incentive Plan
The following is a brief summary of certain federal income tax consequences
of participation in the 2005 Stock Incentive Plan. The summary should not be
relied upon as being a complete statement of all possible federal income tax
consequences. Federal tax laws are complex and subject to change. Participation
in the 2005 Stock Incentive Plan may also have consequences under state and
local tax laws which vary from the federal tax consequences described below. For
such reasons, we recommend that each participant consult his or her personal tax
advisor to determine the specific tax consequences applicable to him or her.
Incentive Stock Options. No taxable income will be recognized by an
optionee under the 2005 Stock Incentive Plan upon either the grant or the
exercise of an ISO. Instead, a taxable event will occur upon the sale or other
disposition of the shares acquired upon exercise of an ISO, and the tax
treatment of the gain or loss realized will depend upon how long the shares were
held before their sale or disposition. If a sale or other disposition of the
shares received upon the exercise of an ISO occurs more than (i) one year after
the date of exercise of the option and (ii) two years after the date of grant of
the option, the holder will recognize long-term capital gain or loss at the time
of sale equal to the full amount of the difference between the proceeds realized
and the exercise price paid. However, a sale, exchange, gift or other transfer
of legal title of such stock (other than certain transfers upon the optionee's
death) before the expiration of either of the one-year or two-year periods
described above will constitute a "disqualifying disposition." A disqualifying
disposition involving a sale or exchange will result in ordinary income to the
optionee in an amount equal to the lesser of (i) the fair market value of the
stock on the date of exercise minus the exercise price or (ii) the amount
realized on disposition minus the exercise price. If the amount realized in a
disqualifying disposition exceeds the fair market value of the stock on the date
of exercise, the gain realized in excess of the amount taxed as ordinary income
as indicated above will be taxed as capital gain. A disqualifying disposition as
a result of a gift will result in ordinary income to the optionee in an amount
equal to the difference between the exercise price and the fair market value of
the stock on the date of exercise. Any loss realized upon a disqualifying
disposition will be treated as a capital loss. Capital gains and losses
resulting from disqualifying dispositions will be treated as long-term or
short-term depending upon whether the shares were held for more or less than the
applicable statutory holding period (which currently is more than one year for
long-term capital gains). We will be entitled to a tax deduction in an amount
equal to the ordinary income recognized by the optionee as a result of a
disposition of the shares received upon exercise of an ISO.
The exercise of an ISO may result in an "adjustment" for purposes of the
"alternative minimum tax." Alternative minimum tax is imposed on an individual's
income only if the amount of the alternative minimum tax exceeds the
individual's regular tax for the year. For purposes of computing alternative
minimum tax, the excess of the fair market value on the date of exercise of the
shares received on exercise of an ISO over the exercise price paid is included
in alternative minimum taxable income in the year the option is exercised. An
optionee who is subject to alternative minimum tax in the year of exercise of an
ISO may claim as a credit against the optionee's regular tax liability in future
years the amount of alternative minimum tax paid which is attributable to the
exercise of the ISO. This credit is available in the first year following the
year of exercise in which the optionee has regular tax liability.
Non-qualified Stock Options. No taxable income is recognized by an optionee
upon the grant of a NQSO under the 2005 Stock Incentive Plan. Upon exercise,
however, the optionee will recognize ordinary income in the amount by which the
fair market value of the shares purchased, on the date of exercise, exceeds the
exercise price paid for such shares. The income recognized by the optionee who
is an employee will be subject to income tax withholding by CytoDyn out of the
optionee's current compensation. If such compensation is insufficient to pay the
taxes due, the optionee will be required to make a direct payment to us for the
balance of the tax withholding obligation. We will be entitled to a tax
deduction equal to the amount of ordinary income recognized by the optionee,
provided that certain reporting requirements are satisfied. If the exercise
price of a NQSO is paid by the optionee in cash, the tax basis of the shares
acquired will be equal to the cash paid plus the amount of income recognized by
the optionee as a result of such exercise. If the exercise price is paid by
delivering shares of our common stock already owned by the optionee or by a
combination of cash and already-owned shares, there will be no current taxable
gain or loss recognized by the optionee on the already-owned shares exchanged
(however, the optionee will nevertheless recognize ordinary income to the extent
that the fair market value of the shares purchased on the date of exercise
exceeds the price paid, as described above). The new shares received by the
optionee, up to the number of the old shares exchanged, will have the same tax
basis and holding period as the optionee's basis and holding period in the old
shares. The balance of the new shares received will have a tax basis equal to
any cash paid by the optionee plus the amount of income recognized by the
optionee as a result of such exercise, and will have a holding period commencing
with the date of exercise. Upon the sale or disposition of shares acquired
pursuant to the exercise of a NQSO, the difference between the proceeds realized
and the optionee's basis in the shares will be a capital gain or loss and will
be treated as long-term capital gain or loss if the shares have been held for
more than the applicable statutory holding period (which is currently more than
one year for long-term capital gains).
