SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or (g) of The Securities Exchange Act of 1934
GENEREX BIOTECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
Idaho 82-0490211
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
33 Harbor Square, Suite 202, Toronto, Canada M5J2G2
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 416/364-2551
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Securities to be registered under Section 12(b) of the Act: None
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(Title of Class)
Securities to be registered under Section 12(g) of the Act:
Common Stock, $.001 par value
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(Title of Class)
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GENEREX BIOTECHNOLOGY CORPORATION
FORM 10
TABLE OF CONTENTS
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Item 1. BUSINESS...................................................................... 1
(a) General Development of Business......................................... 1
(b) Industry Segment Financial Information.................................. 3
(c) Description of Business................................................. 3
(i) Principal products and services............................... 3
(ii) Status of new products announced.............................. 14
(iii) Sources and availability of raw materials..................... 15
(iv) Patents, trademarks, licenses, etc............................ 15
(v) Seasonality................................................... 16
(vi) Industry practices relative to working capital items.......... 16
(vii) Major customers............................................... 17
(viii) Backlog....................................................... 17
(ix) Government contracts.......................................... 17
(x) Competition................................................... 17
(xi) Research and development expenditures......................... 19
(xii) Environmental compliance...................................... 19
(xiii) Employees..................................................... 19
(d) Revenues, etc. by Geographic Region..................................... 19
Item 2. FINANCIAL INFORMATION......................................................... 20
(a) Selected Financial Data.................................................. 20
(b) Management's Discussion and Analysis of Financial Condition
Condition and Results of Operations...................................... 21
(c) Quantitative and Qualitative Disclosure About Financial
Market Risks.................................................. 23
Item 3. PROPERTIES.................................................................... 24
Item 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT....................................................... 24
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Item 5. DIRECTORS AND EXECUTIVE OFFICERS............................................ 27
Item 6. EXECUTIVE COMPENSATION...................................................... 31
Item 7. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS............................................................ 32
Item 8. LEGAL PROCEEDINGS........................................................... 34
Item 9. MARKET PRICE, DIVIDENDS AND RELATED STOCK-
HOLDER MATTERS.......................................................... 34
(a) Market Information.................................................... 34
(b) Holders of Common Stock............................................... 35
(c) Dividends............................................................. 35
Item 10. RECENT SALES OF UNREGISTERED SECURITIES..................................... 35
Item 11. DESCRIPTION OF SECURITIES TO BE REGISTERED.................................. 39
Item 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS................................... 43
Item 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................................. 44
Item 14. CHANGES IN, AND DISAGREEMENTS WITH
ACCOUNTANTS............................................................. 45
Item 15. FINANCIAL STATEMENTS AND EXHIBITS........................................... 45
(a) Financial Statements.................................................. 45
(b) Exhibits.............................................................. 46
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Item 1. BUSINESS
Item 1(a) General Development of Business
Generex Biotechnology Corporation (the "Company") was incorporated in 1983
as Green MT. P.S., Inc. The Company had been inactive for more than ten years
prior to January 1998 when it acquired Generex Pharmaceuticals, Inc. ("GPI"), a
Canadian corporation, and changed its corporate name to "Generex Biotechnology
Corporation". The acquisition of GPI was a "reverse acquisition" in that,
immediately following the acquisition, the former shareholders of GPI owned
approximately 90% of the Company's outstanding Common Stock. See Item 2(b),
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- General" below.
The Company is engaged in the development of drug delivery systems. Its
principal business focus has been to develop a platform technology for the oral
administration of large molecule drugs which, historically, have been
administered by injection. The principal application to date of the Company's
large molecule drug delivery technology is an oral insulin formulation. The
Company intends to market this formulation in the United States under the name
Oralgen(TM), and in Canada and elsewhere under the name Oralin(TM).
Oral Insulin Formulation: The Company's oral insulin formulation is
administered with a metered dose applicator developed by the Company. The
formulation, which includes insulin and various excipients to facilitate the
absorption of insulin molecules through the mucous membranes in the buccal
cavity and upper gastro-intestinal tract, is sprayed into the mouth and back of
the throat, where absorption occurs.
The Company completed pre-clinical studies and proof of concept trials of
its oral insulin formulation in early 1998. An Investigational New Drug
submission ("IND") to Canada's regulatory equivalent of the United States Food
and Drug Administration was made in July 1998, and approved in September 1998.
The Company commenced Phase II clinical trials of the product in Canada in
November 1998.
The Company submitted an IND to the United States Food and Drug
Administration in October of this year. In November, the FDA approved the
Company's request to proceed with human clinical trials under this IND. The
Company now expects to commence Phase II clinical trials in the United States in
December 1998 or early January 1999.
Also in September of this year, the Company received regulatory approval in
Ecuador for limited, non-commercial distribution of its oral insulin formulation
to diabetic patients. This clinical program, which is scheduled to begin in the
first calendar quarter of 1999, is expected to run through approximately October
1999, and ultimately is expected to involve approximately 200 patients.
The Company expects to receive clearance to begin commercial sales of its
oral insulin formulation in Ecuador in the first calendar quarter of 1999. It
does not expect to receive regulatory clearance to market the product in the
United States or Canada until 2000 at the earliest, and there are numerous risks
and uncertainties, including technical, financial, regulatory and other risks
and uncertainties, that the Company must overcome before such clearances are
obtained. See "Risk Factors" in Item 1(c)(i) below.
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The Company plans to market its oral insulin formulation through agreements
with major pharmaceutical companies. While the Company is engaged in discussions
with several companies concerning licensing and distribution agreements, it has
not yet entered into any such agreements.
The Company intends to produce the quantities of its oral insulin
formulation required for clinical trials, and for commercial sales in South
America, from Company-owned facilities which it established this year in the
Toronto area. Longer term, the Company intends to expand its manufacturing
capabilities in Canada, and to establish regional manufacturing facilities to
service commercial markets as the Company obtains clearances to market.
Other Large Molecule Drugs: The Company believes that its large molecule
drug oral delivery technology is a "platform" technology that can be used
successfully with a significant number of large molecule pharmaceuticals besides
insulin. In each case, oral administration of the drug would be expected to
improve the quality of life of patients and patient compliance by reducing or
eliminating the need for injections or intravenous administration.
Due to its limited resources, to date the Company has not aggressively
pursued collaborative projects to evaluate the efficacy of its drug delivery
technology with other proprietary products. The Company is discussing with
prospective collaborative partners a number of research projects involving human
growth hormones, monoclonal antibodies, fertility hormones, animal growth
hormones and others.
Other Drug Delivery Technology: The Company owns intellectual property
which relates to other drug delivery technologies, including biodegradable
polymer microspheres drug delivery, liposome drug delivery and controlled
release of drugs in tablet, capsule and liquid forms. The Company has not made a
substantial effort to develop commercial applications for these other
technologies, but, rather, has focused its efforts on developing its oral
insulin formulation and identifying other potential commercial applications of
its large molecule drug oral delivery technology.
Plan of Operation: The Company's plan of operation for the remainder of its
1998-1999 fiscal year is to focus on the following programs and objectives:
o to continue its program of clinical trials for its oral insulin
product, as described above;
o to initiate research on additional applications of its large molecule
drug delivery technology;
o to expand the capacity of a pilot manufacturing facility in Toronto at
an estimated cost of $250,000;
o to the extent that adequate resources are available after funding its
clinical programs and the expansion of its pilot manufacturing
facility, to complete the development of and to equip additional
testing, administrative and manufacturing facilities in the Toronto
area;
o to recruit additional scientific, manufacturing and administrative
personnel to staff its expanded operations; and
o to enter into one or more marketing agreements for its oral insulin
product.
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Item 1(b) Industry Segment Financial Information
The Company is in the development stage and has not yet generated any
revenues from operations. At this time, the Company believes that its future
business operations will be within a single industry segment and, for the
foreseeable future, involve a single class of products.
Item 1(c) Description of Business
Item 1(c)(i) Principal products and services
The Company is engaged in the development and commercialization of
proprietary drug delivery technologies. The Company's prior research and
development efforts to date have focused on the oral administration of large
molecule drugs. Within this category, the first product for which the Company
has sought regulatory approvals to market is a liquid formulation of insulin for
the treatment of diabetes. The product is designed to be administered by the
patient orally hand-held metered dosage applicator which the Company has
developed for this purpose.
As described below, the Company believes that its large molecule drug
delivery technology can be used to administer a significant number of other
active pharmaceutical agents in addition to insulin. The Company also has
intellectual property which relates to other drug delivery technologies. See
"Other Delivery Technologies" below.
Oral Insulin Product
Background - Insulin Therapy for Diabetes: The term diabetes refers to a
disease that is characterized by abnormally high levels of glucose in the blood
as a result of defects in the complex relationship between glucose metabolism
and insulin secretion. When glucose is abundant, it is converted into fat
(triglycerides) and stored in the adipose tissue for use when food is not
available. When glucose is not available from food, triglycerides in the adipose
tissue are broken down into free fatty acids that stimulate glucose production
by the liver. Insulin, which is secreted by the pancreas, plays an important
role in regulating the level of glucose in the blood stream. In a healthy
metabolic state, a balance is maintained between insulin secretion and glucose
metabolism.
Type 1 diabetes (juvenile onset diabetes or insulin dependent diabetes) is
believed to result from the impaired function of the pancreas. In Type 1
diabetes, the pancreas produces no insulin and patients typically inject insulin
three to five times per day to regulate blood glucose levels. Type 1 diabetic
patients represent approximately 10% of the total diabetic population and about
30% of the total insulin that is used.
Type 2 diabetes (adult onset or noninsulin dependent diabetes mellitus) is
believed to involve a defect referred to as "insulin resistance" in which the
body cannot utilize insulin effectively. This condition leads to excessive blood
levels of glucose (hyperglycemia). Many researchers believe that Type 2
diabetics develop insulin resistance first, then impaired glucose tolerance, and
finally insulin dependent diabetes. In a portion of the population the ability
to control blood glucose is lost over time, despite increased insulin
production, as insulin resistance increases. At this stage, such persons are
considered impaired glucose tolerant, a condition characterized by normal blood
glucose levels before eating and hyperglycemia after eating. A person who loses
the ability to regulate blood glucose levels and exhibits persistent
hyperglycemia is considered to suffer from Type 2 diabetes.
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When blood glucose levels are not controlled within a normal range, severe
complications can result. Hyperglycemia over an extended period of time is
believed to damage the walls of blood vessels, causing complications such as
blindness from microvascular deterioration in the retina, loss of circulation in
the extremities leading to amputation, coronary artery disease, and kidney
failure. In addition, associated high blood levels of triglycerides, free fatty
acids, and total cholesterol pose serious health risks to the diabetic and are
believed to lead to cardiovascular disease, including coronary heart disease.
After diagnosis, the first course of therapy for Type 2 diabetics generally
is to try to control hyperglycemia through diet and exercise. If this fails to
achieve glycemic control, the patient typically begins medication. The two
leading medications for Type 2 diabetes traditionally have been insulin and a
class of oral drugs called sulfonylureas. Each of these drugs reduces glucose
levels by increasing serum insulin levels. Most patients initially take
sulfonylureas, which work by stimulating the production of insulin in the
pancreas. Many diabetics who take sulfonylureas still experience elevated blood
glucose and lipid levels. Over time, many Type 2 diabetics taking sulfonylureas
lose their ability to produce more insulin and control glucose levels.
There is no known cure for diabetes, which the World Health Organization
recently identified as the second largest cause of death by disease in North
America. In North America, total diabetes treatment costs in 1998 are expected
to exceed $100 billion, of which an estimated 50% will be direct costs such as
medication, supplies and medical care, with the balance being indirect costs
such as lost wages.
Oral Insulin Research & Development. Insulin is a peptide hormone with a
high molecular weight and, when administered orally, virtually no absorption
occurs in the buccal cavity and gastrointestinal tract. As a result,
substantially all insulin presently used in the treatment of diabetes is
injected, usually using a disposable needle.
The Company's development efforts have focused on finding a means to orally
administer insulin. In the course of its research, the Company identified and
evaluated numerous potential absorption enhancers in different combinations and
concentrations. Initially, the Company conducted pre-clinical studies in rats
and dogs to evaluate the clinical end point (glucose lowering) and efficacy of
oral insulin formulations in comparison with injected insulin under fasting
conditions. In the study with rats, the Company's oral insulin formulation
showed glucose lowering (>96%) comparable to injected insulin. Plasma insulin
levels exceeded 50% of levels found using injected insulin. The same formulation
administered to dogs under fasting conditions showed glucose lowering (>96%)
comparable to injected insulin, while insulin absorption exceeded 60% of the
injected insulin benchmark.
Beginning in January 1998, the Company conducted a number of studies in
Ecuador with Type 1 diabetic patients, each of which involved a selection of
between 8 and 10 patients, to evaluate the efficacy of its oral insulin
formulation in humans in comparison with the injected insulin and placebos. The
studies were conducted over periods of four or five days. In these studies, oral
formulations containing 30, 40 and 50 units of insulin were shown to provide
glucose lowering results similar to 10 units of injected insulin. With respect
to bioavailability, the oral insulin formulations provided mean insulin
absorption equivalent to the injected insulin.
Concurrently with these studies of its oral insulin formulation, the
Company also experimented with a number of delivery devices and techniques to
orally deliver the formulation. In the earliest tests of the formulations, the
test subjects administered the formulation directly to the mouth using a
calibrated dropper, and then simply "swished" the formulation in their mouths
for approximately three minutes before swallowing. Eventually, the Company
settled on the use of an aerosol applicator which patients insert in the mouth
and activate by depressing an actuator to deliver a precisely measured dose to
the buccal cavity. The administration is virtually instantaneous. The spray is
not intended to be inhaled, and patients are instructed
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not to breathe in when applying a "puff" of the product. Even if inhaled
accidentally, no absorption of the formulation occurs in the lungs because of
the droplet size delivered by the applicator.
The aerosol applicator which the Company has developed to administer its
oral insulin formulation is approximately 3.25 inches long, has a diameter of
approximately one inch, and, when filled with the formulation, weighs
approximately 4.5 ounces. Thus, it is easily and conveniently carried and
stored. Based on test results to date, the formulation within the applicator is
stable and remains effective at room temperature for over 150 days, well in
excess of the 5-day supply which typically would be contained in the applicator.
The Company believes that the convenient size of the applicator, the stability
of the oral insulin formulation at room temperature, and the ease and pain-free
nature of administration of the product by patients will make its oral insulin
formulation the product of choice for diabetics.
On the basis of its test results in Ecuador and other pre-clinical data,
the Company made an Investigational New Drug submission (an "IND") to the Health
Protection Branch (the "HPB") in Canada (Canada's equivalent to the FDA) in July
1998, and received permission from the HPB to proceed with Phase II clinical
trials in September 1998. The Company started these trials in November 1998, and
they are now in progress.
The Company filed an IND with the FDA in October 1998, and in November 1998
received FDA approval to proceed with human trials. The Company expects to begin
Phase II trials in the United States in December 1998.
The Company also is conducting additional clinical trials in Ecuador. These
trials are scheduled to begin in February or March 1999, will involve
approximately 36 to 40 patients initially, and approximately 200 patients
eventually, and are expected to extend over a period of three months. These
tests are not necessary for the Company to obtain final regulatory approval to
market its oral insulation formulation in Ecuador, which approvals are expected
in the first calendar quarter of 1999. Rather, these tests will provide
additional data relating to extended term use of the product that will be useful
in seeking regulatory approvals in the United States, Canada and other
countries.
Other Large Molecule Drug Projects.
As noted previously, the Company believes that its large molecule drug
delivery system is appropriate for a variety of other drugs. The Company has
numerous extensive discussions of possible research collaborations with
pharmaceutical companies concerning the use of the Company's large molecule drug
delivery technology with the prospective research partner's proprietary
products, including monoclonal antibodies, human growth hormone, fertility
hormone, and others. The Company has not aggressively pursued these
relationships, however, since it preferred to focus its limited financial and
other resources on the development of its oral insulin formulation. An earlier
project with Centocor, Inc., conducted in late 1997, in which mice were dosed
orally with a monoclonal antibody provided by Centocor, produced results which
were positive, from the Company's standpoint, but neither the Company nor
Centocor has made any move to continue the research.
The Company expects to enter into one or more collaborative research
agreements in the first calendar quarter of 1999. At this time, the Company is
unable to predict the progress or outcome of any collaborative research project.
At least initially, the Company will continue to be constrained in pursuing
these additional research projects by limited financial and other resources.
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Manufacturing.
The Company plans to retain the manufacture of its oral insulin
formulation, while relying on industry partners for marketing and distribution.
The Company produced the formulation needed for its clinical studies in a
Good Laboratory Practice environment consistent with applicable regulatory
guidelines. The Company has now equipped a Company-owned pilot facility in
Toronto which is capable of preparing formulation for, filling and shipping
approximately 500 applicators per daily, eight-hour shift. The Company estimates
that its cost to equip, test and start up this initial production facility,
including facility design and personnel training, was approximately $465,000.
The Company believes that its pilot facility, with the addition of a second
production line, will be able to produce sufficient product for its clinical
program in the United States, Canada and Ecuador, and to initiate commercial
distribution on a limited scale in South America. The cost to duplicate the
initial "production line" will be less than the cost for the initial line since
substantially all design costs would be eliminated and the same testing and
quality assurance equipment will be used by both lines.
The Company also plans to equip and start up full scale manufacturing
facilities in Brampton, Ontario, and Mississauga, Ontario, both of which are
within 25 miles from downtown Toronto. These facilities also are Company-owned.
The Company believes that the Brampton facility can be placed into production in
mid-1999, and that the Mississauga facility can be placed into production in
mid-2000. At the present time, however, the Company does not foresee a need to
place these facilities into production before 2000.
Based on its experience with its in Canadian facilities, the Company's
present business plan is to establish a manufacturing capability in South
America, to serve that market, and eventually to add manufacturing capacity as
and where required. The Company has acquired a building site in a "duty free"
zone in Ecuador for a South American manufacturing facility, but has taken no
other steps at this time to establish any manufacturing capability outside
Canada.
As indicated under the caption "Government Regulation" below, the Company's
manufacturing facilities must comply with regulatory requirements of the host
country and of countries to which product produced at the facility is exported.
The Company believes that its pilot facility will be in compliance with Good
Manufacturing Practices in January 1999, and expects to seek approval of the
facility from Canada's Health Protection Branch at that time.
Marketing
The Company's marketing options include selling its drug delivery
technology outright (for all applications or certain applications only),
licensing one or more companies to market products based upon the technology, or
to market products directly through a sales force comprised of Company staff and
independent distributors. At the present time, the Company plans to establish
joint ventures or licensing agreements for marketing its products. With respect
to its oral insulin product, the Company expects to enter into one or more
marketing agreements before commencing Phase III trials in the United States and
Canada, which the Company now expects to begin in the second half of calendar
1999.
The Company believes that marketing requirements for its oral insulin
product will be significantly less than those generally associated with
marketing opportunities of comparable magnitude since there is no requirement
for missionary advertising (typically a long process used to introduce a new
product or therapy) or to create a brand image in the face of strong competition
from similar brands or
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technologies. As a consequence, the number of potential marketing or
distribution partners for the Company increases substantially, as such
prospective partners need not have an existing position in the diabetes
treatment market. What is required, however, is a supply of insulin. At the
present time, the world market for insulin is shared primarily by Eli Lilly &
Company (US) and Novo Nordisk A/S (Denmark) which, together, produce
approximately 90% to 95% of the world supply. The rest of the market is shared
by a handful of other producers/sellers. See Item (c)(iii), "Sources and
Availability of Raw Materials" below.
Government Regulation
The Company's research and development activities, preclinical studies and
clinical trials, and ultimately the manufacturing, marketing and labeling of its
products, are subject to extensive regulation, primarily by FDA, in the United
States. These activities also are regulated in other countries where the Company
intends to test, manufacture and/or market its products.
The steps required before a pharmaceutical agent may be marketed in the
United States for use by humans include (a) preclinical laboratory, in vivo, and
formulation studies; (b) the submission to FDA of an Investigational New Drug
application ("IND"), which must become effective before human clinical trials
may commence; (c) adequate and well-controlled human clinical trials to
establish the safety and efficacy of the drug; (d) the submission of a New Drug
Application ("NDA") to FDA; and (e) FDA approval of the NDA, including approval
of all product labeling and advertising.
Preclinical tests include laboratory evaluation of product chemistry,
formulation and stability, as well as animal studies to asses the potential
safety and efficacy of each product. The results of the preclinical tests are
submitted to FDA as part of an IND and are reviewed by FDA before the
commencement of human clinical trials. Unless FDA objects to an IND, the IND
becomes effective 30 days following its receipt by FDA.
Clinical trials involve the administration of the investigational drug to
humans under supervision of a qualified investigator. Clinical trials must be
conducted in accordance with Good Clinical Practices under protocols that detail
the objectives of the study, the parameters to be used to monitor safety, and
efficacy criteria to be evaluated. Each protocol must be submitted to FDA as
part of the IND. Also, each clinical trial must be approved and conducted under
the auspices of an Institutional Review Board, which will consider, among other
things, ethical factors, the safety of human subjects, and the possible
liability of the institution conducting the clinical trials.
Clinical trials typically are conducted in three sequential phases (Phase
I, II and III), but the phases may overlap. In Phase I clinical trials, the drug
is tested in healthy human subjects for safety (adverse effects), dosage
tolerance, metabolism, distribution, excretion and pharmacodynamics (clinical
pharmacology). Phase II clinical trials are conducted in a limited patient
population to gather evidence about the efficacy of the drug for specific,
targeted indications; to determine dosage tolerance and optimal dosage; and to
identify possible adverse effects and safety risks. When a compound has shown
evidence of efficacy and an acceptable safety profile in Phase II trials, Phase
III clinical trials are undertaken to evaluate clinical efficacy and to test for
safety in an expanded patient population at geographically dispersed clinical
trial sites. FDA and other regulatory authorities require the safety and
efficacy of the Company's therapeutic product candidates must be supported
through at least two adequate and well-controlled Phase III clinical trials. The
conduct of clinical trials in general, and the performance of the Phase III
clinical trial protocols in particular, are complex and difficult.
In the United States, the results of preclinical studies and clinical
trials, if successful, are submitted to FDA in an NDA to seek approval to market
and commercialize the drug product for a
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specified use. FDA may deny an NDA if it believes that applicable regulatory
criteria are not satisfied. FDA also may require additional testing for safety
and efficacy of the drug.
There is no assurance that any of the Company's product candidates will
receive regulatory approvals for commercialization. Even if regulatory approvals
for the Company's product candidates are obtained, however, the Company, its
products, and the facilities manufacturing the Company's products are subject to
continual review and periodic inspection. FDA will require post-marketing
reporting to monitor the safety of the Company's products.
To supply drug products for use in the United States, foreign and domestic
manufacturing establishments must comply with FDA's Good Manufacturing Practices
and are subject to periodic inspection by FDA or, in the case of products
manufactured outside the United States, by regulatory authorities in the country
in which the products manufactured under reciprocal agreements between the
regulatory authorities in such countries and FDA. In complying with Good
Manufacturing Standards, manufacturers must expend funds, time and effort in the
area of production and quality control to ensure full technical compliance. FDA
stringently applies regulatory standards for manufacturing, each United States
drug manufacturing establishment must be registered with FDA. Failure to comply
with regulations applicable to a pharmaceutical manufacturer or manufacturing
facility may result in restrictions or sanctions such as warning letters,
suspensions of regulatory approvals, operating restrictions, delays in obtaining
new product approvals, withdrawals of the product from the market, product
recalls, fines, injunctions and criminal prosecution.
Before the Company is permitted to market any of its products outside of
the United States, those products will be subject to regulatory approval similar
to FDA requirements in the United States. The requirements governing the conduct
of clinical trials, product licensing, pricing and reimbursement vary widely
from country to country, however, and FDA approval does not assure approval by
regulatory authorities in other countries. In some countries the sale price of a
drug product also must be approved. The pricing review period often begins after
market approval is granted. Even if a foreign regulatory authority approves any
of the Company's product candidates, there is no assurance that it will approve
satisfactory prices for the products.
Risk Factors
The Company's plans to develop and commercialize its technology and
products are subject to numerous risks and uncertainties. As a result, there is
no assurance that the Company will be able to obtain required regulatory
clearances and approvals for its products, or that it will be able to develop
and commercialize successfully any existing or potential product. Certain risks
relating to the Company are described below:
Forward Looking Statements. This Registration Statement contains
"forward-looking statements" which can be identified by the use of
forward-looking terminology such as "believes", "expects", "may", "should",
"anticipates" or comparable terminology . The future events or results referred
to in forward-looking statements may not be achieved, and it is extremely
unlikely that all of the Company's projects and products will develop as now
planned. Numerous factors, including the risks and uncertainties described
below, are likely to cause actual results to vary from the future results
referred to in the Company's forward-looking statements, and the variations
could be material and adverse to the Company's shareholders.
Failure of Product Development and Commercialization Efforts. The Company
is a development stage company and has not yet generated any revenues from
operations. At the present time, the Company has no products approved for
commercial sale by drug regulatory authorities, and only one
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product, its oral insulin formulation, for which it has begun the regulatory
approval process. See "-- Government Regulation" above.
Even if the Company obtains regulatory approvals for its oral insulin
product and/or successfully develops and obtains regulatory approvals for other
products, that does not necessarily mean that it will be successful in
commercializing the products. Success in commercializing any such products would
depend upon many factors beyond the Company's control, including acceptance by
health care professionals and patients, and the availability, effectiveness and
relative cost of alternative therapies.
The difficulty and uncertainty associated with bringing any new drug
product to market is further complicated in the Company's case since its
proprietary technology concerns the delivery of other drugs. Thus, when the drug
to be delivered is a proprietary product (e.g., fully synthetic human
recombinant insulin in the case of the Company's oral insulin formulation), the
Company requires the cooperation of the pharmaceutical companies which own the
proprietary rights to the active pharmaceutical agent. In the case of insulin,
Eli Lilly & Company ("Lilly") and Novo Nordisk A/S ("Novo Nordisk") dominate the
manufacture and supply of insulin, with an estimated 90%-95% (together) of the
world's supply of synthetic insulin. At the present time, the Company has no
agreement or other understanding with Lilly, Novo Nordisk or any other major
pharmaceutical company concerning insulin supply or other related matters. See
Item 1(c)(iii), "Sources and availability of raw materials" below.
In order to achieve long term success, the Company must satisfactorily
resolve the risks and uncertain to product development, regulation,
commercialization and insulin supply referred to above. Inability to do so would
substantially and adversely affect its shareholders.
Future Capital Needs; Uncertainty Of Additional Funding. The Company has
incurred substantial losses from operations through July 31, 1998, and expects
to continue to incur substantial and increasing losses for at least another 12
to 18 months as its research and development efforts and pre-clinical and
clinical testing programs expand, and as the Company equips, starts-up and,
subsequently, scales up its manufacturing facilities. See Item 1(c)(i) -
"Manufacturing" above, and Item 3, "Properties" below. These operations and
losses have consumed substantial and increasing amounts of cash. The Company's
negative cash flow from operations is expected to continue and to accelerate at
least over the next 12 to 18 months as the Company requires funds:
o to pursue regulatory approvals for its oral insulin product;
o to begin development of new applications of its large molecule drug
oral delivery technology, and to conduct the clinical tests necessary
to develop and refine the technologies and proposed products, if any;
o to conduct clinical trials;
o to establish and expand manufacturing facilities; and
o to market its products.
The level of the Company's future capital requirements will depend on many
factors, including: the rate and extent of progress in its clinical program and
research and development activities; its ability to establish and maintain
favorable collaborative arrangements with others as required; the time and costs
involved in obtaining regulatory approvals; the cost of developing production
capability; and filing, prosecuting, maintaining and enforcing patent claims.
Whatever level of funding is required, it is certain
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that the Company will need to raise substantial additional capital to fund its
operations over the next 12 to 18 months.
There is no assurance that the Company will be able to obtain additional
financing as and when required, on acceptable terms or at all. If additional
funds are raised by issuing equity securities, substantial dilution to
shareholders may result. If adequate funds are not available, the Company may be
required to delay, reduce the scope of, or eliminate one or more of its
research, development or other programs or obtain funds through arrangements
with collaborative partners or others that may require the Company to relinquish
rights to technologies, product candidates or products that the Company would
not otherwise relinquish. See Item 2(b), "Management's Discussion and Analysis
of Financial Condition and Results of Operations below.
The Company Will Require Marketing and Other Assistance from Industry
Partners. As indicated above, the Company is dependent to a certain extent on
the cooperation of pharmaceutical companies which own proprietary drug products
that are a candidate for use with the Company's drug delivery technology. Also,
since the Company currently lacks the marketing and sales experience, personnel,
distribution channels and other infrastructure needed to successfully
commercialize products on its own, it plans to rely on one or more corporate
partners possessing strong marketing and distribution resources to market its
products. The Company does not have any arrangements for marketing its products
at the present time. Failure to make satisfactory marketing arrangements would
adversely affect the Company.
Limited Manufacturing Experience. To date, the Company has produced its
oral insulin formulation under laboratory conditions on the small scale needed
for pre-clinical studies and early stage trials. To achieve the levels of
production necessary to support late stage human clinical trials and for initial
commercial sales of this product, the Company has established a pilot
manufacturing capability in a Company-owned facility in Toronto. The Company
intends to produce oral insulin product at this facility in sufficient
quantities to satisfy its requirements for clinical testing, as well as for
initial commercial sales in South America if and at such time as it receives
regulatory approval to market the product in South America. To move beyond this
level of manufacturing, however, to a level that would support a successful
product launch in the United States, Canada and elsewhere, would require a very
large (relatively speaking) "scale up" and expansion of the Company's
manufacturing capabilities.
Significant additional work and substantial additional funding will be
required before the Company is in a position to produce its oral insulin product
in large quantities. Staffing, manufacturing, regulatory and quality control
problems are likely to arise in connection with any "scale up", and there is no
assurance that the Company will be able to resolve those problems in a timely
manner or at a commercially reasonable cost. A failure to surmount such problems
could delay or prevent commercialization of the Company's oral insulin product.
The Company intends to use one or more contract manufacturers to produce
the metered dose applicator that is used to administer its oral insulin
formulation. No contracts are in place, however, and there is no assurance that
the Company will be able to enter into or maintain satisfactory contract
manufacturing arrangements for the applicator.
Dependence Upon Proprietary Technology. If it is successful in establishing
the efficacy and competitiveness of its technology, the Company's long term
success will depend in substantial part upon protecting the technology from
infringement, misappropriation, duplication and discovery. The Company presently
owns two US patent applications that cover its core large molecule drug delivery
technology, one of which has been allowed, although the patent has not been
formally issued by the patent office, and one of which is pending. The Company
has five other patent applications pending, two of which are
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pending only in Canada. The Company expects to file additional patent
applications which relate to its large molecule drug delivery technology and
metered dosage applicator within the next several months.
In addition to the patent and patent applications described above, the
Company owns an indirect 50% interest in three patents held by Centrum
Biotechnologies, Inc., an Ontario corporation which is 50% owned by Dr. Modi and
to which these three patents (the "Centrum Patents") were assigned by Dr. Modi
prior to his association with the Company. Two of the Centrum Patents (one
covering oral and intranasal delivery of proteinic drugs in liquid formulations,
and the other covering biodegradable polymer microspheres) represent the results
of earlier phases of Dr. Modi's research into large molecule oral drug delivery
technologies. See Item 1(c)(iv), "Patents, trademarks, licenses, etc." below.
There is no assurance that any of the Company's pending patent applications
will result in a patent being issued, or that any patent of the Company that now
is or later may be issued is or will be valid, enforceable, or offer meaningful
protection from or advantage over competitors using similar or competitive
technology. Although issued patents are presumed valid under federal law, none
of the Company's patents has been challenged in litigation, and there is no
assurance that any of such patents would be found valid if challenged.
The Company is not aware of any patent or other intellectual property
claims by others that would materially affect its ability to use, and license
others to use, any of its drug delivery technologies. Since pending United
States patent applications are maintained in secret until they are issued as
patents, however, they cannot be searched as such by the Company. Accordingly,
there may be pending applications filed by others which might later issue as
patents and create infringement issues for the Company. With specific reference
to the Centrum Patents, the Company does not believe that its other patents
infringe, or that patents it has applied for if issued will infringe, upon the
Centrum Patents. There is no assurance, however, that the manufacture, use or
sale of the Company's oral insulin formulation or future product candidates will
not infringe existing patent rights of Centrum or others. The Company may be
unable to avoid infringement of those patents and may have to seek a license,
defend an infringement actions, or challenge the validity of the patents in
court. There is no assurance that the Company would be able to obtain a license
on acceptable terms if required, or prevail in any patent litigation, or that
the Company would have sufficient resources to aggressively pursue such
litigation that became necessary. If the Company were found liable for
infringement, it could be responsible for significant money damages, encounter
significant delays in bringing products to market, or be precluded from
participating in the manufacture, use or sale of products or methods of
treatment covered by such patents.
The Company pursues a policy of requiring its officers, employees,
consultants, advisors and potential research partners to agree that confidential
information developed or disclosed during the course of the relationship will be
kept confidential, except in specified circumstances, and to protect the
Company's interest in inventions, etc. developed in the course of the
relationship. Such agreements are difficult to police and enforce, however, and
there is no assurance that these agreements will provide meaningful protection
for the Company's inventions, trade secrets or other proprietary information in
the event of unauthorized use or disclosure of such information, or in the case
of competing claims to inventions.
Dependence Upon Existing Management; Need for Additional Technical And
Management Personnel. The Company is highly dependent upon a very limited
scientific and management staff. At the present time, the Company does not have
fixed term agreements with any of its principal officers, other than Pankaj
Modi. While the Company does have a fixed contract with Dr. Modi that extends
until December 31, 2004, this agreement cannot guarantee Dr. Modi's continued
availability. The Company
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carries a $10 million "key man" life insurance policy on Dr. Modi. It does not
own life insurance on any other officer.
The Company also uses non-employee consultants to a significant extent to
assist it in formulating research and development strategy, in preparing
regulatory submissions, in developing protocols for clinical trials, and in
designing, equipping and staffing its manufacturing facilities. These
consultants and advisors usually have the right to terminate their relationships
with the Company on short notice. Loss of key personnel and/or termination of
key consulting arrangements could jeopardize the Company's business plans.
To continue and accelerate its product development and commercialization
plans, the Company will be required to hire additional qualified scientific
personnel to perform research and development, as well as personnel with
expertise in clinical testing, government regulation and manufacturing. The
Company also expects to require additional executive and administrative
personnel. Retaining and attracting qualified personnel, consultants and
advisors will be critical to the Company's success. The Company will face
particularly stiff competition for qualified scientific and technical personnel
from pharmaceutical, biotechnology and drug delivery companies, as well as
universities and other research institutions. There is no assurance that the
Company will be able to retain and attract the additional personnel that it will
require, and its failure to do so would have a material adverse effect on its
ability to develop and commercialize its products, and to properly manage and
lead a growing publicly-owned company.
Government Regulation. All medical devices and new drugs, including the
Company's oral insulin formulation and other products that the Company may
develop in the future, are subject to extensive and rigorous regulation by the
federal government, principally the FDA, and by state and local governments.
Such regulations govern the development, testing, manufacture, labeling,
storage, premarket clearance or approval, advertising, promotion, sale and
distribution of such products. The regulatory process for obtaining FDA
premarket clearances or approvals for medical devices and drug products is
generally lengthy, expensive and uncertain. Securing FDA marketing clearances
and approvals usually requires the submission of extensive clinical data and
supporting information to the FDA. Product clearances and approvals, if granted,
can be withdrawn for failure to comply with regulatory requirements or upon the
occurrence of unforeseen problems following initial marketing.
Medical devices or drug products that are marketed abroad also are subject
to regulation by foreign governments. In Canada, the regulatory approval process
is administered by the Health Protection Branch and is comparable to the
procedure in the United States.
The manufacture of drug products also is closely regulated by FDA in the
United States, and by comparable regulatory agencies in other countries.
There is no assurance that the Company will be able to obtain necessary
regulatory clearances or approvals on a timely basis, if at all, for its
products. Delays in receipt or failure to receive such clearances or approvals
or failure to comply with existing or future regulatory requirements with
respect to products or product manufacture would have a material adverse effect
on the Company.
Highly Competitive Markets; Risk Of Alternative Therapies. The
pharmaceutical, biotechnology and medical device industries are highly
competitive and rapidly evolving. The Company's success will depend on its
ability to successfully develop products and technologies for drug delivery and
especially, for the foreseeable future, products for oral delivery of insulin
and other large molecule drugs.
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The Company will be in competition with pharmaceutical, biotechnology and
drug delivery companies and other entities engaged in the development of
alternative drug delivery systems or new drug research and testing, as well as
with entities producing and developing injectable drugs that provide alternative
therapies. The Company is aware of a number of companies currently seeking to
develop new products and non-invasive alternatives to injectable drug delivery,
including oral, intranasal, transdermal and inhalation delivery systems. Most of
these competitors are themselves better financed than the Company is at the
present time, and many have commitments from or arrangements with major
pharmaceutical companies for financial, technical and marketing assistance.
Without proper financial, technical and marketing support, the Company could
fail to compete successfully with these companies, irrespective of the relative
merits of its products. For additional information, see Item 1(c)(x),
"Competition" below.
Pending Litigation. Sands Brothers & Co. Ltd., a New York City-based
investment banking and brokerage firm, initiated an arbitration against the
Company under New York Stock Exchange rules on October 2, 1998, based upon a
claim that it (Sands) has the right to purchase, for nominal consideration,
approximately 1.5 million shares of the Company's Common Stock. This claim is
based upon an October 1997 letter purportedly confirming the terms of an
agreement appointing Sands as the exclusive financial advisor to Generex
Pharmaceuticals, Inc. ("GPI"), a wholly owned subsidiary of the Company, and
granting Sands the right to receive shares then representing 17% of the
outstanding capital stock of GPI which, following the acquisition of GPI by the
Company, would represent the Company's Common Stock as an inducement to act in
that capacity under the purported agreement. Sands also claims that it is
entitled to approximately 460,000 additional shares of the Company as a result
of the Company's acquisition of GPI, and $144,000 in fees under the terms of the
purported agreement. If Sands were to prevail on its claims, it would acquire
shares representing approximately 13% of the Company's outstanding Common Stock,
and existing shareholders' interests would be proportionately diluted by that
amount.
The arbitration process is at an early stage and the Company is unable to
predict the outcome at this time. If and to the extent that Sands were to
succeed in its claim, the interests of the Company's present shareholders would
be diluted. See Item 8, "Legal Proceedings" below.
Exposure To Product Liability. The research, development and
commercialization of therapeutic products and medical devices entails
significant product liability risks. The use of its products in clinical trials
and the commercial sale of such products may expose the Company to liability
claims. These claims might be made directly by consumers or by pharmaceutical
companies or others selling such products. Companies often address the exposure
of such risk by obtaining product liability insurance. The Company has obtained
limited product liability insurance ($2 million per occurrence, $2 million total
coverage), but there can be no assurance that the Company will be able to
continue to obtain such insurance on acceptable terms or that the product
liability insurance which the Company does obtain will be sufficient to protect
it from material loss if significant product liability claims are made against
the Company.
Possible Stock Price Volatility. The trading price of the Company's Common
Stock and the price at which the Company may sell securities in the future could
be subject to large fluctuations in response to announcements of research
activities, technological innovations or new products by the Company or its
competitors, changes in government regulations, developments concerning
proprietary rights, formation or termination of corporate alliances, variations
in operating results, litigation, results of clinical trials of the Company's or
its competitors' products, FDA approval or denial of Investigational New Drug
applications, other FDA action or inaction or similar actions or inaction by FDA
counterparts in other countries, general market and economic conditions and
other events. The possibility of price volatility in price may make the
Company's Common Stock an unsuitable investment for persons who, for
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personal reasons, could be required to sell, at a time when the market price for
the Common Stock was depressed for reasons not related to the long term value of
the Common Stock.
Anti-Takeover Provisions. Until December 31, 2000, after which such shares
can be redeemed by the Company, holders of the Company's Special Voting Rights
Preferred Stock can prevent any change of control of the Company that does have
their support. See Item 11, "Description of Securities, etc. - Special Voting
Rights Preferred Stock". In addition, certain provisions of the Company's
Articles of Incorporation and the Idaho Business Corporation Act may be deemed
to have "anti-take-over" effects in that they could delay, defer or prevent a
takeover attempt that a shareholder might consider to be in the Company's or the
shareholders' best interests. For example, the ability of the Company's Board of
Directors to designate series of Preferred Stock without any vote or action by
the Company's stockholders could be considered an "anti-takeover" device, since
the terms of Preferred Stock which might be issued could contain terms which
could contain special voting rights or increase the costs of acquiring the
Company. See Item 11, "Description of Securities, etc. - 'Anti-Takeover'
Provisions" below.
Market Overhang. As of December 9, 1998, the Company had 13,305,109 shares
of Common Stock which were outstanding, or sold and pending issuance, of which
approximately 12,300,109 shares, or approximately 92% of the total, were, or
when issued will be, "restricted securities" which had not been registered with
the Securities and Exchange Commission or any state securities agency and as to
which future sales in the United States were restricted. The remaining shares of
the Company's outstanding Common Stock are not restricted and are immediately
saleable in the United States, without restriction, by their owners.
Approximately 9,334,118 shares of the Company's restricted Common Stock
will become saleable between the date of this Registration Statement and January
17, 1999, under Rule 144 under the Securities Act of 1933, provided the seller
complies with the manner of sale and other conditions and limitations of that
Rule. A majority of those shares (5,021,317 shares) is owned by executive
officers and directors of the Company. Rule 144 also requires that specified
information concerning the Company must be available to the public at the time
any such sale is made.
A substantial increase in the number of shares that can be publicly sold by
the holders of such shares could negatively impact the market price for the
Company's Common Stock as such shares are sold, or as they become readily
saleable because of the perception that they may be sold in large numbers.
Impact of Future Issuance of Capital Stock. The Company has 50,000,000
shares of Common Stock authorized, of which 13,305,109 shares were outstanding
or sold and in the process of being issued at December 9, 1998, and 1,711,362
shares of Common Stock have been reserved for issuance upon the exercise of
outstanding warrants and options. The Company also has authorized 1,000,000
shares of Preferred Stock, none of which are presently outstanding. Although the
Board of Directors of the Company has no present intention to do so, it has the
authority, without action by the shareholders, to issue authorized and unissued
shares of Common Stock or Preferred Stock. Issuance of additional shares of
Common Stock or shares of Preferred Stock could dilute the equity interests, and
adversely affect the voting rights, of existing holders of Common Stock.
Item 1(c)(ii) Status of new products announced
The Company's oral insulin formulation is the only product as to which it
has made any public announcement. Information concerning the status of this
product is set forth above in Item 1(c)(i), "Principal Products and Services -
Oral Insulin Research and Development".
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Item 1(c)(iii) Sources and availability of raw materials
With the exception of insulin, all of the products required to make the
Company's oral insulin formulation are non-proprietary and in plentiful supply.
The propellant used in the Company's metered dose applicator is a proprietary
product, but is available from several suppliers and, in the quantities which
the Company requires, the Company does not anticipate any supply difficulties.
With respect to insulin, there are limited sources of supply. Eli Lilly &
Company and Novo Nordisk A/S together produce approximately 90% to 95% of the
world insulin supply, and are the only sources of a fully synthetic human
recombinant insulin that is approved for sale in the United States. The only
other Company which has a significant share of the world insulin market is
Hoescht Marion Roussel ("HMR"), which has approximately 40% of the German
market, and limited sales elsewhere, but presently does not have an insulin
product that is approved for sale in the United States.
At the present time, the Company is using insulin obtained from retail
supply sources. The Company also has received limited quantities of insulin from
certain insulin producers for use in clinical studies and for other
non-commercial purposes. In order to obtain wide distribution of its oral
insulin product, however, the Company will be required to secure a direct supply
of insulin in commercial quantities. The Company has discussed insulin supply
with Lilly and Novo Nordisk, as well as HMR and other pharmaceutical companies
which do not now have a significant share of the world insulin market or an
insulin product that is approved for sale in the United States. The Company does
not now have a supply agreement for commercial quantities of insulin, however,
and inability to obtain an adequate supply of insulin would severely and
adversely affect the Company's prospects.
Item 1(c)(iv) Patents, trademarks, licenses, etc.
At present, the Company holds two US patent applications which cover its
core large molecule drug delivery technology, one of which has been allowed and
the other of which is pending. The Company has five other patent applications
pending, two of which are pending only in Canada. The Company expects to file
additional patent applications in the next several months which will relate to
its core technology and the metered dose applicator used to administer its oral
insulin formulation. All of the Company's patents are the result of original
research and discoveries by Pankaj Modi, the Company's Vice President, Research
and Development. See Item 5, "Directors and Executive Officers" below.
In October 1996, the Company entered into a Consulting Agreement with Dr.
Modi pursuant to which, among other things, Dr. Modi assigned to the Company his
entire right, title and interest in and to all inventions, ideas, designs and
discoveries made by him during the term of such Agreements which relate in any
manner to the development, manufacturing, marketing, distribution and sale of
generic drug products, including, without limitation, controlled release drugs,
topical insulin, intra-nasal insulin and liposome creams. Concurrently with
execution of this Consulting Agreement, Dr. Modi and the Company entered into an
Assignment and Assumption Agreement pursuant to which Dr. Modi assigned to the
Company his interests in and to specific drug delivery systems, controlled
release drug delivery systems and technology patents
invented/discovered/conceived by Dr. Modi prior to the execution of the
Agreement, including all of his interests in three patents (the "Centrum
Patents") covering oral and intranasal delivery of proteinic drugs in liquid
formulations, biodegradable polymer microspheres and controlled release of drugs
or hormones from biodegradable polymer microspheres which previously had been
assigned to Centrum Biotechnologies, Inc., a Canadian company which at that time
was 50% owned by Dr. Modi. Pursuant to the Assignment and Assumption Agreement,
the Company has since acquired Dr. Modi's interest in Centrum Biotechnologies
for no additional consideration.
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Dr. Modi's research activities since October 1996, with the Company's
financial support, have developed formulations and procedures including the
Company's oral insulin formulation, which, the Company believes, are outside the
scope of the patents, etc., assigned to it by Dr. Modi and which, in particular,
are not covered by and would not infringe any of the Centrum Patents. At this
time, however, the Company has not obtained any formal legal opinions that Dr.
Modi's subsequent inventions and discoveries do not infringe any of the Centrum
Patents which, as indicated above, are only 50% owned by the Company. At this
time, there can be no assurance that the Company's present oral drug delivery
technology for insulin and other drug delivery technology does not infringe one
or more of the Centrum Patents.
The patent positions of biotechnology and pharmaceutical companies,
including the Company, are highly uncertain and involve complex legal and
factual questions. There is no assurance that patents will issue from the patent
applications filed by the Company or that the scope of any claims granted in any
patent will provide proprietary protection or a competitive advantage to the
Company. Nor can there be any assurance that the validity or enforceability of
patents issued or licensed to the Company will not be challenged by others or
that, if challenged, a court will find the patents to be valid and enforceable.
In addition, there is no assurance that competitors will not be able to
circumvent any patents issued or licensed to the Company. In the United States,
patent applications are maintained in secrecy until patents issue, and
publications in the scientific and patent literature lag behind actual
discoveries. As a result, the Company cannot be certain that its scientists were
the first to make inventions covered by its patents and patent applications. If
a third party has also filed a patent application for the Company's inventions,
the Company may have to participate in interference proceedings declared by the
United States Patent and Trademark Office to determine priority of invention.
Moreover, patent interference proceedings would be lengthy and expensive, even
if the outcome is favorable to the Company. While no patent that could be
potentially infringed by manufacture, use or sale of the Company's product
candidates in the fields of Type 1 and Type 2 diabetes has come to the attention
of the Company, the Company's product candidates are still in the development
stage, and neither its formulations nor its method of manufacture have been
finalized.
The Company also relies on trade secrets and other unpatented proprietary
information in its product development activities. The Company seeks to protect
trade secrets and proprietary knowledge, in part through confidentiality
agreements with its employees, consultants, advisors and collaborators.
Nevertheless, these agreements may not effectively prevent disclosure of the
Company's confidential information and may not provide the Company with an
adequate remedy in the event of unauthorized disclosure of such information. If
the Company's employees, scientific consultants, or independent individuals or
entities develop inventions or processes independently that may be applicable to
unpatented proprietary information, disputes may arise about ownership of
proprietary rights to those inventions and processes which would require
protracted and costly litigation to resolve. Failure by the Company to obtain or
maintain patent and trade secret protection, for any reason, would have a
material adverse effect on the Company. See Item 1(c)(i), "Risk Factors -
Dependence Upon Proprietary Technology".
The Company has applied to register the trade names Oralgen(TM) in the
United States, Canada, and other jurisdictions, and the name Oralin(TM) in
Canada and other jurisdictions.
Item 1(c)(v) Seasonality
There is not now, and the Company does not expect there to be in the
future, a material seasonal aspect to its business.
Item 1(c)(vi) Industry practices relative to working capital items
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At this point in its development, there are no industry specific working
capital practices relevant to the Company.
Item 1(c)(vii) Major customers
The Company has not yet commenced commercial operation. It anticipates
that, in the future, its customers will consist principally of a limited number
of companies which it licenses to use its technology and/or distribute its
products.
Item 1(c)(viii) Backlog
The Company has no backlog of sales.
Item 1(c)(ix) Government Contracts
The Company is not now a party to any government contracts, nor has it sold
any product in the past pursuant to any government contracts.
Item 1(c)(x) Competition
Biotechnology and pharmaceutical companies, academic institutions,
governmental agencies, and other public and private research organizations also
conduct research, seek patent protection, and establish collaborative
arrangements with commercial entities for product development and marketing.
Products resulting from these activities may compete directly with any that the
Company develops. These companies and institutions also compete with the Company
in recruiting and retaining highly qualified scientific personnel. Many
competitors and potential competitors have substantially greater scientific
research and product development capabilities, as well as greater financial,
marketing and human resources, than the Company.
With respect to the Company's oral insulin formulation, numerous
pharmaceutical and biotechnology companies are engaged in various stages of
research, development and testing of alternatives to insulin therapy, as well as
new means of administering insulin, including the following:
Inhale Therapeutics has developed a technology utilizing a fine powder form
of insulin that is administered using a proprietary inhalation device and
absorbed in the deep lungs. Inhale has announced successful results using its
inhalation techniques in Phase II clinical trials with Type 1 and Type 2
diabetics, and in November of this year announced that it had "kicked off" Phase
III trials with an investigators meeting, which is to be followed with
recruitment, enrollment and dosing of patients. The announcement did not
disclose when actual dosing of patients was expected to begin.
In November 1998, Pfizer, Inc., which has a collaboration agreement with
Inhale, announced that it had entered into worldwide agreements to co-develop
and co-promote the use of inhaled insulin with Hoechst Marion Roussel, a leading
pharmaceutical-based health care company which has been making insulin for
approximately 75 years, and is estimated to have a 40% share of the German
insulin market.