Tax Withholding. Under the 2005 Stock Incentive Plan, we have the power to
withhold, or require a participant to remit to us, an amount sufficient to
satisfy Federal, state and local withholding tax requirements with respect to
any award granted under the 2005 Stock Incentive Plan. To the extent permissible
under applicable tax, securities, and other laws, the Administrator may, in its
sole discretion, permit a participant to satisfy an obligation to pay any tax to
any governmental entity in respect of any option up to an amount determined on
the basis of the highest marginal tax rate applicable to such participant, in
whole or in part, by (i) directing us to apply shares of common stock to which
the participant is entitled as a result of the exercise of an option, or (ii)
delivering to us shares of common stock owned by the participant.
Equity Compensation Plan Information
The following table sets forth information regarding outstanding options and
rights and shares reserved for future issuance under our existing equity
compensation plans as of November 30, 2006:
(a) (b) (c)
Number of securities
Number of Weighted- remaining available
securities to be average exercise for future issuance
issued upon exercise price of under equity
of outstanding outstanding compensation plans
options, warrants options, warrants (excluding securities
Plan category and rights and rights reflected in column (a))
Equity compensation plans
approved by security holders 1,096,122 $ 565,878
Equity compensation plans not
approved by security holders (1) 951,100 $ 0
Total (2) 2,047,222 $ 565,878
(1) In May 2004 Mr. Ewen was granted 150,000 options as his only compensation
for being our Chief Financial Officer. The options vested 50,000 as of May
2005 with exercise price of $.050 per share, 50,000 as of May 2005 with an
exercise price of $1.00 per share and 50,000 May 2007 with exercise price
of $1.50 per share. To date no options have been exercised. 426,000
warrants were issued to a prior financial representative. 94,500 have been
exercised 331,500 remain unexercised. The exercise price is $.30 per share
and the warrants expire in 2010. 469,600 warrants were issued to certain
friends and family as part of an incentive to participate in our bridge
loan financing. The warrants exercise price are $2.50 and they expire in
2010. To date none have been exercised.
(2) As of February 15, 2007, we had: 11,297,264 shares of common stock issued
and outstanding; 565,878 shares currently reserved and available for future
option grants.
Vote Required
Approval of the proposal to amend the 2005 Stock Incentive Plan increase the
amount of stock options we are allowed to issue under the Stock Incentive Plan
will require the affirmative vote of the holders of a majority of the Shares
present in person or by Proxy Statement at the Annual Meeting and entitled to
vote. Proxy Statements solicited by management for which no specific direction
is included will be voted "for" the approval of the proposal.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE PROPOSAL TO
INCREASE THE AMOUNT OF SHARES AVAILABLE FOR THE 2005 STOCK INCENTIVE PLAN.
OTHER MATTERS
We know of no other matters to be submitted to the Annual Meeting. If any
other matters properly come before the Annual Meeting, it is the intention of
the persons named in the accompanying form of Proxy Statement to vote the Shares
they represent as the Board of Directors may recommend.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Allen D. Allen
------------------------------------
Allen D. Allen
Chief Executive Officer and Director
Santa Fe, New Mexico
_________________, 2007