Cortecs International announced in late 1997 the results of two insulin
studies with its proprietary product, "Macrulin", in an oral insulin capsule
form and with a liquid version administered with a tube into the stomach.
Cortecs claimed that these studies showed a significant lowering of glucose
levels in Type 2 diabetic patients, and announced its intention to conduct
multiple dose studies during 1998.
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Aradigm Corporation has announced a joint development agreement with Novo
Nordisk A/S to jointly develop a pulmonary delivery system to administer insulin
by inhalation, with the expectation that Phase II testing would begin in the
second half of 1998. The delivery system is expected to be based on proprietary
technologies to create aerosols from disposable unit-dose drug formulations and
an "electronic inhaler" to deliver locally to the lung or systemically through
the lung. Novo Nordisk is one of the two leading manufacturers of insulin in the
world, the other being Eli Lilly & Company.
Dura Pharmaceuticals and Eli Lilly & Company announced in September 1998
that they are collaborating to develop pulmonary delivery technology for insulin
products based upon proprietary technology of Dura for the pulmonary delivery of
peptides and proteins.
Endorex Corporation has announced receipt of a patent for a technology for
the oral administration of vaccines which it licenses from the Massachusetts
Institute of Technology. The company said that the patent covered a vaccine
delivery system that utilizes polymerized liposomes which it is developing
through a joint venture with Elan Pharmaceutical Technologies, a company which
specializes in drug delivery technologies and systems.
In addition to competitive delivery systems for insulin, there are numerous
products which have been approved for use in the treatment of Type 2 diabetics
in place of or in addition to insulin therapy. These products include the
following:
Glucophage(R) is a proprietary product of Bristol-Myers Squibb Company
that is used to improve glycemic control in diabetic subjects without increasing
serum insulin levels. It is believed to work, at least in part, by reducing
glucose output from the liver.
Arcabose(R) is a proprietary product sold in the United States by
Bayer Corporation. The product is sold in Europe under the tradename
Glucobay(TM). Acarbose(R) reduces blood glucose levels primarily after meals by
slowing down the digestion of carbohydrates and lengthening the time it takes
for carbohydrates to convert to glucose.
Rezulin(R) is a proprietary product sold by Warner Lambert for use as
monotherapy or combination therapy for Type 2 diabetes. The product is believed
to work in part by increasing the body's sensitivity to insulin.
Prandin(TM) is a proprietary product sold by Novo Nordisk and
Schering-Plough Corporation which has been approved by the FDA for monotherapy
and adjunctive therapy for certain diabetic patients. The product is believed to
act via calcium channels to stimulate insulin secretion.
Virtually all of the Company's competitors have greater research and
development capabilities, experience, manufacturing, marketing, sales, financial
and managerial resources than the Company now has. The Company's competitors may
succeed in developing competing technologies, in obtaining regulatory approval
for products more rapidly than the Company and in gaining greater market
acceptance of their products than the Company's products. There can be no
assurance that developments by others will not render some or all of the
Company's proposed products or technologies uncompetitive or obsolete, which
could have a material adverse effect on the Company.
The Company expects that competition among products approved for sale to
treat diabetes will be based, among other things, on product safety, efficacy,
ease of use, effect on co-morbid conditions, availability, price, marketing and
distribution. The Company believes that the principal advantage of its
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oral insulin formulation will be ease of use, resulting in greater patient
compliance. Possible negatives at this time are cost and availability.
Item 1(c)(xi) Research and development expenditures
In the period from inception (November 2, 1995) through the fiscal year
ended July 31, 1998, the Company's expenditures on research and development (all
of which were Company sponsored) were as follows: Years ended July 31, 1998 --
$876,404; and 1997 -- $727,479; period from inception (November 2, 1995 through
July 31, 1996 -- $67,142.
Item 1(c)(xii) Environmental compliance
The Company's manufacturing, research and development activities involve,
or may involve, the controlled use of hazardous materials and chemicals. The
Company believes that its procedures for handling and disposing of such
materials comply with applicable governmental regulations. Risk of accidental
contamination or injury from these materials cannot be eliminated. If such an
accident occurs, the Company could be held liable for resulting damages, which
could be material to the Company's financial condition and business. The Company
will include an environmental assessment in the NDA in accordance with FDA
regulations. The Company is also subject to numerous environmental, health and
workplace safety laws and regulations, including those governing laboratory
procedures, exposure to blood-borne pathogens, and the handling of biohazardous
materials. Additional laws and regulations affecting the Company may be adopted
in the future. Any violation of, and the cost of compliance with, these laws and
regulations could materially and adversely affect the Company.
The Company does not believe that compliance with United States, Canadian
and/or other environmental laws will have a material effect on the Company or
the Company's capital or other expenditures in the current fiscal year or in the
foreseeable future.
Item 1(c)(xiii) Employees
As of December 11, 1998, the Company had 18 full-time employees, of which
nine employees are executive and administrative, three are engaged in research
and development activities, and six are employed in manufacturing and/or
manufacturing supervision. None of the Company's employees is covered by a
collective bargaining agreement, and the Company believes its employee relations
are good.
Item 1(d) Revenues, etc. by Geographic Region
Through the end of its last fiscal year, the Company had not received any
revenues from operations. Substantially all of its assets were located and
deployed in Canada, where the Company's principal operating subsidiary is
located.
19
<PAGE>
Item 2. FINANCIAL INFORMATION
Item 2(a) Selected Financial Data
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected financial data set forth below as of and for the fiscal years
ended July 31, 1996 and 1997, for the period from inception (November 2, 1995)
to July 31, 1996, and cumulative from inception (November 2, 1995) to July 31,
1998, has been derived from the audited consolidated financial statements of the
Company. The results of operations set forth below are not necessarily
indicative of results to be expected for any future period. The information
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the financial statements
of the Company, including the notes thereto, included elsewhere in this
Registration Statement.
<TABLE>
<CAPTION>
For the Cumulative
Period From
November 2, November 2,
For the Years Ended 1995 (Date 1995 (Date
July 31, of Inception) of Inception)
--------------------------- to July 31, to July 31,
1998 1997 1996 1998
----------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues ............................................. $ -- $ -- $ -- $ --
Research and development expense ..................... 876,406 727,479 67,142 1,671,026
General and administration expense ................... 3,673,909 628,064 296,281 4,598,254
----------- ----------- --------- -----------
Total operating expenses ............................. 4,550,313 1,355,543 363,423 6,269,279
----------- ----------- --------- -----------
Other expense - interest ............................. 63,291 -- -- 63,291
----------- ----------- --------- -----------
Net loss ............................................. (4,613,604) (1,355,543) (363,423) (6,332,570)
Basic and diluted net loss per common share .......... (.46) (.25) (.40) N/A
Weighted average number of common shares
outstanding .......................................... 10,078,875 5,512,840 903,972 N/A
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended
July 31,
-------------------------
1998 1997
--------- ---------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital ...................................... $ 488,904 $ 289,839
Total assets ......................................... 5,219,684 3,672,775
Total long-term debt (less current maturities) ....... 528,506 --
Total stockholders' equity ........................... 2,642,298 3,448,836
</TABLE>
20
<PAGE>
Item 2(b) Management's Discussion and Analysis of
Financial Condition and Results of Operations
When used in this discussion, the words "expect(s)", "feels", "believe(s)",
"will", "may", "anticipate(s)" and similar expressions are intended to identify
forward-looking statements. Such statements are subject to certain risks and
uncertainties, which could cause actual results to differ materially from the
possible results described in such statements. Readers are cautioned not to
place undue reliance on these forward-looking statements, and are urged to
carefully review and consider the various disclosures elsewhere in this
Prospectus which discuss factors which affect the Company's business, including
the discussion under the caption "Risk Factors".
General
The Company was incorporated in 1983 as Green Mt. P.S., Inc. In January
1998, the Company acquired all of the outstanding capital stock of Generex
Pharmaceuticals, Inc. ("Generex Pharmaceuticals"), a Canadian corporation formed
in November 1995 to engage in pharmaceutical and biotechnological research and
other activities, and changed its corporate name to Generex Biotechnology
Corporation. The acquisition was effected by the merger of GBT Delaware, Inc. a
recently formed Delaware corporation which in October 1997 had acquired all of
the outstanding capital stock of Generex Pharmaceuticals, with a wholly-owned
subsidiary of the Company which had been formed for this transaction (the
"Reverse Acquisition"). As a result of the Reverse Acquisition, the former
shareholders of Generex Pharmaceuticals acquired a majority of the Company's
outstanding capital stock and, for accounting purposes, GBT Delaware, Inc. was
treated as the acquiring corporation. Thus, the historical financial
statements of GBT Delaware, Inc., which, in essence, represented the historical
financial statements of Generex Pharmaceuticals prior to the Reverse Acquisition
date, are deemed to be the historical financial statements of the Company.
Results of Operations
Years ended July 31, 1998, 1997 and 1996
The sole business of the Company is research, evaluation, development and
commercialization of proprietary drug delivery technologies. The Company has
been in the development stage since its inception and has not generated any
operating revenues to date. Through July 31, 1998, it has accumulated
substantial operating deficit as a result of research, development and general
and administrative expenses incurred. These expenses have increased year to
year, and increased substantially in the fiscal year ended July 31, 1998,
primarily because of large increases in general and administrative expenses
($3,673,909 in the year ended July 31, 1998, versus $628,064 in the prior year).
The increase in general and administrative expenses in the fiscal year
ended July 31, 1998, was attributable primarily to increases in salaries
($570,230 in the year ended July 31, 1998, versus $77,806 in the prior fiscal
year), professional fees ($527,941 versus $98,078) and consulting and other
services paid for through the issuance of securities valued at $839,000, versus
zero in the prior year. Certain of these expenses for professional services and
consulting services were nonrecurring expenses related to the Company becoming a
public company and to subsequent financing transactions. The potential decrease
in general and administrative expenses in the current fiscal year, however, is
expected to be offset by an increase in personnel expense and in research and
development expenses, primarily in connection with clinical trials of the
Company's oral insulin formulation in the United States and Canada. The Company
anticipates research, development and administrative expenses approximately in
the range of $1.5 to $2 million in the remainder of its current fiscal year.
The Company also expects to receive its first revenues from product sales
in the current fiscal year, from commercial sales of its oral insulin
formulation in Ecuador. The Company has not yet received regulatory approvals to
begin commercial distribution of this product in Ecuador, but expects to receive
such approval in the first calendar quarter (the Company's third fiscal quarter)
of 1999. The revenues derived from commercial operations in South America during
the next fiscal year are not expected to be sufficient to defray all marketing,
manufacturing and other expenses which the Company will incur in commencing
those operations, and under no foreseeable
21
<PAGE>
circumstances will they significantly contribute to the funds necessary to
conduct the Company's clinical programs in North America or contribute
significantly to general and administrative expenses.
The Company also may receive licensing income, or income in the nature of
licensing income (e.g., "signing bonuses" or "advance royalties"), in connection
with its entering into marketing and distribution agreements. Income from such
sources, if received, would, in all likelihood, be material relative to the
Company's total cash needs in the current fiscal year. The Company does not,
however, have any commitments for such payments at the present time.
Liquidity and Capital Resources
The Company has financed its operations primarily through private
placements of equity securities.
Prior to its acquisition by the Company in January 1998, Generex
Pharmaceuticals raised approximately $5.2 million (net of financing costs and
foreign currency translation adjustments) through the sale of shares of its
common stock which, in connection with the Reverse Acquisition, were converted
into 9,234,118 shares of the Company's Common Stock. Between the Reverse
Acquisition date and July 31, 1998, the Company raised approximately $2.7
million of additional equity capital (after foreign currency translation
adjustment and excluding the value of Common Stock and Warrants issued in
payment for services) through the sale for cash of 1,407,253 shares of Common
Stock and warrants to purchase 993,253 shares. An additional 224,901 shares of
Common Stock and warrants to purchase 660,172 shares of Common Stock were issued
for services.
The Company's projected capital and operating costs in the current fiscal
year (August 1, 1998 through July 31, 1999) exceeded its working capital at the
beginning of the year by approximately $2.8 million. That difference was
satisfied through additional equity capital received in the current fiscal year.
Since July 31, 1998, through December 9, 1998, the Company received
approximately $4 million in additional equity capital, net of cash expenses
incurred in connection with such financing transactions, for which it has
issued, or is committed to issue, a total of 1,107,353 shares of Common Stock.
These totals do not include 61,801 shares issued in payment for services valued
at $217,897, or 180,000 shares issued in settlement of an outstanding claim and
valued at $738,000.
The Company's cash on hand is sufficient to fund operations contemplated in
the remainder of the current fiscal year. The Company expects to receive an
additional $1 million in December 1998 under an existing subscription for Common
Stock, although the subscriber is not committed to make the purchase. The bulk
of the Company's cash needs beyond the current fiscal year are expected to be
met from licensing income, contributions of marketing partners to clinical
program costs and/or equity investment. The Company is in discussions with
numerous potential financing sources, including investment banking firms and
individual and institutional investors relative to additional equity capital,
and major pharmaceutical companies concerning equity investments, marketing and
other collaboration agreements that would, if entered into by the Company,
result in the receipt of license fees, advance royalties or other "up front"
payments, and/or contribution to the costs of conducting clinical trials.
However, the Company has no commitments for financing of any kind at this time.
Implementation of the Company's business plan beyond the current fiscal
year will require the availability of sufficient funds from the sources
described above. If funds are not available from these sources, or from
alternative sources, the Company will be required to "scale back" or otherwise
revise its business plan. Any significant scale back of operations or
modification of the Company's business plan required due to a lack of funding
could be expected to materially and adversely affect the Company's prospects.
Year 2000
Many computer systems experience problems handling dates beyond the year
1999. Therefore, some computer hardware and software will need to be modified
prior to the year 2000 in order to remain functional. Management has determined
that the consequences of Year 2000 problems/issues will not have a material
effect on the Company's business, results of operations or financial condition,
without taking into account any efforts by the Company to avoid those
consequences, except to the extent that the Company may be materially and
adversely affected as a part of the general population by extreme
22
<PAGE>
consequences beyond its ability to influence, control or avoid, e.g. severe
disruption of business and financial markets and institutions.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS No. 130"). SFAS No. 130 establishes standards for the reporting
and display of comprehensive income and its components (revenues, expenses,
gains and losses) in a full set of general purpose financial statements. SFAS
No. 1300 is effective for fiscal years beginning after December 15, 1997. The
adoption of SFAS No. 130 did not have a material impact on the Company's
financial reporting.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosure about Segments of an Enterprise and Related Information"
("SFAS No. 131"). SFAS No. 131 establishes standards for public business
enterprises to report information about operating segments in annual financial
statements and selected information in the notes thereto. SFAS No. 131 is
effective for financial statements for periods beginning after December 15,
1997. In the initial year of application, comparative information for earlier
years is to be restated. SFAS No. 131 need not be applied to interim financial
statements in the year of adoption, but comparative information is required in
the second year of application. The Company believes that the adoption of SFAS
No. 131 will not have a material impact on the Company's financial reporting.
In 1998, the FASB issued Statement of Financial Accounting Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No.
133"). SFAS No. 133 modifies the accounting for derivative and hedging
activities and is effective for fiscal years beginning after December 15, 1999.
The Company believes that the adoption of SFAS No. 133 will not have a material
impact on the Company's financial reporting.
In 1998, the AICPA issued Statement of Position (SOP) 98-1, "Accounting for
Costs of Computer Software Developed or Obtained for Internal Use". The Company
believes that the adoption of SOP 98-1 will not have a material impact on the
Company's financial reporting.
Item 2(c) Quantitative and Qualitative Disclosures About
Financial Derivative and Other Market Risks
The Company employs no "hedging" strategies at the present time, and all of
its cash deposits are denominated in US dollars. The only current risk that the
Company faces is appreciation in the Canadian dollar relative to the US dollar,
since most of its operations are now conducted in Canada.
23
<PAGE>
Item 3. PROPERTIES
The Company's executive and principal administrative offices occupy
approximately 6,100 square feet of office space in the Business Centre at 33
Harbour Square in downtown Toronto, Ontario, Canada. The Business Centre, which
comprises approximately 9,100 square feet of usable space, is owned by the
Company. The space in the Centre that is not used by the Company is leased to
third parties, although, under the terms upon which it acquired this space in
December 1997, the former owner of the property retained the rental income from
third party leases through 1998.
The Company also has equipped and commenced production at a pilot
manufacturing facility for its oral insulin formulation. This facility, which is
owned by the Company, is located in Toronto, and consists of approximately 3,600
square feet of laboratory, manufacturing and storage place. At the present time,
the Company has equipped and outfitted only approximately one-third of the
usable space. As equipped, on a single shift, the facility has the capacity to
prepare the oral insulin formulation for, and to fill and deliver, approximately
500 of the Company's metered dosage applicators per day. The Company believes
that it can increase its single shift production capacity at this facility at
modest cost (approximately $300,000) to approximately 1,000 applicators per day
by installing a second production line.
The Company also owns a 11,625 square foot building in Brampton, Ontario,
approximately 25 miles outside Toronto, a second 13,500 square foot building in
Mississauga, Ontario, about 20 miles from downtown Toronto, and a commercial
building site in Manta, Ecuador. The Company has begun the preliminary work
necessary to equip and start up the Brampton and Mississauga facilities to
produce its oral insulin formulation and other products as they are developed.
The building site in Ecuador is located in a "free trade" zone and the Company
intends to establish an 18,000 square foot manufacturing facility at this
location to serve the South American market. That project too is in the
preliminary stage. The Company believes that, if required to do so, it will be
able to place the Brampton facility "on line" by mid-1999, and the Mississauga
and Manta, Ecuador facilities on line by mid-2000. At this time, the Company
does not expect a need for manufacturing capabilities beyond its pilot facility
until the year 2000.
The Company's executive and administrative offices are encumbered by a
purchase money mortgage in the original amount of $800,000 CAD, which is payable
in March 2000, with interest only payable until then. The Company's pilot
manufacturing facility is encumbered by a purchase money mortgage in the amount
of $125,000 CAD, due on September 11, 1999, and payable interest only until
then.
Item 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The Company had 13,305,109 shares of Common Stock outstanding, or sold and
pending issuance, at December 9, 1998. The following table sets forth certain
information regarding the ownership of the Company's Common Stock as of such
date, by (i) each of the Company's executive officers and directors, (ii) each
other person known to the Company to be the beneficial owner of more than 5% of
such shares of Common Stock, and (iii) all executive officers and directors as a
group.
24
<PAGE>
- --------------------------------------------------------------------------------
Name and Address Beneficial Ownership(1)(2)
- --------------------------------------------------------------------------------
Number of Percent
Shares (1) of Total
- ------------------------------------------ ---------------------- ----------
(i) Directors and Executive Officers
- ------------------------------------------ ---------------------- ----------
E. Mark Perri 1,545,317(3) 11.6%
33 Harbour Square, Ste. 3502
Toronto, Ontario
Canada M5J 2G2
- ------------------------------------------ ---------------------- ----------
Anna E. Gluskin 1,188,000(4) 8.9%
33 Harbour Square, Ste. 2409
Toronto, Ontario
Canada M5J 2G2
- ------------------------------------------ ---------------------- ----------
Rose C. Perri 1,188,000(4) 8.9%
33 Harbour Square, Ste. 2409
Toronto, Ontario
Canada M5J 2G2
- ------------------------------------------ ---------------------- ----------
Pankaj Modi, Ph.D.(3) 1,100,000(6) 8.3%
1928 Main Street West, Ste. 608
Hamilton, Ontario
- ------------------------------------------ ---------------------- ----------
Officers and directors as a group 5,021,317 37.7%
(4 persons)
- ------------------------------------------ ---------------------- ----------
(ii) Other Beneficial Owners
- ------------------------------------------ ---------------------- ----------
EBI, Inc. In Trust 1,550,093(6) 11.7%
c/o Miller & Simons
First Floor, Butterfield Square
P.O. Box 260
Providencials
Turks and Calcos Islands, BWI
- ------------------------------------------ ---------------------- ----------
GHI, Inc. In Trust 2,500,000(7) 18.8%
c/o Miller & Simons
First Floor, Butterfield Square
P.O. Box 260
Providencials
Turks and Calcos Islands, BWI
- ------------------------------------------ ---------------------- ----------
Thompson Kernaghan 1,240,000(8) 8.9%
& Co., Ltd.
365 Bay Street, 10th Floor
Toronto, Ontario
Canada M5H 2V2
- ------------------------------------------ ---------------------- ----------
25
<PAGE>
- -------------------------
(1) Unless otherwise indicated, this column reflects shares (a) owned
beneficially and of record, and/or (b) as to which the named party has
sole voting power and investment power. This column also includes
shares issuable upon the exercise of options, warrants or similar
rights which are exercisable within 60 days from December 9, 1998.
(2) In computing the percentage of shares beneficially owned by any person,
shares which the person has the right to acquire within 60 days from
December 9, 1998, upon the exercise of options or other rights held by
such person are deemed outstanding. Such shares are not deemed to be
outstanding in computing the percentage ownership of any other person.
(3) Includes 25,993 shares owned beneficially and of record by Mr. Perri,
and a total of 1,519,324 shares beneficially owned by Mr. Perri but
owned of record by Golden Bull Estates, Ltd. (61,225 shares), EBI, Inc.
(1,089,993 shares), GHI, Inc. (124,000 shares), Time Release Corp.
(22,678 shares) and Goldenway Dynasty Inc. (221,428 shares). Does not
include shares which Mr. Perri may be deemed to own beneficially based
on his power to vote shares which are owned of record by GHI, Inc. and
EBI, Inc., and owned beneficially by other shareholders. See Notes 7
and 8 below.
(4) These shares are owned of record by GHI, Inc. See Note 7 below.
(5) Dr. Modi also owns all of the outstanding shares of the Company's SVR
Preferred Stock. See "Description of Securities - SVR Preferred Stock".
(6) These shares are beneficially owned by Mark Perri (1,089,993 shares)
and certain non-affiliates of the Company. Mr. Perri has the sole power
to vote the shares, but not investment power over shares that he does
not beneficially own.
(7) These shares are beneficially owned by Mark Perri (124,000 shares),
Anna Gluskin (1,188,000 shares) and Rose C. Perri (1,188,000 shares).
Mr. Perri has the sole power to vote the shares, but not investment
power over shares beneficially owned by Ms. Gluskin and Ms. Perri.
(8) Thompson Kernaghan & Co., Ltd., is a Canadian broker dealer and holds
these shares for the benefit of certain partners, officers and clients
of the firm. Such persons and entities may own additional shares of the
Company's Common Stock in their own names or in other accounts.
Includes 620,000 shares issuable upon exercise of the Company's Series
A Redeemable Common Stock Purchase Warrants owned of record by Thompson
Kernaghan & Co., Ltd.
26
<PAGE>
Item 5. DIRECTORS AND EXECUTIVE OFFICERS
The current executive officers and directors of the Company are as follows:
Name Age Position
- ---- --- --------
E. Mark Perri 37 Chairman, Chief Financial Officer and a Director
Anna E. Gluskin 47 President, Chief Executive Officer and a Director
Pankaj Modi, Ph.D. 45 Vice President of Research & Development and a
Director
Rose C. Perri 31 Chief Operating Officer, Secretary, Treasurer
and a Director
Mark Perri and Rose Perri are siblings. There are no other family
relationships among the Company's officers and directors. Certain biographical
information concerning the Company's executive officers follows:
E. Mark Perri - Mr. Perri has served as the Company's Chairman and Chief
Financial Officer since its acquisition of Generex Pharmaceuticals, Inc. ("GPI")
in January 1998, and has held comparable positions with GPI since its inception
in November 1995. Mr. Perri devotes approximately 90% of his time to his duties
as Chairman. The remainder of his time is devoted to private business interests
that are majority owned by Mr. Perri, his sister Rose, who also is an officer
and director of the Company, other members of the Perri family and, in some
cases, Anna Gluskin, who is President, Chief Executive Officer and director of
the Company. These interests include Golden Bull Estates, Ltd. and Perri Rentals
which own, lease and/or operate commercial and residential real estate in the
Toronto area, Angara Group Ltd., which is engaged in the manufacture and sale of
chemicals, generic drugs and other products in Central America and republics of
the former Soviet Union, and Perri International Inc. which holds interests in
biotechnology companies in Europe. Mr. Perri also has minority interests in a
number of private companies which do not require a significant investment of his
time.
Mr. Perri holds a Bachelor of Arts degree from the University of Waterloo
and a University of Toronto Masters (MLS) designation.
Anna E. Gluskin - Ms. Guskin has served as the Company's President and
Chief Executive Officer since its acquisition of GPI, and prior to that time
held comparable positions with GPI. Prior to her association with the Company,
Ms. Gluskin was primarily engaged in the real estate business in the Toronto
area. Since August 1997, Ms. Gluskin has served as Chairman of Interlock
Consolidated, Inc., an inactive, non-trading Canadian public company that
previously had engaged in the sale of prefabricated housing. Ms. Gluskin is also
a minority shareholder of Golden Bull Estates, Ltd., and Angara Group, Ltd.,
private companies that are majority-owned by Mark and Rose Perri.
Ms. Gluskin holds a Masters degree in Microbiology and Genetics from Moscow
State University.
Pankaj Modi, Ph.D. - Dr. Modi has served as a consultant to GPI and as its
Director - Insulin Research, since October 1996, and as Vice President of
Research and a director of the Company since its acquisition of GPI in January
1998. Prior to joining GPI, Dr. Modi was a Senior Research Scientist with Ross
Laboratories for approximately 13 years.
27
<PAGE>
Dr. Modi was educated at the University of Bombay in India, where he
received his Bachelor of Science degree in Biology, Physics and Chemistry in
1975. His post-graduate education is extensive and includes a Master of Science
degree in Chemical Engineering (Brooklyn Polytechnic University, 1976); a Master
of Science degree in Polymeric Materials/Biomedical Sciences (Brooklyn
Polytechnic University, 1976); a Master of Business Administration degree
(University of Dallas, 1978) and a Doctorate in Biomedical Sciences/Biopolymeric
Materials (University of Toronto, 1992).
Rose C. Perri - Ms. Perri has served as the Company's Secretary and
Treasurer since January 1998, and as its Chief Operating Officer since August
1998. She has served as Secretary of GPI from its inception. Ms. Perri devotes a
portion of her time (less than 10%) to business interests controlled by the
Perri family, principally Perri Rentals, Inc.
Ms. Perri graduated from the University of Toronto in 1990 with a Bachelor
of Arts degree and completed the Business Administration Studies program at York
University in 1993.
Scientific Advisory Board and Consultants
The Company has established a Scientific Advisory Board to provide it with
ongoing advise and counsel regarding research direction, product development,
analysis of data and general counseling. The Company consults with individual
members of this Board on a non-scheduled basis. Brief descriptions of the
backgrounds of the Advisory Board members are set forth below.
Jaime Guevara-Aguirre, M.D., Institute of Endocrinology, Metabolism and
Reproduction, Quito, Ecuador. Dr. Jaime Guevara-Aguirre founded the Institute of
Endocrinology, Metabolism and reproduction IEMIR in Quito, Ecuador in 1987 and
continues to be a director. He has been involved extensively in medical research
in such areas as growth hormone insensitivity, body and bone composition and
insulin-like growth factor therapy.
Dr. Guevara was a professor of Endocrinology for the Department of Internal
Medicine, Central University, Quito, Ecuador between 1980-1994. He also serves
as a director of Centro Medico de Neuro-Endocrinologia.
Edward C. Keystone, M.D., F.R.C.P.(C), Chief, Rheumatic Disease Unit,
Wellesley Hospital & Director, Division of Advanced Therapeutic Studies, The
Toronto Wellesley Arthritis & Immune Disorder Research Centre, Toronto Hospital.
Dr. Keystone is a certified specialist in both Internal Medicine and
Rheumatology. Since 1992, he has served as the Director, Division of
Rheumatology at the Wellesley Central Hospital in Toronto, Canada, In 1991, he
became the Director of Research, Department of Medicine and was named the
Assistant Chief of Medicine, positions he continues to hold at the hospital. He
is a full professor in the Department of Medicine at the University of Toronto.
Dr. Keystone is actively involved in conducting clinical research trials in
rheumatoid arthritis with an emphasis on biological therapies. His research
laboratory interest is in the immunopathologic processes contributing to the
perpetuation of rheumatoid arthritis.
Bhushan M. Kapur, Ph.D., C.Chem., F.R.S.C., F.A.C.B., F.C.A.C.B., Assistant
Professor, Department of Laboratory Medicine and Pathology, University of
Toronto. Dr. Kapur received his doctorate in organic chemistry from Basel
University, Switzerland. He has been on the Faculty of Medicine at the
University of Toronto since 1978.
28
<PAGE>
Dr. Kapur specializes in clinical biochemistry with particular emphasis on
toxicology. He serves as a consulting toxicologist to the Hospital for Sick
Children, Division of Pharmacology and Toxicology, in Toronto, and is the
President of CliniTox, Inc., a company which provides consulting services in
clinical biochemistry and toxicology.
Sigmund Krajden, M.D., C.M., F.R.C.P.(C), Department of Medicine &
Laboratory Medicine, St. Joseph's Health Centre, Toronto, Canada. Dr. Krajden
received his medical degree in 1971 from McGill University, Montreal, Quebec and
has trained in Quebec, Ontario and California. He specializes in the field of
microbiology and infectious diseases and is currently the Director of the
Medical Microbiology Department and Chief of Infectious Diseases at St. Joseph's
Health Centre in Toronto, Canada. In addition, Dr. Krajden is an Assistant
Professor at the University of Toronto.
Arthur Krosnick, M.D., F.A.C.P., C.D.A., received his medical degree from
Temple University School of Medicine, following which he served a rotating
internship at Mercer Hospital, Trenton, New Jersey, and a three year residency
in Internal Medicine, with emphasis on diabetes, at the Graduate and
Presbyterian Hospitals of the University of Pennsylvania. Among his current
appointments, Dr. Krosnick serves as Research Director, Joslin Center for
Diabetes at St. Barnabas Hospital, Chairman of the New Jersey State Diabetes
Advisory Counsel and the Advisory Committee on Diabetes, New Jersey State
Department of Health, and Clinical Associate Professor, Department of
Occupational and Environmental Medicine, Robert Wood Johnson Medical School.
Dr. Krosnick is acting as the principal investigator for the Company's
initial Phase II clinical trials in the United States.
Pankaj Modi, Ph.D., Vice President, Research and Development and a Director
of the Company. See "Management - Executive Officers and Directors".
Kusiel Perlman, M.D., F.R.C.P.(C), Division of Endocrinology, Hospital for
Sick Children, Toronto, Canada. Dr. Perlman received his medical degree from the
University of Manitoba in 1972 and pursued post-graduate studies in the
Department of Pediatrics at the University of Manitoba, Case Western Reserve
University and the University of Toronto from 1973 to 1979. Presently, he is a
Project Director in the Research Institute at the Hospital for Sick Children in
Toronto. Concurrently, he is an Assistant Professor in the Division of
Endocrinology at both The Hospital for Sick Children and the Toronto Hospital
Corporation.
Dr. Perlman's association with The Hospital for Sick Children in Toronto
started in July 1978, where he received his training as a Clinical Fellow in
Endocrinology (Pediatrics) and as a Research Fellow (Pediatrics). In 1980, Dr.
Perlman was appointed as a Senior Research Associate and in 1988 became the
director of the hospital's Clinical Investigation Unit.
William Steinbrink, M.D., received his medical degree in 1974 from the
Pittsburgh School of Medicine, and received his graduate training at Harvard
Medical School, at Beth Israel Hospital in Boston, and at Western Pennsylvania
Hospital in Pittsburgh. Dr. Steinbrink currently is on staff at the Department
of Obstetrics and Gynecology at Harmot Medical Center and Saint Vincent Health
Center in Erie, Pennsylvania and with Bayside Inc., a private clinic in Erie,
Pennsylvania, specializing in obstetrics, gynecology and infertility. He is a
Fellow of the American College of Obstetrics and Gynecology.
Bernard Zinman, M.D.C.M., F.R.C.P.(C), F.A.C.P., Director of the Banting &
Best Diabetes Centre, University of Toronto, Toronto, Canada. Dr. Zinman is a
certified specialist in endocrinology and metabolism and is a Professor in the
Department of Medicine at the University of Toronto. Since 1991, he has served
as Head of the Division of Endocrinology and Metabolism at the Mount Sinai
Hospital and The
29
<PAGE>
Toronto Hospital in Toronto, Canada. Since 1993, Dr. Zinman has been the
Director of the Banting and Best Diabetes Centre and is a Senior Scientist at
The Samuel Lunefeld Research Institute.
Dr. Zinman is acting as the principal investigator for the Canadian
clinical trials of the Company's oral insulin formulation. Previously, he has
acted as the principal investigator of the University of Toronto Diabetes
Control and Complications Control Trial ("DCCT") Centre and headed the follow up
of EDIC (Epidemiology) of Diabetes Intervention and Complication Toronto Centre.
Between 1985 and 1994, he was Chair of the Treatment Committee (DCCT) for the
National Institute of Health, a member of the Professional Practice Committee
and Vice-Chair of the Exercise Council for the American Diabetes Association.
Other Key Employees and Consultants
Slava Jarnitskii is the Financial Controller of the Company. He has been
employed by the Company since January 1998, and by Generex Pharmaceuticals,
Inc., since September 1996. Mr. Jarnitskii completed graduate studies at York
University and received an MBA degree in September 1996.
MQS, Inc., a Jamesburg, New Jersey-based consulting firm, has provided
extensive services to the Company since May 1998, primarily in connection with
establishing the Company's pilot manufacturing facility; designing the
facilities to be located in Brampton and Mississauga, Ontario; designing and
sourcing the components for the Company's metered dosage applicator; and the
preparation of regulatory submissions in the United States and Canada.
Corporate Governance Standards
The Company intends to apply to have its Common Stock approved for
quotation on The Nasdaq Stock Market, Inc. National Market System ("Nasdaq
NMS"). Issuers whose securities are quoted on the Nasdaq NMS are required to
comply with certain corporate governance standards, including a requirement that
at least two directors of the issuer be "independent" directors, and that the
issuer have an audit committee, a majority of the members of which are
"independent" directors. The Company does not have any independent directors at
the present time, but expects to add a minimum of two independent directors to
its Board of Directors within the next 60 days.
Limitation of Directors' Liability
The Company's Articles of Incorporation provide that no director of the
Company will be personally liable to the Company or any of its stockholders for
monetary damages arising from the director's breach of fiduciary duty as a
director. This limitation does not apply with respect to any action in which the
director would be liable under the Idaho Business Corporation Act for
authorizing illegal dividends, stock repurchase or redemptions. This limitation
also does not apply with respect to any liability in which the director (i)
intentionally harms the Company or its shareholders; (ii) violates the criminal
laws; or (iii) derives an improper personal benefit.
The Company also maintains directors and officers liability insurance which
provides coverage of $1 million per loss, and $1 million per policy year.
The Company believes that these provisions will assist the Company in
attracting and retaining qualified individuals to serve as directors and
officers.
30
<PAGE>
Item 6. EXECUTIVE COMPENSATION
Compensation of Executive Officers
Mark Perri, Rose Perri and Anna Gluskin are compensated indirectly by the
Company through a management services agreement of indefinite term between the
Company and a management firm of which they are equal owners. At the present
time, their combined compensation through this arrangement is $420,000 CAD per
annum (approximately $277,500 US).
The following table sets forth information concerning compensation paid to
Anna Gluskin as President and Chief Executive Officer of the Company in the
fiscal year ended July 31, 1998. No officer received compensation in excess of
$100,000 in the fiscal year ended July 31, 1998. Mark Perri, Rose Perri and Anna
Gluskin have all received substantial economic and other benefits, however,
through non-interest bearing loans from the Company. See Item 7, "Certain
Relationships and Related Transactions" below.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------------------------ --------------------------------------
Awards Payouts
--------------------------------------
Securities
Other Under-
Annual Restricted lying All Other
Name and Compen- Stock Options/ LTIP Compen-
Principal Salary Bonus sation Award(s) SARs Payouts sation
Position Year ($) ($) ($) ($) (#) ($) ($)
(a) (b) (c) (d) (e) (f) (g) (h) (i)
- ------------------- -------- -------------- -------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Anna E. Gluskin, 1997 92,488(1) -0- (2) -0- -0- -0- -0-
Chief Executive
Officer
- ------------------- -------- -------------- -------- ------------ ------------ ------------ ------------ ------------
</TABLE>
(1) Based on the Canadian/US dollar exchange rate on July 31, 1998. Ms. Gluskin
was compensated for her services to the Company in the fiscal year ended
July 31, 1998, through a management company of which she is a one-third
owner.
(2) Less than $50,000.
Other Compensation, Directors' Compensation
None of the Company's officers and directors received any options or stock
appreciation rights ("SARs") during the fiscal year ended July 31, 1998,
exercised any options or SARs during the year, or owned any options or SARs at
year end.
The Company has no long term incentive plans or defined benefit or
actuarial pension plans or the like in force.
31
<PAGE>
None of the Company's directors received compensation in the past fiscal
year for their services as directors.
Item 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company was incorporated in 1983 as Green MT. P.S., Inc., and had been
inactive for a number of years prior to January 1998 when it acquired Generex
Pharmaceuticals, Inc. ("GPI") and changed its corporate name to "Generex
Biotechnology Corporation". In connection with that transaction, GPI's
historical shareholders acquired control of the Company, and the historical
shareholders of the Company retained approximately 11% of the Company's
outstanding capital stock.
Prior to the Company's acquisition of GPI in January 1998, GPI, which was
incorporated in November 1995, was a private company. Unless otherwise
indicated, the transactions described below occurred prior to the Company's
acquisition of GPI or pursuant to contractual arrangements entered into prior to
that time.
Real Estate Financing Transactions: In May 1997, EBI, Inc., a company
controlled by Mark Perri, acquired shares of Common Stock of Generex
Pharmaceuticals for $3 million (CAD) which, based on the exchange rate then in
effect, represented approximately $2.1 million (US). These funds were restricted
for use by GPI, initially to acquire an insulin research facility and
subsequently amended to permit use to acquire properties used for manufacturing
the Company's oral insulin product and other proprietary drug delivery products,
and related testing, laboratory and administrative services. Under the terms of
the investment, GPI was required to lend these funds back to EBI, Inc. pending
use for such permitted purposes by GPI, and the entire amount was loaned back to
EBI and was outstanding at July 31, 1997. During the fiscal year ended July 31,
1998, a total of $2,491,835 CAD was repaid by EBI and applied to real estate
purchases by GPI and the Company, resulting in a balance due from EBI of
$508,165 CAD at July 31, 1998 (approximately $335,710 US based on the exchange
rate then in effect). These funds are due on demand by GPI, provided they are
used for the purchase and/or construction or equipping of oral insulin
manufacturing and testing facilities.
Real Estate Purchases: Two of the properties purchased by GPI with funds
repaid by EBI were purchased from Antonio Perri, Mark Perri's father. Mr. Perri
had owned these properties for more than two years prior to their sale to the
Company. The Company believes that the terms of these purchases (the Brampton
facility for $680,000 CAD and the Mississauga facility for $810,000 CAD) were at
least as favorable to the Company as could have been obtained from an unrelated
party through arms-length negotiations.
Occupancy of Executive Offices: Prior to December 17, 1997, the Company
occupied its executive offices at Harbour Square Business Center under an
Occupancy Agreement between GPI, Angara Equities, Inc. and 1097346 Ontario, Inc.
(the "Angara/1097346 lease") pursuant to which GPI paid Angara a monthly
occupancy fee of $4,880 CAD, which represents the rental and other charges
allocable to its space under Angara's lease for space, which included the
Company's offices, 1097346 Ontario, Inc., the owner of the space. Angara
Equities, Inc. is owned by Mark Perri, Rose Perri and Anna Gluskin, officers and
director of the Company, and the arrangement between Angara and GPI was a direct
"pass through" of costs from which Angara derived no direct economic benefit. At
the time the Angara/1097346 lease was executed in May 1996, 1097346 Ontario,
Inc. was owned by an unrelated party, and the terms of the Angara/1097346 lease
were negotiated at arms length.
On December 17, 1997, the Company acquired 100% of the outstanding capital
stock of 1097346 Ontario, Inc. from its prior owner for $661,769 US and the
Angara/1097346 lease was terminated.
32
<PAGE>
Loans To and From Stockholders: Between November 1995 and July 31, 1997,
Angara Equities, Inc. ("Angara"), a company owned and controlled by Mark Perri,
Rose Perri and Anna Gluskin, incurred a net indebtedness of $1,127,218.05 (CAD)
to GPI. The indebtedness arose from cash advances and the payment by GPI of
expenses incurred by Angara and certain of its affiliates, net of repayments and
the payment of GPI expenses by Angara. The highest amount outstanding at any
time during this period was $1,654,264.48 CAD (approximately $1,092,860 US).
During this period, GPI also made advances to The Great Tao, Inc. ("TGT"),
a company owned by Mark Perri, Rose Perri and Anna Gluskin and through which
they receive compensation for their services to the Company. At July 31, 1997,
TGT was indebted to GPI in the amount of $175,000 CAD. The highest amount
outstanding at any time during this period was $175,000 CAD (approximately
$126,628 US).
During the fiscal year ended July 31, 1998, GPI advanced a total of
$1,526,250.40 (CAD) to Angara, TGT and other entities owned by Mr. Perri, Ms.
Perri and Ms. Gluskin, and received repayments of advances and payments on
account of past advances in the aggregate amount of $1,875,997.30 (CAD),
including $420,000 CAD credited to TGT on account of compensation due to Mr.
Perri, Ms. Perri and Ms. Gluskin during the year. As a result, a total of
$932,470.70 CAD (approximately $616,000 US) was due to GPI from these entities
at fiscal year end. The highest amount outstanding at any time during the fiscal
year was $1,864,288.12 CAD (approximately $1,231,610 US).
The transactions between GPI and entities owned and controlled by Mark
Perri, Rose Perri and Anna Gluskin were not negotiated at arms-length, and were
not on normal commercial terms. No interest was charged on any of the advances,
and the transactions were of far greater financial benefit and convenience to
the officer/stockholder participants than to GPI. As indicated above, these
transactions and financing arrangements were primarily initiated prior to the
"reverse acquisition" pursuant to which the Company acquired GPI. All advances
from GPI to entities owned and controlled by Mr. Perri, Ms. Perri and Ms.
Gluskin are expected to be repaid in full by the end of the current fiscal year.
Consulting Agreement with Pankaj Modi, Ph.D.: In October 1996, GPI entered
into a Consulting Agreement with Dr. Modi pursuant to which, among other things,
Dr. Modi assigned to GPI his entire right, title and interest in and to all
inventions, ideas, designs and discoveries made by him during the term of such
Agreements which relate in any manner to the development, manufacturing,
marketing, distribution and sale of generic drug products, including, without
limitation, controlled release drugs, topical insulin, intra-nasal insulin and
liposome creams. Concurrently with execution of this Consulting Agreement, Dr.
Modi and GPI entered into an Assignment and Assumption Agreement pursuant to
which Dr. Modi assigned to the Company his interests in and to specific drug
delivery systems, controlled release drug delivery systems and technology
patents invented/discovered/conceived by Dr. Modi prior to the execution of the
Agreement, including three existing patents covering insulin delivery systems,
applicable to peptides and proteins; drug vaccines and hormones delivery; and
controlled release of drugs and hormones. In addition to these patents, Dr. Modi
assigned to GPI four US and/or Canadian patent applications and certain
abstracts covering, among other things, liposomes drug delivery for vaccines,
drugs, hormones, peptides and cosmetic delivery; transdermal drug delivery for
proteins, peptides, hormones and small molecules; controlled release drug
delivery systems for capsules, caplets, and liquid suspensions; and DNA
technology relating to insulin preparation.
Under this Consulting Agreement, the Company pays Dr. Modi annual
compensation of $132,000 CAD (approximately $87,200 US based on the exchange
rate in effect on July 31, 1998), and also has agreed to reimburse Dr. Modi for
$150,000 CAD (approximately $99,000 US) of expenses incurred by Dr. Modi in
research activities prior to his association with the Company, all of which was
outstanding at July 31, 1998.
33
<PAGE>
Item 8. LEGAL PROCEEDINGS
Sands Brothers & Co. Ltd., a New York City-based investment banking and
brokerage firm, initiated an arbitration against the Company under New York
Stock Exchange ("NYSE") rules on October 2, 1998. Earlier in the year, Sands
commenced an action against the Company in the New York Supreme Court making the
same claims. The claims were dismissed, upon the Company's motion, since the
nature of the claims subjected them to mandatory arbitration under NYSE Rules at
the Company's instance.
Sands has alleged that it has the right to receive, for nominal
consideration, approximately 2 million shares of the Company's Common Stock.
This claim is based upon an October 1997 letter agreement which purportedly
confirmed the terms of an agreement the exclusive financial advisor to Generex
Pharmaceuticals, Inc. ("GPI"), a wholly owned subsidiary of the Company, and
granted the right to receive shares representing 17% of the outstanding capital
stock of GPI, on a "fully diluted" basis as an inducement to act in that
capacity under the purported agreement. Following the acquisition of GPI by the
Company, Sands' claimed right to receive shares of GPI common stock would,
allegedly, now apply to the Company's Common Stock. Sands also claims that it is
entitled to additional shares of the Company as a result of the Company's
acquisition of GPI (approximately 460,000 shares), and $144,000 in fees under
the terms of the purported Agreement. Sands has never performed any services for
the Company, and the Company and GPI have denied that the individual who is
alleged to have entered into the purported agreement between Sands and GPI, had
the authority to act on GPI's behalf, and, accordingly, is defending against
Sands' claim primarily on the basis that no agreement has ever existed between
GPI and Sands. The arbitration process is in an early stage and the Company is
unable to predict the outcome at this time.
Generex Pharmaceuticals, Inc. is a defendant in two litigations now pending
in Canada:
(a) In February 1997, a wrongful dismissal claim seeking damages of
$450,000 (CAD) was brought against GPI (Lorne Taylor v. Generex Pharmaceuticals,
Inc.). Management of the Company believes that the claim is without merit, and
no reserve or other provision has been made for any loss that may result from
the litigation.
(b) GPI is defending an action in which "Generex, Inc." was made a party
defendant in June 1996 (Elbourne, et al. v. Acepharm, Inc., et al.). The claim
seeks damages for the diminution of the value of the claimant's shares in
Acepharm, Inc. in the amount of $1,000,000, together with punitive damages of
$5,000,000. The claim is a result of a dispute over the ownership and/or control
of Acepharm, Inc., from which GPI had expressed an interest in acquiring certain
assets. When GPI became aware of the dispute in ownership/control of Acepharm,
Inc., it abandoned the opportunity to purchase the assets. The Company believes
that the claim against it is without merit, and no provision has been made for
any losses that may result from litigation.
The Company maintains product liability coverage for claims arising from
the use of its products in clinical trials, etc., but does not have any
insurance which covers its potential liability in any of the legal proceedings
described above.
Item 9. MARKET PRICE, DIVIDENDS AND RELATED STOCK-
HOLDER MATTERS
Item 9(a) Market Information
"Bid" and "asked" prices for the Company's Common Stock have been quoted on
the Nasdaq OTC Electronic Bulletin Board since February 1998, prior to which
there was no public market for the Common Stock. The table below sets forth for
the periods indicated the high and low bid quotations as furnished by the Nasdaq
OTC Bulletin Board from the inception of trading through December 9, 1998. These
quotations reflect inter-dealer prices, without retail mark-up, markdown, or
commission and may not necessarily represent transactions. The closing bid and
asked prices for the Common Stock reported on the OTC Bulletin Board on December
9, 1998, were $12.00 and $12.25, respectively.
34
<PAGE>
High Low
---- ---
1998
----
First quarter $6.375 $5.75
Second quarter $9.000 $6.00
Third quarter $8.125 $5.75
Fourth quarter (through $12.875 $7.375
December 9, 1998)
Item 9(b) Holders of Common Stock
At December 9, 1998, the Company had 500 holders of record of its Common
Stock.
Item 9(c) Dividend Policy
Holders of Common Stock are entitled to receive such dividends as the Board
of Directors may from time to time declare out of funds legally available for
the payment of dividends. Holders of the Company's Special Voting Rights
Preferred Stock are entitled to receive a dividend per share equal to dividends
paid on shares of Common Stock, as and when dividends on Common Stock are
declared and paid. The Company has never paid and does not presently anticipate
paying dividends on its Common Stock.
Item 10. RECENT SALES OF UNREGISTERED SECURITIES
In the three year period ended December 9, 1998, the Company has offered
and sold Common Stock and other securities in reliance upon exemptions from the
registration requirements of the Securities Act of 1933 (the "Securities Act")
in the following transactions:
(a) In April 1996, the Company issued 16,000,000 shares of Common Stock to J.
Rockwell Smith for $7,500, all but 105,000 shares of which were contributed back
to the Company in connection with its acquisition of Generex Pharmaceuticals,
Inc. ("GPI") in January 1998. The shares were issued in reliance upon Section
4(2) of the Securities Act.
(b) In January 1998, the Company issued 9,234,118 shares of Common Stock to
the former shareholders of GPI (39 individuals and entities) in the Reverse
Acquisition described in Items 1(a) and 2(b) above. The shares were issued in
reliance upon Section 4(2) and Rule 506, Regulation D, in the case of shares
issued to residents of the United States, and upon Regulation S in the case of
shares issued to Canadian and other non-U.S. persons.
(c) Between March 1, 1998, and June 30, 1998, the Company offered and sold
1,153,425 Units of securities at a price of $2.50 per Unit, each Unit consisting
of one share of Common Stock and one Series A Redeemable Warrant to purchase one
share of Common Stock at a price of $5.00 per share. Of this total, 160,172
Units were issued in payment for services (98,172 Units for legal services and
62,000 units as a commission or "finder's fee" in connection with the sale of
shares to Thompson Kernaghan & Co., Ltd.), and valued for this purpose at $2.50
per Unit. All such sales were issued in reliance on Section 4(2) of the
Securities Act of 1933 (the "1933 Act") and Rule 506 of Regulation D ("Rule
506") promulgated thereunder, or, in the case of certain Canadian purchasers,
pursuant to Regulation S and the 1933 Act and applicable Canadian securities
laws. The purchasers in this offering were as follows:
35
<PAGE>
Investor No. of Units
- -------- ------------
J.R. Consultants, Inc. 10,000
Robert Portman 20,000
Eva Langot 10,753
William M. Kimbrough, Ttee for William M. Kimbrough, 10,000
Rev Liv Tr. Under TA dtd 8/6/93
Ralph Shapiro and Bridgett Shapiro, JTWROS 10,000
James L. Morrison, Ttee, The Morrison Family Trust 10,000
Greg DeMille 10,000
Connolly Epstein Chicco 98,172
Foxman Oxholm & Ewing
Lawrence J. Lesser 10,000
Barry J. Essig 10,000
Spindler Family Trust UA dtd 4/18/87 10,000
Arthur G. Kaiser 10,000
Robert J. Selsky 10,000
Neil G. Epstein and Laura JAnsen, JTWROS 10,000
Warren V. Blasland, Jr. 10,000
Melissa Ann Kaiser 5,000
Optima, Inc. 2,500
Mode, Inc. 24,000
Thomson Kernaghan & Co., Ltd. 620,000
Deana Hazel Kaiser 5,000
Arthur G. Kaiser and Loretta Ann Kaiser 10,000
Robyn Wolf 10,000
David N. Freed 10,000
Dusan Miklas 20,000
Shahid Inayai Sheikh 10,000
Riaz Ud Din Ahmed 10,000
Michael Howlett 57,000
Douglas E. Ball 10,000
Firoz B. Master 10,000
Scott E. Walker 10,000
Lawrence J. Rubinstein and Camille S. Rubinstein 10,000
Services Enterprises, Ltd. 50,000
Steve Samuel 10,000
Bernard Wilson 21,000
(d) In May 1998, the company sold 34,000 shares of Common Stock outside the
United States to four individuals (Bernd Papenbrok - 4,000 shares; Ursula
Degatau - 10,000 shares; and Jose and Susanna Alarcon - 20,000 shares) who were
non U.S. persons in reliance upon Regulation S under the 1933 Act.
(e) Between May 11, 1998, and November 30, 1998, the Company received $2,034,000
from the sale of a total of 669,779 shares of Common Stock at prices from $2.50
to $3.50 per share to Cape Properties Corp., a Turks and Cacos Islands, B.W.I.
corporation with a principal place of business located at Harbor House, P.O. Box
120, Grand Turk, Turks and Cacos Islands, B.W.I.
36
<PAGE>
(f) In May 1998, the Company entered into a billing arrangement with a
consultant, MQS, Inc., pursuant to which the consultant agreed to accept shares
of the Company's Common Stock in partial payment for consulting services. The
Company is committed to issue 42,168 shares of Common Stock, valued at $2.50 per
share for this purpose, on account of services rendered through September 4,
1998, when the arrangement was terminated. The shares were issued in reliance
upon Rule 506, Regulation D.
(g) In May 1998, the Company issued a warrant to purchase 500,000 shares of
Common Stock at a price of $2.50 per share to a consultant, Gulfstream Capital
Group, L.C., in payment for consulting services. The warrants were valued at
$250,000 ($.50 per warrant) for this purpose.
(h) Between September 1, 1998 and December 4, 1998, the Company offered and sold
pursuant to Rule 506 a total of 587,670 shares of Common Stock at prices ranging
from of $4.00 to $5.00 per share to the purchasers named below, for total sales
proceeds of $2,361,453.80. Each such purchaser agreed for a period of five years
from the date of his/her/its purchase (1) to vote such shares in proportion to
the votes cast by all other shareholders of the Company, and (2) not to sell the
shares without first offering to sell the shares to the Company at the then
current market price of the shares (except for sales after the first year of
ownership of a number of shares equal to 1% or less of the total number of
shares outstanding in any continuous 90 day period in routine brokerage
transactions).
In the case of the sale of shares to William Steinbrink (250,000 shares),
the price at which the Company has the right to purchase Dr. Steinbrink's shares
pursuant to the right of first refusal described in the preceding paragraph is
70% of the current market price, and the Company also has agreed to repurchase
from Dr. Steinbrink after December 31, 1999, at Dr. Steinbrink's option, such
portion or all of his shares as he may elect to tender to the Company at a price
equal to 70% of the then current market price. Dr. Steinbrink also has the right
to purchase an additional 250,000 shares of the Company's Common Stock until
December 23, 1998, on the same terms and conditions as the first 250,000 shares
purchased.
A copy of the Subscription/Voting/Put Agreement between the Company and Dr.
Steinbrink is attached hereto as Exhibit 4.5.1. A form of the
Subscription/Voting Agreement signed by the remaining purchasers named below is
attached as Exhibit 4.5.2 hereto.
No. of
Investor Shares
- -------- ------
Summers Family Limited Partnership, 1,000
Ardeth Summers General Partner
Robert J. Lowther, Jr. 5,000
Robert J. O'Malley, Custodian for 3,050
Peter J. O'Malley, UTMA/PA
Robert J. O'Malley, Custodian for 3,050
Michael J. O'Malley, UTMA/PA
William H. Peiffer & Leona E. Peiffer 2,000
Dr. And Mrs. Stephen D. Pett 2,500
Charles G. Herbst/Edward E. Engel - 5,000
Co-Trustees, Arthritis Associates P/S
Plan FBO Charles G. Herbst
Stephen or Rebecca Stroul 15,000
William M. and Ellen Leonard 2,000
Thomas and Jill Fessler JTWROS 5,000
James M. Antoun and Jamie M. Antoun 10,000
PNC Bank, National Association, Trustee, 5,000
McDonald Illig Jones & Britton LLP
Pension Plan and Trust, FBO James Antoun
Dario Cipriani and Donna M. Cipriani 2,500
37
<PAGE>
No. of
Investor Shares
- -------- ------
Jan R. & Linda S. VanGorder Ten. Ent. 10,000
Mark J. And Amy E. Amendola 1,500
Michael D. Dunlavey 15,000
Mark Suprock and Sherry Suprock, JTWROS 6,098
Marc A. Flitter and Alice Flitter, JTWROS 12,195
David P. Snell and Kym Snell 10,000
Richard F. Rambaldo 7,318
Michael Alan Scutella and Eileen Ritz Scutella, 10,000
JTWROS
George R. Harrington 6,000
Robert C. Oglevee 5,000
Northcoast Brokerage Agency, Inc. 10,000
William M. Hilbert, Sr. and Martha Hilbert, JTWROS 12,200
John L. Hilbert 10,000
C. John Weber, III and Charles R. Weber,JT 2,439
C. John Weber 1,219
PNC Bank, National Association, Trustee, 7,318
MacDonald Illig Jones & Britton LLP Pension
Plan and Trust FBO James E. Spoden
Mark J. and Karen Salvia 2,200
PNC Bank, Trustee For Knox et al 20,000
Profit Sharing Plan
J. Patrick Karle 2,250
David A. Ciacchini and Mary Therese Ciacchini, JTWROS 2,200
Margaret Damore 2,500
Matthew G. McCormack 1,000
Owen J. McCormick 2,000
Brett Andrew Johnson and Caryn Kadavy Johnson, JTWROS 2,500
Randy R. Nyberg 2,000
John F. Harley and Mary E. Harley, JTWROS 1,000
Industrial Sales & Mfg., Inc. 2,500
Julie M. Ottman and Robert P. Ottman, JTWROS 2,500
Douglas S. And Kathleen M. Fugate 2,000
David S. Giuzik 2,500
Arthur L. Amendola, JTWROS 3,000
RAYWEB c/o Heritage Trust Company 10,000
Jean-Mare Baier and Dafna Baier 1,219
Vincent J. Agostino 5,000
Gerald A. Ryan 5,000
Vincent P. Rogers, M.D. 20,000
Mark A. And Alice W. Flitter 2,439
William Steinbrink 250,000
Paul A. Busch 20,000
Palm & Co. FBO Quinn 401(k) 2,500
Douglas J. and Colleen Cook 1,000
Philip R. Eden 2,500
Vlastimir and Rachelle Zada Zivkov 5,000
Richard H. Penske and Patricia Penske 10,000
38
<PAGE>
No. of
Investor Shares
- -------- ------
James H. Ferguson 5,000
Michael D. Grollman 975
Total 587,670
(i) The Company granted 37,747 shares as a "finder's fee", valued at
$154,762.70, to a single accredited investor for services in connection with the
placement of shares referred to in the preceding paragraph.
(j) In June and September 1998, the Company sold a total of 42,615 shares of
Common Stock, valued at $2.50 per share for this purpose, in payment for legal
services rendered by Brans Lehun Baldwin, a Toronto law firm. The shares were
issued in reliance upon Regulation S and Rule 506, Regulation D.
(k) In October 1998 the Company issued 180,000 shares of Common Stock to
Berckeley Investments Group, LP in settlement of an outstanding claim. The
shares were issued in reliance upon Regulation S.
(l) In November 1998, the Company issued a warrant to purchase 300,000 shares of
Common Stock at a price of $10.00 per share to M. H. Meyerson & Co. Inc.
pursuant to a non-exclusive investment banking agreement. Warrants for 150,000
shares are subject to forfeiture if the Company terminates Meyerson's engagement
prior to May 17, 1999. This warrant was issued in reliance upon Section 4(2).
For accounting purposes, the Company assigned a value of $150,000 ($.50 per
warrant) to the warrants.
All securities sold in the above described in Section 4(2), Rule 506 and
Regulation S offerings are "restricted securities", and the Company has taken
appropriate steps to assure that resale restrictions applicable to restricted
securities contemplated by Rule 502(d) are complied with.
No "public solicitation", as that term is defined in Rule 502(c), was
employed by the Company in connection with the sale of securities in reliance
upon Section 4(2), Rule 506, all purchasers were, to the Company's reasonable
belief, accredited investors, all disclosures required under Rule 502(d) were
made by the Company, and all other conditions to the availability of the Rule
506 exemption were, to its knowledge and belief, complied with by the Company.
In the case of sales made in reliance upon Regulation S, the Company
obtained documentation establishing to its satisfaction that the purchasers were
not U.S. persons, and has taken appropriate precautions to assure that the
shares are not sold or otherwise transferred to a U.S. person for a period of
one year following the sale by the Company.
Item 11. DESCRIPTION OF SECURITIES TO BE REGISTERED
Common Stock
The Company has authorized 50,000,000 shares of Common Stock, par value
$.001, of which 13,305,109 were outstanding, or sold and pending issuance, at
December 9, 1998.
Holders of Common Stock are entitled to one vote for each share of Common
Stock owned of record on all matters to be voted on by stockholders, including
the election of directors. Holders of Common Stock do not have cumulative voting
rights and, accordingly, the holders of more than 50% of the outstanding shares
can elect the entire Board of Directors. The holders of Common Stock are
entitled to dividends and when declared by the Board of Directors from funds
legally available therefor, and, upon liquidation or dissolution of the Company,
to receive pro rata all assets remaining available for distribution to
stockholders after payments to creditors and holders of senior securities, if
any. The Common Stock has no preemptive or other subscription rights, and there
are no conversion rights or redemption provisions. All outstanding shares of
Common Stock are validly issued, fully paid, and nonassessable.
39
<PAGE>
The rights of holders of the Company's Common Stock may be affected by
rights of other securities of the Company, as described below.
Special Voting Rights Preferred Stock
The Company has issued 1,000 shares of Special Voting Rights Preferred
Stock ("SVR Preferred"). Pankaj Modi, the Company's Vice President - Research, a
director, and the inventor of substantially all proprietary technology now owned
by the Company, is the owner of the Company's SVR Preferred Stock. The Company's
SVR Preferred has no voting rights except (a) as specifically required by Idaho
law, or (b) if a "Change of Control" occurs, as that term is defined in the
Company's Articles of Incorporation, to elect a number of directors of the
Company equal to a majority of the entire Board of Directors of the Company, or
(c) to approve any transaction that would result in a Change of Control. A
"Change of Control" is deemed to occur if the Company's founders (Anna E.
Gluskin, E. Mark Perri, Rose C. Perri and Pankaj Modi) should cease to
constitute at least sixty (60%) of all directors of the Company, or if any
person becomes either the Chairman of the Board of Directors or Chief Executive
Officer of the Company without the prior approval of these "founders". If a
"Change of Control" were to occur, the holders of SVR Preferred (i.e., Dr. Modi)
would thereafter be able to elect a majority of the directors of the Company so
long as the SVR Preferred were outstanding.
Undesignated Preferred Stock
The Company's Board of Directors has the authority by resolution to issue
up to 1,000,000 shares of "undesignated" preferred stock in one or more series
and fix the number of shares constituting any such series, the voting powers,
designations, preferences and relative, participating, optional or other special
rights and qualifications, limitations or restrictions thereof, including the
dividend rights, dividend rate, terms of redemption (including sinking fund
provisions), redemption price or prices, conversion rights and liquidation
preferences of the shares constituting any series, without any further vote or
action by the stockholders. For example, the Board of Directors is authorized to
issue a series of preferred stock that would have the right to vote, separately
or with any other series of preferred stock, on any proposed amendment to the
Company's Articles of Incorporation or on any other proposed corporate action,
including business combinations and other transactions.
1998 Stock Option Plan
On January 22, 1998, the Company's Board of Directors approved the 1998
Stock Option Plan (the "Plan"), subject to shareholder approval of the Plan, and
reserved 1,000,000 shares of Common Stock for issuance upon options granted
under the Plan.
The purposes of the Plan are to provide incentives and rewards to those
employees who are in a position to contribute to the long-term growth and
profitability of the Company; to assist the Company to attract, retain and
motivate personnel with experience and ability; and to make the Company's
compensation program more competitive with those of other employers. The Company
anticipates it will benefit from the added interest which such personnel will
have in the success of the Company as a result of their proprietary interest.
The Plan presently is administered by the Board of Directors, but the Board
may establish a Stock Option Committee (the "Committee"), which consists of at
least three directors, to administer the Plan. References to the "Committee"
herein include the Board of Directors so long as it continues to administer the
Plan directly.
40
<PAGE>
The Committee is authorized to select from among eligible employees,
directors, advisors and consultants those individuals to whom options are to be
granted and to determine the number of shares to be subject to, and the terms
and conditions of, the options. The Committee also is authorized to prescribe,
amend and rescind terms relating to options granted under the Plan and the
interpretation of options. Generally, the interpretation and construction of any
provision of the Plan or any options granted thereunder is within the discretion
of the Committee.
The Plan provides that options may or may not be Incentive Stock Options
within the meaning of Section 422 of the Internal Revenue Code ("ISOs"). Only
employees of the Company are eligible to receive ISOs, while employees and
non-employee directors, advisors and consultants are eligible to receive options
which are not ISOs, i.e. "Non-Qualified Options." The options granted by the
Board in connection with its adoption of the Plan are Non-Qualified Options.
ISOs granted under the Plan are intended to qualify as "incentive stock
options" under Section 422 of the Code. The acquisition of shares upon exercise
of an ISO will not result in recognition of income at the time. However, the
excess of the fair market value of the shares acquired over the exercise price
will constitute an item of tax preference, to be included in the optionee's
computation of his "alternative minimum tax" for federal income tax purposes. If
the optionee does not dispose of the shares issued to him upon the exercise of
an ISO within one years of such issuance or within two years from the date of
the grant of the ISO, whichever is later, any gain or loss realized by the
optionee on a later sale or exchange of such shares generally will be a
long-term capital gain or long-term capital loss. If the optionee sells the
shares during such period, the optionee will recognize ordinary income for the
year in which disposition occurs equal to the amount, if any, by which the
lesser of the fair market value of such shares on the date of exercise of such
ISO or the amount realized from such sale exceeded the amount paid for such
shares.
The terms of options granted under the Plan are determined by the Committee
at the time the option is granted. Each option is evidenced by a written option
document, which, together with the provisions of the Plan itself determines such
terms as: when options under the Plan become exercisable; the exercise price of
options granted under the Plan, which may not be less than 100% of the fair
market value of the Common Stock on the date of the grant in the case of ISOs
(110% in the case of optionees who own 10% or more of the Company's Common Stock
on the date of grant); the term of the option; vesting provisions; and special
termination provisions.
An option is not transferable by the optionee, other than by will or the
laws of descent and distribution, and is exercisable only by the optionee during
his lifetime or, in the event of his death, by a person who acquires the right
to exercise the option by bequest or inheritance or by reason of the optionee's
death.
Generally, an optionee receiving an option will not have taxable income
upon the grant of the option. In the case of Non-Qualified Options, the optionee
will recognize ordinary income upon exercise of the Non-Qualified Option in an
amount equal to the difference between the option price and the fair market
value of the shares on the date of exercise. When the shares are sold, the
grantee will generally recognize capital gain or loss equal to the difference
between (i) the selling price of the shares, and (ii) the sum of the option
price and the amount included in his income when the option is exercised.
At the present time, options to purchase 50,000 shares have been granted
under the Plan.
41
<PAGE>
Series A Redeemable Warrants
The Company has outstanding 1,153,425 Series A Redeemable Common Stock
Purchase Warrant, each of which is exercisable to purchase one (1) shares of
Common Stock at a price of $5.00 per share. The Warrants are redeemable, at the
option of the Company, at any time after September 1, 1998, upon written notice
of not less than twenty (20) days, at a redemption price of $.025 per Warrant. A
copy of the Form of Series A Warrant has been filed as an exhibit with this
Registration Statement.
Other Warrants
The Company also has outstanding warrants to purchase 500,000 shares at a
price of $2.50 per share (the "GCR Warrants"), 7,937 shares at a price of $21.82
(the "Berckeley Warrants"), and 300,000 shares at a price of $10.00 per share
(the "Meyerson Warrants"). 150,000 of the Meyerson warrants are subject to
forfeiture if the Company terminates its non-exclusive investment banking
relationship with M. H. Meyerson & Co. Inc. prior to May 17, 1999. Forms of the
GCR, Berckeley and Meyerson Warrants have been filed as exhibits to this
Registration Statement.
"Anti-Takeover" Provisions
Although the Board of Directors is not presently aware of any takeover
attempt or interest involving the Company, the Articles of Incorporation and
Bylaws of the Company and the Idaho Business Corporation Act contain certain
provisions which may be deemed to be "anti-takeover" in nature in that such
provisions may deter, discourage or make more difficult the assumption of
control of the Company by another corporation or person through a tender offer,
merger, proxy contest or similar transaction or series of transactions.
SVR Preferred Stock: As indicated above, the Company's outstanding Special
Voting Rights Preferred Stock prevents a "change of control" of the Company
without the consent of the holders of the SVR Preferred. See "--SVR Preferred"
above.
Authorized but Unissued Shares: The authorized capital stock of the Company
is 50,000,000 shares of Common Stock, and 1,000,000 shares of Preferred Stock in
addition to the SVR Preferred Stock. These shares of capital stock were
authorized for the purpose of providing the Board of Directors of the Company
with as much flexibility as possible to issue additional shares for proper
corporate purposes, including equity financing, acquisitions, stock dividends,
stock splits, employee stock option plans, and other similar purposes which
could include public offerings or private placements. The Company has no
agreements, commitments or immediate plans for the sale or issuance of the
additional shares of Common Stock or Preferred Stock at this time. However,
shares of Preferred Stock could be issued quickly with terms calculated to delay
or prevent a change in control of the Company without any further action by the
stockholders. Stockholders of the Company do not have preemptive rights with
respect to the purchase of these shares. Therefore, such issuance could result
in a dilution of voting rights and book value per share of the Common Stock of
the Company. No shares of "undesignated" Preferred Stock have been issued, and
the Company has no present plan to issue any such shares.
No Cumulative Voting: Neither the Company's Articles of Incorporation nor
its Bylaws contain provisions for cumulative voting. Cumulative voting entitles
each stockholder to as many votes as equal the number of shares owned by him
multiplied by the number of directors to be elected. A stockholder may cast all
these votes for one candidate or distribute them among any two or more
candidates. Thus, cumulative voting for the election of directors allows a
stockholder or group of stockholders who hold less than 50% of the outstanding
shares voting to elect one or more members of a board of directors. Without
cumulative voting for the election of directors, the vote of holders of a
plurality of the shares
42
<PAGE>
voting is required to elect any member of a board of directors and present
stockholders would be able to elect all of the members of the board of
directors.
Control Share Acquisitions: The Idaho Control Share Acquisition Law
provides for notice to shareholders of a "control share acquisition", which is
defined as the acquisition of 20% of the voting power of a Idaho corporation, or
of voting power exceeding one-third of such total voting power by a person who
owns 20% or more of such voting power prior to the acquisition, or a majority or
more of such voting power by a person who already owns one-third or more of the
voting power. Shareholders have the right to demand "fair value" for their
shares if a control share acquisition occurs. Among other things, the "control
share" provisions limit the voting power of the acquiror in a control share
acquisition, and permit a corporation to recover profits resulting from the sale
of control shares in certain situations.
Section 30-1603 of the Control Share Acquisition Law permits an Idaho
corporation to elect not to be subject to such Law by adopting a Bylaw provision
to that effect. At this time, the Company has not made such an election.
Item 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article XIV of the Company's Articles of Incorporation provide that,
subject to certain limitations (receipt of improper personal gains, intentional
infliction of harm on the Company or its stockholders, unlawful dividends or
criminal law violations), no director shall be personally liable to the Company
or its stockholders for monetary damages for any breach of fiduciary duty by
such director as a director.
The Bylaws of the Company provide for indemnification of directors and
officers of the Company in accordance with the Idaho Business Corporation Act.
Section 30-1-851 of the Idaho Business Corporation Act (the "Idaho Act")
authorizes the Company to indemnify any director or officer under certain
prescribed circumstances and subject to certain limitations against certain
costs and expenses, including attorneys' fees actually and reasonably incurred
in connection with any action, suit or proceeding, whether civil, criminal,
administrative or investigative, to which such person is a party by reason of
being a director of officer of the Company if it is determined that such person
acted in accordance with the applicable standard of conduct set forth in such
statutory provisions. Section 30-1-852 of the Idaho Act makes indemnification
mandatory for such expenses incurred in a successful defense by a director in
any action brought against the director based on his service as a director.
The Company also may purchase and maintain insurance for the benefit of any
director or officer which may cover claims for which the Company could not
indemnify such person. Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Company pursuant to the foregoing provisions, or
otherwise, the Company has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore unenforceable.
43
<PAGE>
Item 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
GENEREX BIOTECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Reports F-1 to F-2
Consolidated Balance Sheets
July 31, 1998 and 1997 F-3
Consolidated Statements of Operations
For the Years Ended July 31, 1998 and 1997,
For the Period November 2, 1995 (Date of Inception)
to July 31, 1996, and Cumulative From Inception to July 31, 1998 F-4
Consolidated Statements of Changes in Stockholders' Equity
For the Period November 2, 1995 (Date of Inception)
to July 31, 1998 F-5 to F-7
Consolidated Statements of Cash Flows
For the Years Ended July 31, 1998 and 1997,
For the Period November 2, 1995 (Date of Inception)
to July 31, 1996, and Cumulative From Inception to July 31, 1998 F-8
Notes to Consolidated Financial Statements F-9 to F-24
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders,
Generex Biotechnology Company:
We have audited the accompanying consolidated balance sheet of Generex
Biotechnology Company and Subsidiaries (a development stage company) as of July
31, 1998, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for the year then ended and the cumulative
amounts of operations and cash flows for the period November 2, 1995 (date of
inception) to July 31, 1998. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Generex
Biotechnology Company and Subsidiaries as of July 31, 1998 and the consolidated
results of its operations and its cash flows for the year then ended and the
cumulative amounts of operations and cash flows for the period November 2, 1995
(date of inception) to July 31, 1998, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company is a development stage enterprise and has
suffered recurring losses and net cash outflows from operations since inception
that raise substantial doubt about its ability to continue as a going concern.
As such, the Company is dependent upon future capital infusions from existing
and/or new investors to fund operations. Management's plans with regard to these
matters are also described in Note 2. The accompanying financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
Withum, Smith & Brown
New Brunswick, New Jersey
October 15, 1998
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORTS
To the Board of Directors and Stockholders,
Generex Biotechnology Company:
We have audited the accompanying consolidated balance sheet of Generex
Biotechnology Company and Subsidiaries (a development stage company) as of July
31, 1997, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for the year then ended and for the period
November 2, 1995 (date of inception) to July 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidation financial position of
Generex Biotechnology Company and Subsidiaries as of July 31, 1997 and the
consolidated results of its operations and its cash flows for the year ended
July 31, 1997 and for the period November 2, 1995 (date of inception) to July
31, 1996, in conformity with generally accepted accounting principles.
Withum, Smith & Brown Mintz & Partners
New Brunswick, New Jersey Toronto, Ontario
October 15, 1998 October 3, 1997
F-2
<PAGE>
GENEREX BIOTECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
July 31
----------------------------------
1998 1997
-------------- ---------------
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 2,090,827 $ 196,004
Restricted cash 106,527 --
Miscellaneous receivables 209,090 168,234
Notes receivable -- 102,750
Other current assets 131,340 46,790
----------- -----------
Total Current Assets 2,537,784 513,778
Property and Equipment, Net 1,634,447 45,959
Deposits 82,509 --
Due From Related Parties, Net 964,944 3,113,038
----------- -----------
TOTAL ASSETS $ 5,219,684 $ 3,672,775
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 1,253,004 $ 223,939
Current maturities of long-term debt 795,876 --
----------- -----------
Total Current Liabilities 2,048,880 223,939
Long-Term Debt, Less Current Maturities 528,506 --
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, $.001 par value; authorized 1,000,000 shares, issued and
outstanding 1,000 and -0- shares at July 31, 1998
and 1997, respectively 1 --
Common stock, $.001 par value; authorized 50,000,000 shares,
issued and outstanding 11,971,272 and 9,000,118 shares at
July 31, 1998 and 1997, respectively 11,971 9,000
Additional paid-in capital 9,162,329 5,159,276
Equity adjustment for foreign currency translation (199,433) (474)
Deficit accumulated during the development stage (6,332,570) (1,718,966)
----------- -----------
Total Stockholders' Equity 2,642,298 3,448,836
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,219,684 $ 3,672,775
=========== ===========
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
F-3
<PAGE>
GENEREX BIOTECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Cumulative
Period From
For the Years Ended November 2, November 2,
July 31, 1995 (Date 1995 (Date
--------------------------------- of Inception) of Inception)
to July 31, to July 31, to July 31,
1998 1997 1996 1998
-------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues $ -- $ -- $ -- $ --
Operating Expenses:
Research and development 876,404 727,479 67,142 1,671,025
General and administrative 3,673,909 628,064 296,281 4,598,254
------------ ------------ ------------ ------------
Total Operating Expenses 4,550,313 1,355,543 363,423 6,269,279
------------ ------------ ------------ ------------
Operating Loss (4,550,313) (1,355,543) (363,423) (6,269,279)
Other Expense:
Interest expense 63,291 -- -- 63,291
------------ ------------ ------------ ------------
Net Loss $ (4,613,604) $ (1,355,543) $ (363,423) $ (6,332,570)
============ ============ ============ ============
Basic and Diluted Net Loss Per Common Share $ (.46) $ (.25) $ (.40)
============ ============ ============
Weighted Average Number of Shares of
Common Stock Outstanding 10,078,875 5,512,840 903,972
=========== ============ ============
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
F-4
<PAGE>
GENEREX BIOTECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD NOVEMBER 2, 1995 (DATE OF INCEPTION) TO JULY 31, 1998
<TABLE>
<CAPTION>
Preferred
Common Stock Stock Additional Adjustment for
----------------------- -------------------- Paid-In Foreign Currency
Shares Amount Shares Amount Capital Translation
-------- -------- -------- -------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Balance - November 2, 1995 (Inception) -- $ -- $-- $ -- $ -- $ --
Issuance of common stock for cash,
February 1996, $.0254 321,429 321 -- -- 7,838 --
Issuance of common stock for cash,
February 1996, $.0510 35,142 35 -- -- 1,757 --
Issuance of common stock for cash,
February 1996, $.5099 216,428 216 -- -- 110,142 --
Issuance of common stock for cash,
March 1996, $10.2428 2,500 3 -- -- 25,604 --
Issuance of common stock for cash,
April 1996, $.0516 489,850 490 -- -- 24,773 --
Issuance of common stock for cash,
May 1996, $.0512 115,571 116 -- -- 5,796 --
Issuance of common stock for cash,
May 1996, $.5115 428,072 428 -- -- 218,534 --
Issuance of common stock for cash,
May 1996, $10.2302 129,818 130 -- -- 1,327,934 --
Issuance of common stock for cash,
July 1996, $.0051 2,606,528 2,606 -- -- 10,777 --
Issuance of common stock for cash,
July 1996, $.0255 142,857 143 -- -- 3,494 --
Issuance of common stock for cash,
July 1996, $.0513 35,714 36 -- -- 1,797 --
Issuance of common stock for cash,
July 1996, $10.1847 63,855 64 -- -- 650,282 --
Costs related to issuance of common stock -- -- -- -- (10,252) --
Equity adjustment for foreign currency
translation -- -- -- -- -- (4,017)
Net loss -- -- -- -- -- --
----------- ----------- --- -------- ----------- -----------
Balance - July 31, 1996 4,587,764 $ 4,588 -- $ -- $ 2,378,476 $ (4,017)
=========== =========== === ======== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Deficit
Accumulated
During the Total
Development Stockholders'
Stage Equity
------------- -------------
<S> <C> <C>
Balance - November 2, 1995 (Inception) $ -- $ --
Issuance of common stock for cash,
February 1996, $.0254 -- 8,159
Issuance of common stock for cash,
February 1996, $.0510 -- 1,792
Issuance of common stock for cash,
February 1996, $.5099 -- 110,358
Issuance of common stock for cash,
March 1996, $10.2428 -- 25,607
Issuance of common stock for cash,
April 1996, $.0516 -- 25,263
Issuance of common stock for cash,
May 1996, $.0512 -- 5,912
Issuance of common stock for cash,
May 1996, $.5115 -- 218,962
Issuance of common stock for cash,
May 1996, $10.2302 -- 1,328,064
Issuance of common stock for cash,
July 1996, $.0051 -- 13,383
Issuance of common stock for cash,
July 1996, $.0255 -- 3,637
Issuance of common stock for cash,
July 1996, $.0513 -- 1,833
Issuance of common stock for cash,
July 1996, $10.1847 -- 650,346
Costs related to issuance of common stock -- (10,252)
Equity adjustment for foreign currency
translation -- (4,017)
Net loss (363,423) (363,423)
----------- -----------
Balance - July 31, 1996 $ (363,423) $ 2,015,624
=========== ===========
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
F-5
<PAGE>
GENEREX BIOTECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD NOVEMBER 2, 1995 (DATE OF INCEPTION) TO JULY 31, 1998
<TABLE>
<CAPTION>
Preferred
Common Stock Stock Additional Adjustment for
----------------------- -------------------- Paid-In Foreign Currency
Shares Amount Shares Amount Capital Translation
-------- -------- -------- -------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Balance - August 1, 1996 4,587,764 $ 4,588 -- $-- $ 2,378,476 $ (4,017)
Issuance of common stock for cash,
September 1996, $.0509 2,143 2 -- -- 107 --
Issuance of common stock for cash,
December 1996, $10.2421 1,429 1 -- -- 14,635 --
Issuance of common stock for cash,
January 1997, $.0518 1,466 1 -- -- 75 --
Issuance of common stock for cash,
March 1997, $10.0833 12 -- -- -- 121 --
Issuance of common stock for cash,
May 1997, $.0513 4,233 4 -- -- 213 --
Issuance of common stock for cash,
May 1997, $.5060 4,285,714 4,286 -- -- 2,164,127 --
Costs related to issuance of common
stock, May 1997 -- -- -- -- (108,421) --
Issuance of common stock for cash,
May 1997, $10.1194 18,214 18 -- -- 184,297 --
Issuance of common stock for cash,
June 1997, $.0504 10,714 11 -- -- 529 --
Issuance of common stock for cash,
June 1997, $.5047 32,143 32 -- -- 16,190 --
Issuance of common stock for cash,
June 1997, $8.9810 29,579 30 -- -- 265,618 --
Issuance of common stock for cash,
June 1997, $10.0980 714 1 -- -- 7,209 --
Issuance of common stock for cash,
July 1997, $10.1214 25,993 26 -- -- 263,060 --
Costs related to issuance of common stock -- -- -- -- (26,960) --
Equity adjustment for foreign currency
translation -- -- -- -- -- 3,543
Net loss -- -- -- -- -- --
--------- ----------- --- ---- ----------- -----------
Balance - July 31, 1997 9,000,118 $ 9,000 -- $-- $ 5,159,276 $ (474)
========= =========== === ==== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Deficit
Accumulated
During the Total
Development Stockholders'
Stage Equity
------------- -------------
<S> <C> <C>
Balance - August 1, 1996 $(363,423) $2,015,624
Issuance of common stock for cash,
September 1996, $.0509 -- 109
Issuance of common stock for cash,
December 1996, $10.2421 -- 14,636
Issuance of common stock for cash,
January 1997, $.0518 -- 76
Issuance of common stock for cash,
March 1997, $10.0833 -- 121
Issuance of common stock for cash,
May 1997, $.0513 -- 217
Issuance of common stock for cash,
May 1997, $.5060 -- 2,168,413
Costs related to issuance of common
stock, May 1997 -- (108,421)
Issuance of common stock for cash,
May 1997, $10.1194 -- 184,315
Issuance of common stock for cash,
June 1997, $.0504 -- 540
Issuance of common stock for cash,
June 1997, $.5047 -- 16,222
Issuance of common stock for cash,
June 1997, $8.9810 -- 265,648
Issuance of common stock for cash,
June 1997, $10.0980 -- 7,210
Issuance of common stock for cash,
July 1997, $10.1214 -- 263,086
Costs related to issuance of common stock -- (26,960)
Equity adjustment for foreign currency
translation -- 3,543
Net loss (1,355,543) (1,355,543)
----------- -----------
Balance - July 31, 1997 $(1,718,966) $ 3,448,836
=========== ===========
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
F-6
<PAGE>
GENEREX BIOTECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD NOVEMBER 2, 1995 (DATE OF INCEPTION) TO JULY 31, 1998
<TABLE>
<CAPTION>
Preferred Equity
Common Stock Stock Additional Adjustment for
----------------------- -------------------- Paid-In Foreign Currency
Shares Amount Shares Amount Capital Translation
-------- -------- -------- -------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Balance - August 1, 1997 9,000,118 $ 9,000 -- $-- $ 5,159,276 $ (474)
Issuance of warrants in exchange for
services rendered, October 1997, $.50 -- -- -- -- 234,000 --
Exercise of warrants for cash, December
1997, $0.0467 234,000 234 -- -- 10,698 --
Shares issued pursuant to the January 9, 1998
reverse merger between GBT-Delaware, Inc.
and Generex Biotechnology Corporation 1,105,000 1,105 -- -- (1,105) --
Issuance of preferred stock for
services rendered, January 1998, $.1000 -- -- 1,000 1 99 --
Issuance of common stock for cash,
March 1998, $2.50 70,753 71 -- -- 176,812 --
Issuance of common stock for cash,
April 1998, $2.50 60,000 60 -- -- 149,940 --
Issuance of common stock in exchange
for services rendered, April 1998, $2.50 38,172 38 -- -- 95,392 --
Issuance of common stock for cash,
May 1998, $2.50 756,500 757 -- -- 1,890,493 --
Issuance of warrants in exchange for
services rendered, May 1998, $.50 -- -- -- -- 250,000 --
Issuance of common stock in exchange
for services rendered, May 1998, $2.50 162,000 162 -- -- 404,838 --
Issuance of common stock for cash,
June 1998, $2.50 286,000 286 -- -- 714,714 --
Exercise of warrants for cash, June 1998,
$.0667 234,000 234 -- -- 15,373 --
Issuance of common stock in exchange
for services rendered, June 1998, $2.50 24,729 24 -- -- 61,799 --
Equity adjustment for foreign currency
translation -- -- -- -- -- (198,959)
Net loss -- -- -- -- -- --
---------- ------- ----- ------ ----------- -----------
Balance - July 31, 1998 11,971,272 $11,971 1,000 $ 1 $ 9,162,329 $ (199,433)
========== ======= ===== ====== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Deficit
Accumulated
During the Total
Development Stockholders'
Stage Equity
------------- -------------
<S> <C> <C>
Balance - August 1, 1997 $(1,718,966) $3,448,836
Issuance of warrants in exchange for
services rendered, October 1997, $.50 -- 234,000
Exercise of warrants for cash, December
1997, $0.0467 -- 10,932
Shares issued pursuant to the January 9, 1998
reverse merger between GBT-Delaware, Inc.
and Generex Biotechnology Corporation -- --
Issuance of preferred stock for
services rendered, January 1998, $.1000 -- 100
Issuance of common stock for cash,
March 1998, $2.50 -- 176,883
Issuance of common stock for cash,
April 1998, $2.50 -- 150,000
Issuance of common stock in exchange
for services rendered, April 1998, $2.50 -- 95,430
Issuance of common stock for cash,
May 1998, $2.50 -- 1,891,250
Issuance of warrants in exchange for
services rendered, May 1998, $.50 -- 250,000
Issuance of common stock in exchange
for services rendered, May 1998, $2.50 -- 405,000
Issuance of common stock for cash,
June 1998, $2.50 -- 715,000
Exercise of warrants for cash, June 1998,
$.066 7 -- 15,607
Issuance of common stock in exchange
for services rendered, June 1998, $2.50 -- 61,823
Equity adjustment for foreign currency
translation -- (198,959)
Net loss (4,613,604) (4,613,604)
----------- -----------
Balance - July 31, 1998 $(6,332,570) $ 2,642,298
=========== ===========
</TABLE>
The Notes to Consolidate Financial Statements are an integral part of these
statements.
F-7
<PAGE>
GENEREX BIOTECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Cumulative
Period From
November 2, November 2,
For the Years Ended 1995 (Date 1995 (Date
July 31, of Inception) of Inception)
-------------------------------- to July 31, to July 31,
1998 1997 1996 1998
-------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss $(4,613,604) $(1,355,543) $ (363,423) $(6,332,570)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 31,096 10,411 2,578 44,085
Common stock and warrants issued
for services rendered 1,046,253 -- -- 1,046,253
Preferred stock issued for services rendered 100 -- -- 100
Changes in operating assets and liabilities:
Miscellaneous receivables -- (119,967) (50,212) (170,179)
Other current assets (89,268) (37,020) (10,289) (136,577)
Accounts payable and accrued liabilities 1,099,815 226,131 -- 1,325,946
Other, net 110,317 -- -- 110,317
----------- ----------- ----------- -----------
Net Cash Used in Operating Activities (2,415,291) (1,275,988) (421,346) (4,112,625)
Cash Flows from Investing Activities:
Purchases of property and equipment (16,287) (41,987) (17,499) (75,773)
Change in restricted cash (111,250) -- -- (111,250)
Change in deposits (17,601) -- -- (17,601)
Change in notes receivable 104,153 (104,153) -- --
Change in due from related parties 390,969 (1,212,654) (1,916,677) (2,738,362)
Other, net 89,683 -- -- 89,683
----------- ----------- ----------- -----------
Net Cash Provided by (Used in)
Investing Activities 439,667 (1,358,794) (1,934,176) (2,853,303)
Cash Flows from Financing Activities:
Proceeds from issuance of long-term debt 993,149 -- -- 993,149
Repayment of long-term debt (63,389) -- -- (63,389)
Proceeds from the issuance of common stock, net 2,959,672 2,785,212 2,383,064 8,127,948
----------- ----------- ----------- -----------
Net Cash Provided By Financing Activities 3,889,432 2,785,212 2,383,064 9,057,708
Effect of Exchange Rates on Cash (18,985) 17,251 781 (953)
----------- ----------- ----------- -----------
Net Increase in Cash 1,894,823 167,681 28,323 2,090,827
Cash, Beginning of Period 196,004 28,323 -- --
----------- ----------- ----------- -----------
Cash, End of Period $ 2,090,827 $ 196,004 $ 28,323 2,090,827
=========== =========== =========== ===========
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
F-8
<PAGE>
GENEREX BIOTECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Organization and Business:
Generex Biotechnology Corporation (the Company) was incorporated in Idaho
in 1983 as Green Mt. P.S., Inc. Since 1983 and prior to January 9, 1998,
the Company had essentially been inactive. In January 1998, the Company
with a wholly-owned subsidiary which had been recently formed, acquired all
of the outstanding capital stock of GBT - Delaware, Inc., an entity whose
only asset consisted of the stock of Generex Pharmaceuticals, Inc.
("Generex Pharmaceuticals"), a Canadian corporation formed in November 1995
to engage in pharmaceutical and biotechnological research and other
activities. The shareholders of GBT - Delaware, Inc. were the same
shareholders of Generex Pharmaceuticals. As a result of this acquisition,
the former shareholders of GBT - Delaware, Inc. acquired approximately 90
percent of the Company's outstanding capital stock. GBT - Delaware, Inc.
was treated as the acquiror in this transaction for accounting purposes,
and accordingly, the historical financial statements of GBT - Delaware,
Inc., prior to the acquisition date, are deemed to be the historical
financial statements of the Company.
The Company is engaged in the research and development of drug delivery
systems and technology. Since its inception, the Company has devoted its
efforts and resources to the development of a platform technology for the
oral administration of large molecule drugs, including proteins, peptides,
monoclonal antibodies, hormones and vaccines, which historically have been
administered by injection, either subcutaneously or intravenously.
The Company is a development stage company, which has a very limited
history of operations and has not generated any revenues from operations.
The Company has no products approved for commercial sale at the present
time. There can be no assurance that the Company will be successful in
developing any new products, that regulatory clearance for the sale of
future products will be obtained or that any future product will be
commercially viable.
Note 2 - Basis of Preparation:
Since inception, the Company has suffered recurring losses and net cash
outflows from operations. The Company expects to continue to incur
substantial losses to complete the development and testing of its drug
candidates, and does not expect to complete the development stage and begin
commercialization of its products in the foreseeable future. Management is
actively pursuing various options, which include entering into strategic
partnerships with large pharmaceutical companies. Since its inception, the
Company has funded operations through debt and common stock issuances in
order to meet its strategic objectives. Management is also actively
pursuing other financing options, which include securing additional equity
financing, and believes that sufficient funding will be available to meet
its planned business objectives including anticipated cash needs for
working capital, for a reasonable period of time. However, there can be no
assurance that the Company will be able to obtain sufficient funds to
continue the development of, and if successful, to commence the manufacture
and sale of its drug candidates, if and when approved by the applicable
regulatory agencies. As a result of the foregoing, there exists substantial
doubt about the Company's ability to continue as a going concern. These
financial statements do not include any adjustments relating to the
recoverability of the carrying amounts of recorded assets or the amount of
liabilities that might result from the outcome of this uncertainty.
F-9
<PAGE>
GENEREX BIOTECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3 - Summary of Significant Accounting Policies:
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All significant intercompany
transactions and balances have been eliminated.
Development Stage Company
The accompanying consolidated financial statements have been prepared in
accordance with the provisions of Statement of Financial Accounting
Standard No. 7, "Accounting and Reporting by Development Stage
Enterprises."
Restricted Cash
The Company maintains cash funds held in trust by an attorney for the
future purchase of the Company's stock pursuant to an agreement (see Note
7).
Property and Equipment, Net
Property and equipment are recorded at cost less accumulated depreciation.
Depreciation is provided on the straight-line method over the estimated
useful lives of the assets, which range from three to thirty years. Gains
and losses on depreciable assets retired or sold are recognized in the
statement of operations in the year of disposal. Repairs and maintenance
expenditures are expensed as incurred.
Research and Development Costs
Expenditures for research and development are expensed as incurred and
include, among other costs, those related to the production of experimental
drugs, including payroll costs, and amounts incurred for conducting
clinical trials. Amounts expected to be received from foreign governments
under research and development tax credit arrangements are offset against
the related expenses. Included in miscellaneous receivables is $153,597 and
$168,234 of such a receivable, due from the Canadian government, at July
31, 1998 and 1997, respectively.
Income Taxes
Income taxes are accounted for under the asset and liability method
prescribed by SFAS No. 109, "Accounting for Income Taxes." Deferred income
taxes are recorded for temporary differences between financial statement
carrying amounts and the tax bases of assets and liabilities. Deferred tax
assets and liabilities reflect the tax rates expected to be in effect for
the years in which the differences are expected to reverse. A valuation
allowance is provided if it is more likely than not that some or all of the
deferred tax asset will not be realized.
F-10
<PAGE>
GENEREX BIOTECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3 - Summary of Significant Accounting Policies (Continued):
Net Loss Per Common Share
The Company has adopted SFAS No. 128, "Earnings per Share" ("FAS 128"),
which requires presentation of basic earnings per share ("Basic EPS") and
diluted earnings per share ("Diluted EPS") by all entities that have
publicly traded common stock or potential common stock (options warrants,
convertible securities or contingent stock arrangements). FAS 128 also
requires presentation of earnings per share by an entity that has made a
filing or is in the process of filing with a regulatory agency in
preparation for the sale of securities in a public market.
Basic EPS is computed by dividing income (loss) available to common
stockholders by the weighted average number of common shares outstanding
during the period. Diluted EPS gives effect to all dilutive potential
common shares outstanding during the period. The computation of Diluted EPS
does not assume conversion, exercise or contingent exercise of securities
that would have an antidilutive effect on earnings. Refer to Note 12 for
methodology for determining net loss per share.
New Accounting Standards
The Company will adopt Statement of Financial Accounting Standard (FAS) No.
130, "Reporting Comprehensive Income" in fiscal 1999. This statement
establishes standards for reporting and displaying comprehensive income and
its components (revenues, expenses, gains and losses) in a full set of
general-purpose financial statements. This statement requires the
classification of items of comprehensive income by their nature in a
financial statement and the accumulated balance of other comprehensive
income separately from retained earnings and additional paid-in capital in
the equity section of the balance sheet. The Company believes that adoption
of this statement will not have a material effect on its financial
statements.
The Company will also adopt FAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" in fiscal 1999. This statement
supercedes FAS No. 14, "Financial Reporting for Segments of a Business
Enterprise," but retains the requirement to report information about major
customers. This statement establishes standards for reporting information
about operating segments in annual financial statements. Operating segments
are defined as components of an enterprise evaluated regularly by the
Company's senior management in deciding how to allocate resources and in
assessing performance. The Company believes that adoption of this statement
will not have a material effect on its financial statements.
In 1998 , the FASB issued Statement of Financial Accounting Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS
No. 133). SFAS No. 133 modifies the accounting for derivative and hedging
activities and is effective for fiscal years beginning after December 15,
1999. The Company believes that the adoption of SFAS No. 133 will not have
a material impact on the Company's financial reporting.
F-11
<PAGE>
GENEREX BIOTECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3 - Summary of Significant Accounting Policies (Continued):
Concentration of Credit Risk
The Company maintains cash balances, at times, with financial institutions
in excess of amounts insured by the Federal Deposit Insurance Corporation.
Management monitors the soundness of these institutions and considers the
Company's risk negligible. The Company also maintains cash balances with
Canadian legal counsel resulting from transactions which have been
consummated, but final funds have not yet been disbursed. Management
believes their credit risk on these balances to be minimal.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the
financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those
estimates.
Foreign Currency Translation
Foreign denominated assets and liabilities of the Company are translated
into US dollars at the prevailing exchange rates in effect at the end of
the reporting period. Income statement accounts are translated at a
weighted average of exchange rate which were in effect during the period.
Translation adjustments that arise from translating the foreign
subsidiary's financial statements from local currency to US dollars are
recorded in the cumulative translation adjustment component of
stockholders' equity.
Financial Instruments
The carrying values of accounts payable and accrued expenses approximate
their fair values. The fair value of the Company's long-term debt is
assumed to approximate its book value.
Note 4 - Property and Equipment:
The costs and accumulated depreciation of property and equipment at
July 31, are summarized as follows:
1998 1997
---- ----
Land $ 239,810 $ --
Buildings 1,366,956 --
Furniture and Fixtures 7,998 5,938
Office Equipment 60,850 52,869
---------------- ------------
Total Property and Equipment 1,675,614 58,807
Less: Accumulated Depreciation 41,167 12,848
---------------- ------------
Property and Equipment, Net $ 1,634,447 $ 45,959
================ ============
F-12
<PAGE>
GENEREX BIOTECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4 - Property and Equipment (Continued):
Depreciation expense amounted to $31,096, $10,411 and $2,578 for the years
ended July 31, 1998 and 1997, and the period November 2, 1995 (date of
inception) to July 31, 1996, respectively.
Note 5 - Income Taxes:
The Company has incurred losses since inception which have generated net
operating loss carryforwards on a consolidated basis of approximately
$4,500,000 at July 31, 1998 which are available to offset future taxable
income. The net operating loss carryforwards arise from both United States
and Canadian sources. The net operating loss carryforwards will expire in
2005 through 2018. These loss carryforwards are subject to limitation on
future years utilization should certain ownership changes occur.
For the years ended July 31, 1998 and 1997 and for the period November 2,
1995 (date of inception) to July 31, 1996, the Company's effective tax rate
differs from the federal statutory rate principally due to net operating
losses and other temporary differences for which no benefit was recorded.
Deferred tax assets consist of the following at July 31:
1998 1997
---- ----
Net operating loss carryforwards $ 2,008,795 $ 750,500
Research and development tax credits 75,705 22,362
Depreciation and amortization 204,755 23,035
Accrued liabilities 118,914 --
----------- ---------
Total deferred tax assets 2,408,169 795,897
Valuation allowance $(2,408,169) $(795,897)
----------- ---------
Net deferred tax assets -0- -0-
Note 6 - Accounts Payable and Accrued Expense:
Accounts payable and accrued expenses consist of the following at July 31:
1998 1997
---- ----
Accounts Payable $ 336,634 $ 223,939
Penalty Arising from Violation
of Financing Agreement 738,000 --
Consulting Accruals 151,945 --
Building Purchase Liability 26,425 --
--------------- -------------
Total $ 1,253,004 $ 223,939
=============== =============
F-13
<PAGE>
GENEREX BIOTECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7 - Commitments and Contingent Liabilities:
Consulting Services
In October 1996, the Company entered into a Consulting Agreement with the
Vice President of Research and Development (the V.P.) pursuant to which,
among other things, the V.P. assigned to the Company his entire right,
title and interest in and to all inventions, ideas, designs and discoveries
made by him during the term of such agreements which relate in any manner
to the development, manufacturing, marketing, distribution and sale of
generic drug products, including, without limitation, controlled release
drugs, topical insulin, intra-nasal insulin and liposome creams.
Concurrently with execution of this Consulting Agreement, the V.P. and the
Company entered into an Assignment and Assumption Agreement pursuant to
which the V.P. assigned to the Company his interests in and to specific
drug delivery systems, controlled release drug delivery systems, controlled
release drug delivery systems and technology patents
invented/discovered/conceived by the V.P. prior to the execution of the
Agreement, including three existing patents covering insulin delivery
systems, applicable to peptides and proteins; drug vaccines and hormones
delivery; and controlled release of drugs and hormones (the "Existing
Patents"). In addition to the Existing Patents, the V.P. assigned to the
Company four US and/or Canadian patent applications and certain abstracts
covering, among other things, liposomes drug delivery for vaccines, drugs,
hormones, peptides and cosmetic delivery; transdermal drug delivery for
proteins, peptides, hormones and small molecules; controlled release drug
delivery systems for capsules, caplets, and liquid suspensions; and DNA
technology relating to insulin preparation (collectively, "Other Existing
Technology"). The Existing Patents are owned of record by a Company, which
is 50 percent owned by the V.P.
Under the terms of the agreement, which expires December 31, 2004, a fee of
$87,204 is paid for each year during the term of this agreement, which
shall be in equal monthly installments of $7,267 each payable on the 30th
day of each month, not in advance; and the sum of $500 per month payable on
the 30th day of each month, not in advance, to offset the expenses and
costs (including expenses and costs incurred in obtaining and operating an
automobile) incurred in connection with the performance of the V.P.'s
services. The Company has also agreed to reimburse the V.P. for $99,095 of
expense incurred in research activities prior to his association with the
Company, all of which was included in accounts payable, at July 31, 1998.
F-14
<PAGE>
GENEREX BIOTECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7 - Commitments and Contingent Liabilities (Continued):
Consulting Services (Continued)
On March 17, 1998, the Company entered into separate consulting agreements
with two consultants to assist the Company: to test and evaluate the
therapeutic effects of its formulations; to develop protocols for testing
its formulations; to review and provide suggestions in respect of draft
submissions to regulatory authorities and otherwise assist the Company in
its efforts to obtain regulatory approvals for its formulations in various
jurisdictions, including its efforts to obtain approvals of any Ethics
Committees of institutions with which the Consultants are ordinarily
affiliated; to arrange and in some cases to conduct clinical trials of its
formulations in Canada; and to provide input and assistance with respect
to, and evaluate results of, clinical trials in other jurisdictions. The
Consultants shall also attend meetings with regulators and assist the
Company in making presentations to regulators when reasonably convenient.
Under the terms of the agreement, the Company will pay retainer fees of
$10,000 per consultant each on August 1, 1998, December 1, 1998, March 1,
1999 and July 1, 1999. In addition, the Company will pay an hourly or per
diem amount for all services actually rendered and reimburse reasonable and
necessary travel and lodging expenses incurred incident to services
rendered. The agreement shall terminate on December 31, 2000.
Also on March 17, 1998, the Company entered into separate consulting
agreements with two additional consultants to assist the Company: to test
and evaluate the therapeutic effects of its formulations; to develop
protocols for testing its formulations; to review and provide suggestions
in respect of draft submissions to regulatory authorities and otherwise
assist the Company in its efforts to obtain regulatory approvals for its
formulations in various jurisdictions, including its efforts to obtain
approvals of any Ethics Committees of institutions with which the
Consultants' representatives are ordinarily affiliated; and to provide
input and assistance with respect to, and evaluate results of, clinical
trials in other jurisdictions. The additional Consultants shall also attend
meetings with regulators and assist the Company in making presentations to
regulators when reasonably convenient.
Under the terms of the agreement, the Company will pay an hourly or per
diem fee for all services actually rendered and reimburse reasonable and
necessary travel and lodging expenses incurred incident to services
rendered. The agreement shall terminate on December 31, 2000.
Leases
The Company has entered into various lease agreements for the use of
vehicles and office equipment.
F-15
<PAGE>
GENEREX BIOTECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7 - Commitments and Contingent Liabilities (Continued):
Leases (Continued)
Aggregate minimum annual lease commitments of the Company as of July 31,
1998 are as follows:
Year Amount
---- ------
1999 $ 13,078
2000 10,004
2001 5,990
2002 4,446
Thereafter 253
-----------
Total Minimum Lease Payments $ 33,771
===========
Lease expense amounted to $50,757, $9,206 and $6,946 for the years ended
July 31, 1998 and 1997 and for the period November 2, 1995 (date of
inception) to July 31, 1996, respectively.
The preceding data reflects existing leases and does not include
replacements upon their expiration. In the normal course of business,
operating leases are generally renewed or replaced by other leases.
Rental Operations
The Company leases a portion of the floor that it owns in an office
building located in Toronto, Canada. The Company, pursuant to a debt
agreement with Rumspen Investment Corporation, has assigned their interest
in these lease payments to a management company who then also pays certain
expenses related to these rental units. This assignment will end on
December 31, 1998, or when the additional amount of $26,425 (see Note 6) is
paid to the prior owner of the properties. Once the assignment period ends,
the Company will be entitled to the sublease rental income from the other
tenants. Based upon the estimated ending of the assignment period of
December 31, 1998, the following represents the approximate amount of
sublease income to be received in years ending after July 31, 1998:
Year Amount
---- ------
1999 $ 126,000
2000 104,000
2001 6,000
2002 --
2003 --
-------------
Total $ 236,000
=============
F-16
<PAGE>
GENEREX BIOTECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7 - Commitments and Contingent Liabilities (Continued):
Pending Litigation
Sands Brothers & Co., Ltd. (Sands), a New York City-based investment
banking and brokerage firm, initiated an arbitration against the Company
under New York Stock Exchange rules in September 1998. This claim is based
upon a claim that Sands has the right to purchase, for nominal
consideration, approximately 1.5 million shares of the Company's common
stock. This claim is based upon an October 1997 letter agreement which
purportedly confirmed the terms of an agreement appointing Sands as the
exclusive financial advisor to Generex Pharmaceuticals, Inc. (GPI) and
granting Sands the right to receive shares representing 17 percent of the
outstanding capital stock of GPI on a fully diluted basis. Following the
acquisition of GPI by GBT - Delaware, Inc., Sands' claimed right to receive
shares of GPI common stock would, allegedly, now apply to the Company's
Common Stock. Sands also claims that it is entitled to additional shares of
the Company as a result of the Generex Biotechnology Corporation Delaware,
Inc.'s acquisition of GPI (approximately 460,000 shares), and $144,000 in
fees under the terms of the purported Agreement. Sands has never performed
any services for the Company, and the Company and GPI have denied that the
individual who is alleged to have entered into the purported agreement
between Sands and GPI had the authority to act on GPI's behalf, and
accordingly, is defending against Sands' claim primarily on the basis that
no agreement has ever existed between GPI and Sands. The arbitration
process is in an early stage and the Company is unable to predict the
outcome at this time. However, the Company intends to vigorously defend
itself in this matter and does not expect that the ultimate resolution of
this matter will have a material effect on its results of operations and
financial condition.
Generex Pharmaceuticals, Inc., is also contesting a claim for wrongful
dismissal in the amount of approximately $300,000 plus special damages,
interest and costs. The Company believes that the plaintiff was never
employed by the Company or any of its subsidiaries and that the case is
without merit.
An action was also commenced against GPI and other companies and
individuals seeking approximately $3,965,000 for allegedly causing certain
adverse consequences of a plaintiff's particular investment in a company.
GPI's only involvement was that at one time there was interest on
its part in buying certain assets from this company. GPI failed to file a
Statement of Defense to the Statement of Claim and GPI was noted in default
on October 1, 1996. An application has been filed to set aside that default
notice, however that application has been adjourned indefinitely. The
Company plans to take action after January 1, 1999 to terminate this action
against itself and GPI.
F-17
<PAGE>
GENEREX BIOTECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7 - Commitments and Contingent Liabilities (Continued):
Stock Redemption
Under the terms of a settlement, determined in an Ontario, Canada Court,
the Company agreed to purchase 15,357 shares from a shareholder for a total
purchase price of $142,035, payable in four equal installments commencing
December 31, 1997, to be held in trust by the shareholder's legal counsel.
Each installment is to be released to the shareholder upon delivery of the
related shares to the Company or its legal counsel (the Company). The
shareholder maintains the right at any time to advise the Company, in
writing, which shall be irrevocable, that the shareholder will forego any
of the four installments, in which case the Company shall have no
obligation to deliver payment for that portion of the shares. As of July
31, 1998, the Company had not been advised that the shareholder would
forego any payments and had not received any of the shares for which funds
were held in trust. The Company's funding for this potential share
repurchase is being maintained in an attorney trust account and has been
labeled "Restricted Cash" on the July 31, 1998 consolidated balance sheet
(See Note 14).
Note 8 - Related Party Transactions:
The amounts due from (to) related parties at July 31, are as follows:
<TABLE>
<CAPTION>
Golden
The Angara Angara Ching Bull
Great Tao Equities Investments, Chew An Estates
Inc. Inc. Inc. Breweries Inc. EBI, Inc. Total
---------- --------- ------------- --------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Beginning Balance,
August 1, 1997 $ 126,628 $ 815,643 $ -- $ -- $ -- $ 2,170,767 $ 3,113,038
Purchase of
properties -- -- -- -- -- (1,646,188) (1,646,188)
Cash collection -- (403,639) -- -- -- -- (403,639)
Company
expenses paid by
related parties (352,384) (22,171) (277,962) (29,481) (209,637) -- (891,635)
Related party
expenses paid by
the Company 122,338 293,976 136,644 29,381 468,851 -- 1,051,190
Other 1,263 (63,928) 7,543 6 (13,837) (188,869) (257,822)
----------- --------- ----------- --------- ---------- ------------ ------------
Ending Balance,
July 31, 1998 $ (102,155) $ 619,881 $ (133,775) $ (94) $ 245,377 $ 335,710 $ 964,944
=========== ========= =========== ========= ========== ============ ============
</TABLE>
F-18
<PAGE>
GENEREX BIOTECHNOLOGY CORPORATION
(A DEVELOPMENT COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8 - Related Party Transactions (Continued):
These amounts are non-interest bearing. There are no fixed terms of
repayment.
Each of the related parties is owned in whole or in part by the Company's
Chairman of the Board. In addition, EBI, Inc. and Golden Bull Estates, Inc.
are shareholders of the Company.
As of July 31, 1998, the Company's three senior officers, who are also
shareholders of the Company were compensated indirectly by the Company
through a management services contract between the Company and a management
firm of which they were equal owners. The amounts paid to this management
firm amounted to $280,000, $-0- and $-0- for the years ended July 31, 1998
and 1997 and for the period November 2, 1995 (date of inception) to July
31, 1996.
Prior to December 17, 1997, the Company occupied its executive offices at
Harbour Square Business Center under an Occupancy Agreement between Generex
Pharmaceuticals, Inc. (GPI), Angara Equities, Inc. and 1097346 Ontario,
Inc. (the Angara/1097346 lease) pursuant to which GPI paid Angara a monthly
occupancy fee of approximately $4,880 CAD, which represents the rental and
other charges allocable to it space under Angara's lease for space, which
included the Company's offices, 1097346 Ontario, Inc., the owner of the
space. Angara Equities, Inc. is owned by the Company's Chairman of the
Board. On December 17(?), 1997, GPI terminated the Angara/1097346 lease.
During fiscal year 1998, the Company purchased two buildings from the
father of the Company's Chairman of the Board. The total purchase price was
$984,343.
Note 9 - Long-Term Debt:
Long-term debt consists of the following at July 31:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Mortgage payable - Romspen Investment Corporation, interest at 10.5 percent
per annum, monthly payments of interest only, principal due on March 20,
2000, secured by real property located at 33 Harbour Square, Toronto Suites
#202 and #3501, which is owned personally by the Company's Chairman of the
Board, and an assignment of all rents until December 31, 1998 $528,506 $ --
-------- ----
Subtotal $528,506 $ --
</TABLE>
F-19
<PAGE>
GENEREX BIOTECHNOLOGY CORPORATION
(A DEVELOPMENT COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9 - Long-Term Debt (Continued):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Subtotal $ 528,506 $ --
Mortgage payable - Laurential Bank, balance was originally to be paid
in full by July 31, 1998, interest of 11.25 percent per annum secured
by real property located at 98 Stafford Drive, Brampton 183,565 --
Mortgage payable - Laurential Bank, balance to be paid in full by
July 31, 1998, interest of 11.25 percent per annum secured by real
property located at 1740 Sismet Road, Mississauga 218,561 --
Note payable - Berckeley Investment Group, Ltd., inclusive of interest,
balance originally was to be paid in full June 1998 (a) 393,750 --
---------- ------
Total Debt 1,324,382 --
Less Current Maturities 795,876 --
---------- ------
Long-Term Debt, Less Current Maturities $ 528,506 $ --
========== ======
- -----------
(a) Pursuant to an agreement, The Company originally
agreed that in the event that the common stock, or
their equivalent, were not listed or quoted for
trading on a public market in North America within
ninety (90) days of the agreement, the Company
shall pay the sum of $300,000 as damages within
five (5) days of the end of such ninety (90) day
period. This milestone was not achieved by the Company.
However, upon mutual agreement, the Company issued shares
of its common stock subsequent to year-end. The
value of this settlement is included in accounts
payable and accrued expenses at July 31, 1998.
(See Note 6)
</TABLE>
Aggregate maturities of long-term debt of the Company due within the next
five years ending July 31, are as follows:
Year Amount
---- ------
1999 $ 795,876
2000 528,506
2001 --
2002 --
2003 --
-------------
$ 1,324,382
=============
Note 10 - Stockholders' Equity:
Reverse Merger
On January 9, 1998, the Company issued 9,234,118 of common stock to acquire
GBT - Delaware, Inc. (see Note 1). For accounting purposes, the acquisition
of GBT - Delaware, Inc. by the Company has been treated as a reverse
merger. Accordingly, the 9,234,118 shares issued to acquire GBT - Delaware,
Inc. have been treated as outstanding from November 2, 1995 (as adjusted
for historical issuances of GBT - Delaware, Inc. and Generex
Pharmaceuticals, Inc. during the period from November 2, 1995 to January 8,
1998) and the previously outstanding 1,105,000 shares have been treated as
issued on the acquisition date. Since the assets and liabilities acquired
on this date were immaterial, no amounts have been assigned to common stock
as a result of this transaction.
F-20
<PAGE>
GENEREX BIOTECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10 - Common Stock (Continued):
Warrants
The Company has outstanding 1,153,425 Series A Redeemable Common Stock
Purchase Warrant, each of which is exercisable to purchase one (1) share of
common Stock at a price of $5.00 per share. The warrants are redeemable, at
the option of the Company, at any time after September 1, 1998, upon
written notice of not less than twenty (20) days, at a redemption price of
$.025 per warrant. These warrants expire December 31, 2000.
The warrants were sold between March 1, 1998 and June 30, 1998, in units,
with each unit consisting of one warrant and one share of common stock, in
a private placement effected by the Company pursuant to Rule 506,
Regulation D, under the Act, and applicable Canadian securities laws.
Included in these transactions were 993,253 units sold for cash at $2.50,
and 160,172 units issued in payment for various services rendered and
valued at $2.50 per unit.
The Company also has outstanding warrants to purchase 500,000 shares of
Common Stock at a price of $2.50 which expire on March 31, 2003, and
warrants to purchase 7,937 shares at a price of $21.82 per share which
expire on September 6, 2002.
Preferred Stock
The Company has authorized 1,000,000 shares with a par value of one-tenth
of a cent ($.001) per share of preferred stock. The preferred stock may be
issued in various series and shall have preference as to dividends and to
liquidation of the Company. The Company's Board of Directors is authorized
to establish the specific rights, preferences, voting privileges and
restrictions of such preferred stock, or any series thereof. Other than the
Special Voting Rights Preferred Stock, described below, there are no shares
of preferred stock currently issued and outstanding.
Special Voting Rights Preferred Stock
The Company has issued 1,000 shares of Special Voting Rights Preferred
Stock (SVR) with a par value of $.001. The Company has the right at any
time after December 31, 2000, upon written notice to all holders of
preferred shares, to redeem SVR Shares at $.10 per share. Holders of SVR
Shares are not entitled to vote, except as specifically required by Idaho
law or in the event of change in control, as defined. In addition, holders
of SVR Shares are entitled to receive a dividend per share equal to the
dividend declared and paid on shares of the Company's common stock as and
when dividends are declared and paid on the Company's common stock.
Note 11 - Stock Based Compensation:
The Company intends to apply Accounting Principles board Opinion No. 25,
"Accounting for Stock issued to Employees," and related interpretations in
accounting for options as allowed by Statement of Financial Accounting
Standards No. 123 "Accounting for Stock Based Compensation." During the
years ended July 31, 1998 and 1997 and for the period November 2, 1995
(date of inception) to July 31, 1996, the Company did not grant options;
thus no compensation expense was recorded in these years.
F-21
<PAGE>
GENEREX BIOTECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11 - Stock Based Compensation (Continued):
1998 Stock Option Plan
On January 22, 1998, the Company's Board of Directors approved the 1998
Stock Option Plan (the Plan), subject to shareholder approval of the Plan,
and reserved 1,000,000 shares of Common Stock for issuance upon options
granted under the Plan. As of July 31, 1998, no options have been issued
under the Plan.
The Plan presently is administered by the Board of Directors, but the Board
may establish a Stock Option Committee (the Committee), which consists of
at least three directors, to administer the Plan. References to the
Committee herein include the Board of Directors so long as it continues to
administer the Plan directly.
The Committee is authorized to select from among eligible employees,
directors, advisors and consultants those individuals to whom options are
to be granted and to determine the number of shares to be subject to, and
the terms and conditions of, the options. The Committee also is authorized
to prescribe, amend and rescind terms relating to options granted under the
Plan and the interpretation of options. Generally, the interpretation and
construction of any provision of the Plan or any options granted thereunder
is within the discretion of the Committee.
The Plan provides that options may or may not be Incentive Stock Options
within the meaning of Section 422 of the Internal Revenue Code (ISOs). Only
employees of the Company are eligible to receive ISOs, while employees and
non-employee directors, advisors and consultants are eligible to receive
options which are not ISOs, i.e. "Non-Qualified Options." The options
granted by the Board in connection with its adoption of the Plan are
Non-Qualified Options.
Note 12 - Net Loss Per Share:
Basic EPS and Diluted EPS for the years ended July 31, 1998, 1997 and for
the period November 2, 1995 (date of inception) to July 31, 1996 have been
computed by dividing the net loss for each respective period by the
weighted average shares outstanding during that period. All outstanding
stock options and warrants have been excluded from the computation of
Diluted EPS as they are antidilutive.
F-22
<PAGE>
GENEREX BIOTECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 13 - Supplemental Disclosure of Cash Flow Information:
<TABLE>
<CAPTION>
For the
Period
For the Years Ended November 2,
July 31, 1995 (Date
------------------- of Inception)
1998 1997 1996
-------- ------- --------------
<S> <C> <C>
Cash paid during the year for:
Interest $ 63,291 $ -- --
Income taxes -- -- --
</TABLE>
Disclosure of non-cash investing and financing activities:
<TABLE>
<S> <C>
Year ended July 31, 1998
Miscellaneous receivable acquired with long-term debt $ 58,516
Long-term debt was assumed in conjunction with acquisition of
property and equipment $ 402,126
Acquisition of property and equipment with collection of
related party receivables $ 1,404,640
Acquisition of a deposit on property and equipment with
collection of related party receivables $ 68,000
</TABLE>
Note 14 - Subsequent Events (Unaudited):
Subsequent events occurring after July 31, 1998 consist of the following:
The Company entered into a consulting agreement with an individual. As
part of the consultant's compensation, the Company granted the
consultant options to purchase 50,000 shares of the Company's common
stock at an exercise price of $8.00 per share under the 1998 stock
option plan.
The debt as discussed in Note 9 with Berckeley Investment Group, Ltd.
was paid off in cash.
For consideration of financial consulting services provided, the
Company issued warrants to purchase 300,000 shares of common stock at
$10 per share.
F-23
<PAGE>
GENEREX BIOTECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 14 - Subsequent Events (Unaudited) (Continued):
The Company received a total of $4,061,006 from the sale of 1,107,353
shares of common stock at prices ranging from $2.50 to $5.00. Of this
amount 250,000 shares were issued to an individual from which the
Company has the right of first refusal to purchase the shares at 70
percent of the current market price. The Company also has agreed to
repurchase from the individual after December 31, 1999, at the
individual's option, such portion or all of his shares as he may elect
to tender to the Company at a price equal to 70 percent of the then
current market price. The individual also has the right to purchase an
additional 250,000 shares of the Company's common stock until December
23, 1998, on the same terms and conditions as the first 250,000 shares
purchased.
The Company acquired 15,357 shares for $142,036 under the terms of the
arrangement described in Note 7. The Company utilized their restricted
cash balance for this transaction.
The Company purchased property to be used as a manufacturing facility
in Toronto, Canada for approximately $25,000 in cash and approximately
$82,250 of long-term debt.
The Company acquired land in Ecuador, South America. Under the terms
of the agreement, a facility will be constructed for a research and
development pilot plant. To acquire this facility, the Company
utilized $68,000 in deposit money and $350,000 from the proceeds
received from the collection of a related party receivable.
The Company settled the liability arising from the violation of a
financing agreement, as described in Note 6, by the issuance of
180,000 shares of common stock valued at $738,000.
F-24
<PAGE>
Item 14. CHANGES IN, AND DISAGREEMENTS WITH ACCOUNTANTS
Prior to the Company's "reverse acquisition" of Generex Pharmaceuticals,
Inc. in January 1998, its financial statements were audited by Jack F. Burke,
Jr. Since, under "reverse acquisition" accounting rules, the financial
statements of the Company represent the historical financial statements of
Generex Pharmaceuticals, Inc., the Company dismissed Mr. Burke and engaged new
auditors, Withum Smith & Brown, to perform the audit on the Company's financial
statements as of and for the year ended July 31, 1998. The Company also engaged
Withum, Smith & Brown and Mintz & Partners to perform a joint audit on the
Company's financial statements as of July 31, 1997 and for the year then ended
and for the period November 2, 1995 (date of inception) to July 31, 1996.
Mr. Burke's reports on the Company's financial statements for the fiscal
years ending prior to July 31, 1998, did not contain an adverse opinion, a
disclaimer of opinion, or any qualification or modification as to uncertainty,
audit scope or accounting principles, nor is current management aware of any
disagreements between the Company and Mr. Burke about any accounting or audit
issues.
The change in auditors was recommended and approved by the Company's Board
of Directors.
Prior to its engagement of Withum, Smith & Brown and Mintz & Partners as
auditors, the Company had no consultations with such auditors, and is unaware of
any such consultation by anyone on its behalf, concerning any specific
accounting matter or transaction other than the need to prepare the historical
financial statements at Generex Pharmaceuticals, Inc. in accordance with US
GAAP, and that such financial statements would be required to be prepared in
accordance with and conform to Regulation S-X requirements.
Item 15. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
The following financial statements have been filed with this Registration
Statement:
Consolidated Balance Sheets of Generex Biotechnology Corporation and
Subsidiaries (a Development Stage Company) as of July 31, 1998 and 1997.
Consolidated Statement of Changes in Stockholders' Equity of Generex
Biotechnology Corporation and Subsidiaries (a Development Stage Company) for the
period November 2, 1995 (date of inception) to July 31, 1998.
Consolidated Statement of Operations and Cash Flows of Generex
Biotechnology Corporation and Subsidiaries (a Development Stage Company) for the
fiscal years ended July 31, 1998 and 1997, and for the period November 2, 1995
(date of inception) to July 31, 1996 and the cumulative amounts of operations
and cash flows for the period November 2, 1995 (date of inception) to July 31,
1996.
44
<PAGE>
(b) Exhibits
The following exhibits have been filed with this Registration Statement:
Exhibit No.
- -----------
3.1 Articles of Incorporation of the Company and all amendments thereto
3.2 Bylaws of the Company
4.1 Form of Common Stock Certificate
4.2 Form of Special Voting Rights Preferred Stock Certificate
4.3 1998 Incentive Stock Option Plan
4.4.1 Form of Series A Warrant
4.4.2 Form of GCR Warrant
4.4.3 Form of Berckeley Warrant
4.4.4 Form of Meyerson Warrant
4.5.1 Form of Subscription/Voting/Put Agreement between the Company and
Dr. William Steinbrink
4.5.2 Form of Subscription/Voting Agreement executed by purchasers of 337,670
shares of Common Stock
10.1.1 Consulting Agreement with Pankaj Modi
21 Subsidiaries of the Company
23.1.1 Consent of Withum, Smith & Brown, independent certified public
accountants
23.1.2 Consent of Mintz & Partners, independent chartered public accountants
27 Financial Data Schedules
45
<PAGE>
The Company has caused this Registration Statement to be executed on its
behalf this 13th day of December, 1998, by the undersigned officers.
GENEREX BIOTECHNOLOGY CORPORATION
By: /s/ E. Mark Perri
-----------------------------
E. MARK PERRI, Chairman
By: /s/ Anna E. Gluskin
-----------------------------
ANNA E. GLUSKIN, President
46
'82 JUL 12 PH 12 55
SECRETARY OF STATE
ARTICLES OF INCORPORATION
OF
GREEN MT. P.S., INC.
BE IT KNOWN, that we, the undersigned, do hereby associate ourselves
together to form a corporation under the provisions of the Idaho Revised
Statutes, Chapter 78, as amended, and make, subscribed; acknowledge, file and
adopt the following Articles of Incorporation:
ARTICLE I
The name of the corporation is GREEN MT. P.S., INC. and its duration
shall be perpetual.
ARTICLE II
The principal office or place of business of the corporation in the
State of Idaho is 2550 East Boise Ave., Boise, Idaho, and the name of the
resident agent of the corporation at such address is Dehlia Boone.
Other offices may be established, business transacted, and meetings of
stockholders and directors held at such place within or without the State of
Idaho as the by-laws of the corporation shall provide.
ARTICLE III
The general nature of the business or subjects or purposes of the
corporation to be transacted, promoted, or carried on by the corporation are as
follows:
1. To engage in any lawful activity.
2. To locate, purchase, or otherwise acquire mining claims, or
interests therein, whether within or without the State of Idaho and to explore,
develop and mine such properties and to treat or beneficiate the minerals or
metals recovered therefrom, and to lease, sell or otherwise dispose of such
mining claims and products therefrom.
3. To enter into, make, and perform contracts of every kind and for any
lawful purpose, with any person, firm association, or corporation, town, city,
county, body politic, state, territory, government, colony or dependency
thereof.
4. To borrow money for any of the purposes of the corporation and to
draw, make, endorse, discount, issue, sell, pledge, or otherwise dispose of
promissory notes, drafts, bills of exchange, warrants, bonds, debentures, and
other negotiable or non-negotiable, transferable or non-transferable instruments
and
1
<PAGE>
evidences of indebtedness, and to secure the payment thereof and the interest
thereon by mortgage or pledge, conveyance or assignment in trust of the whole or
any part of the property of the corporation at the time owned or thereafter
acquired.
5. To purchase, hold, sell, and transfer the shares of capital stock.
6. To have one or more offices and to conduct any or all of its
operations and business and to promote its objections within or without the
State of Idaho without restrictions as to place or amount.
7. To do any or all of the things herein set forth as principal, agent,
contractor, trustee, partner, limited or general partner, or joint venturer, or
otherwise, alone or in company with others.
8. The objects and purposes herein specified shall be regarded as
independent objects and purposes, and except where otherwise expressed, shall be
in no way limited or restricted by reference to or inference from the terms of
any other clause or paragraph of these Articles of Incorporation.
9. The foregoing shall be construed both as objects and powers, and
enumeration thereof shall not be held to limit or restrict in any manner the
general powers conferred on this corporation by the laws of the State of Idaho.
ARTICLE IV
The total number of shares of stock which this corporation is
authorized to issue is ten million (10,000,000) shares of no par value stock,
which shall be paid in as the Board of Directors shall designate and as provided
by law in cash, real or personal property, services, lease option to purchase,
or any other valuable right or thing for the uses and purposes of the
corporation, and all shares of the capital stock when issued in exchange
therefor, shall thereafter become and be fully paid, and the judgment of the
Directors as to the value of any property, right or thing acquired in purchase
or exchange for capital stock shall be conclusive.
ARTICLE V
The members of the governing board of this corporation shall be styled
and known as Directors.
The affairs and business of the corporation shall be conducted by a
Board of Directors of three, and the number of such directors shall be increased
or decreased from time to time by resolution of the Board of Directors, provided
that the number of directors shall not be less than three (3). The directors
shall elect a President, a Secretary and a Treasurer, and may elect one or more
Vice-Presidents of the corporation. The directors shall have full and complete
power and authority to carry on and conduct all of the business of the
corporation to the same effect and extent as though specifically authorized at
meetings of the specifically authorized at meetings or the stockholders. They
shall be elected by the stockholders at such time and place and in such manner
as shall be provided for in the by-laws of the corporation. Until their
2
<PAGE>
successors are elected and qualified, the following named three persons shall be
the first Board or Directors:
Name Address
---- -------
ALBERT BOONE 2550 E. Boise Ave.
Boise, Id. 83706
DEHLIA BOONE 2550 E. Boise Ave.
Boise, Id. 83706
JERRY BOONE Star Ranch
Placerville, ID 83666
ARTICLE VI
The time or the commencement of this corporation shall be the day these
Articles of Incorporation are filed in accordance with law, and the corporation
shall thereafter have and enjoy perpetual existence, as now provided by law.
ARTICLE VII
The capital stock of' this corporation shall not be assessable for any
purpose whatsoever.
ARTICLE VIII
The names and Post office addresses of each of the incorporators signing
these Articles of Incorporation are:
Name Address
---- -------
ALBERT BOONE 2550 E. Boise Ave.
Boise, Id. 83706
DEHLIA BOONE 2550 E. Boise Ave.
Boise, Id. 83706
JERRY BOONE Star Ranch
Placerville, ID 83666
In addition to and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized:
1. To make, alter, amend, and rescind the by-laws of this corporation from
time to time, to fix and determine and to vary the amount to be reserved as
3
<PAGE>
working capital over and above its capital stock paid in, and to direct and
determine the use and disposition of any surplus or net profits over and above
the capital stock paid in; to authorize and cause to be executed mortgages and
liens upon the real and personal property of this corporation.
2. To sell, exchange, assign, convey, or otherwise dispose of a part of
the property, assets, and effects of the corporation, less than the whole or
less than substantially the whole thereof, on such terms and conditions as they
shall deem advisable without the assents of the stockholders in writing or
otherwise.
3. From time to time to determine whether and to what extent and at
what times and places and under what conditions and regulations the accounts and
books of this corporation, (other than the stock ledger) or any of them, shall
be open to the inspection of the stockholders, and no stock holder shall have
the right of inspecting any account or book or document of this corporation,
except as conferred by statute or authorized by the directors of by resolution
of the stockholders.
4. To fill vacancies occurring in the Board from any cause, and by
resolution or resolutions passed by a majority of the whole board to designate
one or more of the directors of this corporation, which to the extent provided
in said resolution or resolutions, or in the by-laws of this corporation,
(except the power to make, alter, amend. or rescind the by-laws, and the power
to remove and elect officers) and may have the power to authorize the seal of
this corporation to be affixed to all papers that may require it. Such committee
or committees shall have such name or names as way be stated in the by-laws of
this corporation, or as may be determined from time to time by--resolution
adopted--by the Board of Directors.
ARTICLE X
The private property of the stockholders shall be forever exempt from
corporate debts or liability of any kind whatsoever.
ARTICLE XI
The shares of capital stock of this corporation may be issued by this
corporation from time to time for such consideration as from time to time may be
fixed by the Board of Directors of this corporation; and all issued shares of
the capital stock of this corporation shall be deemed fully paid and
non-assessable, and the holders of such shares shall not be liable thereunder to
this corporation or its creditors. Stockholders of this corporation shall have
pre-emptive right of subscription to any shares of any stock of this
corporation, as the Board of Directors may fix from time to time, pursuant to
the authority hereby conferred by the Articles of Incorporation of this
corporation, and the Board of Directors may issue stock of this corporation, or
obligations convertible into stock without offering such issue of stock either
in whole or in part to the stockholders of this corporation. The acceptance of
stock in this corporation shall be a waiver of any such pre-emptive or
preferential right which, in the absence of this provision, might otherwise be
asserted by stockholders of this corporation, or any of them.
4
<PAGE>
ARTICLE XII
No contract or other transaction between the corporation and any other
corporation, and no act of the corporation shall in any way be affected or
invalidated by the fact that any of the directors of the corporation are
pecuniarily or otherwise interested in it, or are directors or officers of such
other corporation. Any director individually, and any firm of which any director
may be a member, may be a party to, or may be pecuniarily interested in. any
contract or transaction of the corporation, provided that the fact that he or
such firm is so interested shall be disclosed or shall have been known to the
Board of Directors. or a majority thereof, and any director of the corporation
who is also a director or officer of such corporation. or who is so interested,
may be counted in determining the existence of a quorum at any meeting of the
Board of Directors of the corporation which shall authorize such contract or
transaction with like force and effect as if he were not a director or an
officer or such corporation, or not so interested.
ARTICLE XIII
The corporation shall indemnify every officer or director, his heirs,
executors and administrators, against all costs. expenses and liabilities
reasonably incurred by him in connection with any action, suit. or proceeding to
which he may be made a party by reason of his being or having been an officer or
director of the corporation. or at its request of any other corporation of which
it is a stockholder or creditor and from which he is not entitled to be
indemnified, except in relation to matters as to which he shall be finally
adjudged in such action, suit or proceedings to be liable for negligence or
misconduct in the performance of his duty as such director or officer. In the
event of a settlement, indemnification shall be provided only in connection with
such matters covered by the settlement as to which the corporation is advised by
counsel that the person to be indemnified did not commit a breach of duty
involving negligence or misconduct. The foregoing rights of indemnification
shall not be exclusive of any of any other rights to which any such officers or
director may be entitled as a matter of law.
IN WITNESS WHEREOF, we hereunto affix our signatures this __ day
of ______, 19__.
/s/ Dehlia Boone
----------------------
Dehlia Boone
/s/ Jerry Boone
----------------------
Jerry Boone
/s/ Albert Boone
----------------------
Albert Boone
5
<PAGE>
STATE OF IDAHO )
) ss.
COUNTY OF ADA )
Before me, the undersigned Notary Public is and for said County and
State, on this day personally appeared Albert Boone, Dehlia Boone and Jerry
Boone, known to me to be the same persons who signed the foregoing instrument
and acknowledged to me that they executed the same freely and voluntarily for
the uses and purposes therein mentioned.
Given under my hand and seal of office this 12th day of July, 1983.
/s/
---------------------------
Notary Public for Idaho
My Commission Expires: Lifetime
6
<PAGE>
JAN 29 10 31 AM '96
SECRETARY OF STATE
STATE OF IDAHO
CERTIFICATE OF AMENDMENT TO
ARTICLES OF INCORPORATION OF
GREEN MT. P.S., INC.
THE UNDERSIGNED President and Secretary of Green Mt. P.S., Inc. an
Idaho Corporation, pursuant to the provisions of Section 30-1-61 of the Idaho
Business Corporation Act, for the purpose of amending the Articles of
Incorporation of said Corporation, do hereby certify as follows:
That the shareholders of said Corporation at its Special Meeting in
Lieu of Annual Meeting of Shareholders duly convened and held on the 18th day of
January, 1996, adopted resolutions to amend the Articles of Incorporation of the
Corporation as follows:
(1) Article IV shall be amended to read as follows:
"Article IV
The total number of shares of stock which this corporation is
authorized to issue is fifty million (50,000,000) shares of no par value ($0.00)
common stock, which shall be paid in as the Board of Directors shall designate
and as provided by law in cash, real or personal property, services, lease,
option to purchase, or any other valuable right or thing for the uses and
purposes of the corporation, and all shares of the capital stock when issues in
exchange therefor, shall thereafter become and be dully paid and the judgment of
the Directors as to the value of any property, right or thing acquired in
purchase or exchange for capital stock shall be conclusive."
The foregoing amendments to the Articles of Incorporation were duly
adopted by the shareholders of the Corporation on the 18th day of January, 1996.
At the date of the meeting of Shareholders, the number of shares of the
Corporation's common stock outstanding and entitled to vote on the foregoing
amendment to the Articles of Incorporation was ten million (10,000,000). A total
of 8,213,600 shares voted FOR amendment (1) (representing approximately 82% of
the issued and outstanding shares of the Corporation) and -0- shared voted
AGAINST amendment (1) (representing approximately -0-% of the issued and
outstanding shares of the Corporation).
Also at the Special Meeting of Shareholders, the shareholders approved
a reverse stock split on a 1-for-10 basis. This action together with the
amendment to the Articles of Incorporation to change the authorization did not
result in any change in the Company's capital as the par value is still $0.00.
1
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DATED this 26th day of January, 1996.
The undersigned President and Secretary of the Corporation hereby
declare that the foregoing Certificate of Amendment to the Articles of
Incorporation is true and correct to the best of their knowledge and belief.
/s/ Pete Wells
------------------------------
PETE WELLS, President
/s/ Daniel T. Elkins
------------------------------
DANIEL T. ELKINS, Secretary
STATE OF IDAHO )
) ss.
COUNTY OF LEMHI )
On this 26th day of January, 1996, before me, the undersigned, a Notary
Public, in and for said State, personally appeared PETE WELLS and DANIEL T.
ELKINS who first being duly sworn, did each hereby affirm that they are the
President and Secretary, respectively of Green Mt. P.S., Inc., an Idaho
Corporation, and that they did execute the foregoing Amendment to the Articles
of Incorporation on behalf of said Corporation and that such instrument was
executed pursuant to a resolution of the Board of Directors and ratified by more
than a 50% majority of the issued and outstanding shares of the Corporation's
common stock.
/s/ Terri J. Morton
------------------------------
NOTARY PUBLIC
Residing at: Salmon
My Commission Expires: 4/25/96
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FILED
98 JAN 14 am 10:25
SECRETARY OF STATE
STATE OF IDAHO
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
GREEN MT. P.S., INC.
Pursuant to the provisions of the Idaho Business Corporation Act
("Idaho Code"), the following amendments to the Articles of Incorporation of
Green Mt. P.S., Inc., an Idaho Corporation (the "Corporation"), were adopted by
the shareholders of the Corporation on January 9, 1998 in the manner prescribed
by the Idaho Code.
First: Article I of the Articles of Incorporation is hereby amended to
read as follows:
"I
The name of the Corporation shall be Generex Biotechnology
Corporation and its duration shall be perpetual."
Second: Article IV of the Articles of Incorporation is hereby amended
to read as follows:
"IV
The aggregate number of shares of all classes of capital stock
that this Corporation shall have authority to issue is 51,000,000
non-assessable shares, 50,000,000 of which shall be of a class
designated as common stock (the "Common Stock") with a par value of One
Tenth of a Cent ($0.001) per share, and 1,000,000 shares of which shall
be of a class designated as preferred stock (the "Preferred Stock") of
the par value of One Tenth of a Cent ($0.001) per share. The Preferred
Stock may be issued in series and shall have preference as to dividends
and to liquidation of the Corporation. The Board of Directors of the
Company shall establish the specific rights, preferences, voting
privileges and restrictions of such Preferred Stock, or any series
thereof."
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Third: A New Article XIV shall be added to the Articles of
Incorporation and shall read as follows:
"XIV
A director of the Corporation shall not be personally liable
to the Corporation or its shareholders for monetary damages for any
action taken, or any failure to take any action, as a director, except
liability for (i) the amount of a financial benefit received by a
director to which he is not entitled, (ii) an intentional infliction of
harm on the Corporation or its shareholders, (iii) a violation of
Section 30-1-833, Idaho business Corporation Act, or (iv) an
intentional violation of criminal law. If the Idaho Business
Corporation Act is hereafter amended to authorize the further
elimination or limitation of the liability of a director, then the
liability of a director of the Corporation shall be eliminated or
limited to the fullest extent permitted by the amended Idaho Business
Corporation Act. Any repeal or modification of this Article shall not
adversely affect any right or protection of a director of the
Corporation existing hereunder with respect to any or omission
occurring prior to such repeal or modification."
The number of shares of the Corporation outstanding at the time of
adoption of the above amendments was 1,105,000, and the number of shares
entitled to vote thereon was 1,005,000. As to Amendment First set forth above,
the number of shares voting Against such amendment was -0-. As to Amendment
Second set forth above, the number of shares consenting and voting for such
amendment was 849,360, and the number of shares voting Against such amendment
was -0-. As to Amendment Third set forth above, the number of shares consenting
and voting For such Amendment was 845,360, and the number of shares voting
Against such amendment was 4,000.
DATED this 9th day of January 1998.
/s/ Pete Wells
----------------------
Pete Wells, President
2
<PAGE>
FILED
98 FEB 10 AM 10:18
SECRETARY OF
STATE OF IDAHO
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
GENEREX BIOTECHNOLOGY CORPORATION
1. The name of the corporation is GENEREX BIOTECHNOLOGY CORPORATION, a
corporation organized and existing under the Business Corporation Act of the
State of Idaho (the "Act").
2. Pursuant to Section 30-1-602 of the Act, the following amendment to the
Articles of Incorporation of Generex Biotechnology Corporation (the
"Corporation") were adopted by the Board of Directors of the Corporation on
January 16, 1998:
FIRST: The following shall be added to Article IV of the Articles of
Incorporation, at the end of Article IV as in effect immediately prior to
the amendment:
Special Voting Rights Preferred Stock.
One thousand (1,000) shares of authorized and heretofore unissued shares of
the $.001 par value Preferred Stock of the Corporation are designated as
the Corporation's "Special Voting Rights Preferred". The Special Voting
Rights Preferred Stock shall have the following preferences and relative,
participating, optional or other rights, qualifications, limitations and
restrictions:
1. Divides. Holders of Special Voting Rights Preferred Stock
(hereinafter referred to as the "Preferred Shares" or "Shares") shall be
entitled to receive a dividend per Share which equals the dividend declared
and paid on shares of the Corporation's Common Stock as and when dividends
are declared and paid on the Corporation's Common Stock.
2. Rights and Liquidation, Dissolution or Winding Up. In the event of
any voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, the assets of the Corporation available for distribution to
its shareholders, whether from capital, surplus or earnings, shall be
distributed in the following order of priority:
a. First, to the holders of any class or series of Preferred Stock
or other capital stock of the Corporation which is entitled to a preference
in liquidation and dissolution over the Shares, but only to the extent of
that preference.
b. Next, to the holders of Shares and any class or series of
Preferred Stock or other capital stock of the Corporation which is of equal
rank with the Shares with respect to sharing in the proceeds of
<PAGE>
liquidation and dissolution of the Corporation, pari passu, but only to
the extent that such class or series of capital stock is of equal rank. In
any such distribution, holders of Shares shall be entitled to receive,
prior to and in preference to any distribution to the holders of the
Corporation's Common Stock or any other class or series of capital stock
of the Corporation which is inferior to the rights of holders of Shares in
liquidation and dissolution and winding up an amount equal to $.10 per
Preferred Share then outstanding (the "Shares Liquidation Preference").
c. After distribution of the Shares Liquidation Preference to
holders of Shares, the remaining assets, if any, of the Corporation
available for distribution to the shareholders of the Corporation shall be
distributed, pari passu, to the holders of all shares of capital stock of
the Corporation, without distinction as to class, as their rights may
appear.
3. Voting.
a. The holders of Preferred Shares are not entitled to vote,
except as specifically required by Idaho law or as expressly provided below:
(i) If a Change of Control (as hereinafter defined) occurs,
thereafter, holders of Preferred Shares shall be entitled to elect a number
of directors of the Corporation equal to a majority of the entire Board of
Directors of the Corporation. Any holder of Preferred Shares may call a
meeting of holders of Preferred Shares for the purpose of exercising these
special voting rights (the "Special Voting Rights") upon not less than ten
(10) days notice. Holders of the Preferred Shares may exercise the Special
Voting Rights by written consent in lieu of a meeting pursuant to Section
30-1-704 of the Idaho Business Corporation Act. Upon exercise of the
Special Voting Rights by holders of the Preferred Shares, the Bylaws of the
Corporation shall be deemed amended to increase the size of the Board of
Directors to accommodate directors elected by the holders of the Preferred
Shares. After the Special Voting Rights have been exercised, the
Corporation shall give holders of Preferred Shares the same notice that is
required to be sent to holders of the Corporation's Common Stock of any
meeting at which directors of the Corporation are to be elected. Once
Special Voting Rights have been exercised, they shall remain in force at
all times thereafter until the Preferred Shares have been redeemed by the
Corporation.
(ii) The affirmative vote of the holders of a majority of the
Preferred Shares then outstanding, voting separately as a class, shall be
required to approve any transaction that would result in a Change of
Control (a "Change of Control Transaction"). The Corporation
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<PAGE>
shall give each holder of Preferred Shares at least twenty (20)
days prior written notice of any meeting of shareholders called
for the purpose of voting on a Change of Control Transaction.
Holders of Preferred Shares may approve any Change of Control
Transaction by written consent in lieu of a meeting pursuant to
Section 30-1-704 of the Idaho Business Corporation Act.
b. A "Change of Control" of the Corporation, as that term is used
herein, shall occur at any time that (a) the Current Management Group shall
cease to constitute at least sixty (60%) of all directors of the
Corporation, or (b) that any person becomes either the Chairman of the
Board of Directors or Chief Executive Officer of the Corporation without
the prior approval of a majority of the Current Management Group, acting in
their capacities as directors of the Corporation. The term "Current
Management Group" as used herein shall mean Anna H. Gluskin, Rose C. Perri,
E. Mark Perri, Pankaj Modi and/or any other person (a) who is appointed a
director of the Corporation by action of the Board of Directors of the
Corporation with the approval of a majority of the Current Management Group
then serving as directors of the Corporation, in their capacities as
directors, or (b) who is nominated for election as a director of the
Corporation by action of the Board of Directors of the Corporation with the
approval of a majority of the Current Management Group then serving as
directors of the Corporation, in their capacities as directors.
c. On any matter as to which the holders of Preferred Shares shall
be entitled to vote as provided above, they shall be entitled to one vote
per share.
4. Redemption.
a. The Corporation shall have the right, at any time after December
31, 2000, upon written notice (a "Preferred Shares Redemption Notice") to
all holders of Preferred Shares at their respective registered addresses
stating that the Corporation is exercising its right of redemption set
forth herein and fixing a date for such redemption (the "Preferred Shares
Redemption Date") which shall be no more than sixty (60) and no less than
thirty (30) days following the date of the Preferred Shares Redemption
Notice, redeem Preferred Shares at a price per Preferred Share (the
"Preferred Share Redemption Price") equal to ten ($.10) cents.
b. From and after the Preferred Shares Redemption Date, holders of
Preferred Shares shall cease to be shareholders of the Corporation and the
sole right of holders of Preferred Shares shall be to receive the Preferred
Shares Redemption Price as provided herein.
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<PAGE>
c. The Corporation shall pay the Preferred Shares Redemption Price
to each holder of record of Preferred Shares as of the Preferred Shares
Redemption Date, provided, however, that as a condition precedent to the
Corporation's payment of the Preferred Shares Redemption Price to any
holder, such holder shall deliver to the Corporation the certificate
representing the Preferred Shares to be redeemed or, in lieu thereof,
satisfactory evidence that such certificate has been lost or destroyed,
together with a bond or surety satisfactory to the Corporation to protect
it against loss should such certificate subsequently be tendered for
redemption.
d. If the Corporation at any time redeems fewer than all Preferred
Shares, it shall redeem the Preferred Shares pro-rata from all holders
thereof.
e. The Corporation shall have the right to redeem Preferred Shares
owned by any Holder thereof upon the same terms and conditions set forth
above upon the death of the holder.
5. Transferability. The Preferred Shares shall not be transferrable
by a holder thereof without the prior written consent of the Corporation
except pursuant to the laws of descent and distribution.
6. Other. Except as expressly provided herein, Preferred Shares
shall have the same rights and privileges as shares of the Corporation's
Common Stock.
IN WITNESS WHEREOF, these Articles of Amendment have been signed by
the President of the Corporation and the Corporation has caused its corporate
seal to be hereunto affixed as of this 6th day of February, 1998.
GENEREX BIOTECHNOLOGY CORPORATION
By: /S/ ANNA E. GLUSKIN
---------------------------------------
Anna E. Gluskin, President
Attest: /S/ ROSE C. PERRI
-----------------------------------
Rose C. Perri, Secretary
4
AMENDED AND RESTATED BY-LAWS
OF
GENEREX BIOTECHNOLOGY CORPORATION
Adopted January 22, 1998
<PAGE>
ARTICLE I - Stockholders
1.1 Place of Meetings. All meetings of stockholders shall be held at
such place within or without the State of Idaho as may be designated from time
to time by the Board of Directors (the "Board"), the Chairman of the Board or
the President or, if not so designated, at the registered office of the
Corporation.
1.2 Annual Meeting. The annual meeting of stockholders for the election
of directors and for the transaction of such other business as may properly be
brought before the meeting shall be held at a time fixed by the Board or, if not
so fixed by the Board, by the President.
1.3 Special Meeting. Special meetings of stockholders may be called at
any time by the Board, the Chairman of the Board or the President, and shall be
called by the Board upon the request of the holders of twenty percent (20%) of
the outstanding shares of stock of the Corporation entitled to vote at the
meeting. Business transacted at any special meeting of stockholders shall be
limited to matters relating to the purpose or purposes stated in the notice of
meeting.
1.4 Notice of Meetings. Except as otherwise provided by law, written
notice of each meeting of stockholders, whether annual or special, shall be
given not less than ten (10) nor more than sixty (60) days before the date of
the meeting to each stockholder entitled to vote at such meeting. The notices of
all meetings shall state the place, date and hour of the meeting. The notice of
a special meeting shall state, in addition, the purpose or purposes for which
the meeting is called.
1.5 Voting List. The officer who has charge of the stock ledger of the
Corporation shall prepare, at least ten (10) days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, at the place where the meeting is to be held
or, if such place is specified in the notice of the meeting at a place within
the city which the meeting is to be held other than the place of the meeting.
The list shall also be produced and kept at the time and place of the meeting
during the whole time of the meeting, and may be inspected by any stockholder
who is present.
1.6 Quorum and Required Vote. Except as otherwise provided by law or in
the Certificate of Incorporation, the holders of a majority of the shares of
stock entitled to vote on a particular matter present in person or represented
by proxy shall constitute a quorum for the purpose of considering such matter.
1.7 Voting and Proxies. Each holder of Common Stock shall have one vote
for each share of such stock entitled to vote and held of record by such
<PAGE>
stockholder, and holders of shares of capital stock other than Common Stock
shall have such voting rights as are provided in the Articles of Incorporation.
Each stockholder of record entitled to vote at a meeting of the stockholders, or
to express consent or dissent to corporate action in writing without a meeting,
may vote or express such consent or dissent in person or may authorize another
person or persons to vote or act for such stockholder by proxy in accordance
with applicable law.
1.8 Business to be Conducted. At any meeting of the stockholders, only
such business shall be conducted as shall have been properly brought before the
meeting. To be properly brought before a meeting of stockholders, such business
must be (a) specified in the notice of the meeting (or any supplement thereto)
given by or at the direction of the Board of Directors, (b) otherwise properly
brought before the meeting by or at the direction of the Board of Directors, or
(c) otherwise properly brought before the meeting by a stockholder. For business
to be properly brought before a meeting by a stockholder, the stockholder must
have given timely notice thereof in writing to the Secretary of the Corporation.
To be timely, a stockholder's notice must be delivered to or mailed and received
at the principal executive offices of the Corporation not less than 60 days nor
more than 90 days prior to the meeting; provided, however, that in the event
that less than 70 days' notice or prior public disclosure of the date of the
meeting is given or made to stockholders, notice by the stockholder to be timely
must be so received not later than the close of business on the 10th day
following the day on which such notice of the date of the meeting was mailed or
such public disclosure was made. A stockholder's notice to the Secretary shall
set forth as to each matter the stockholder proposes to bring before the meeting
(a) a brief description of the business desired to be brought before the meeting
and the reasons for conducting such business at the meeting, (b) the name and
address, as they appear on the Corporation's books, of the stockholder proposing
such business, (c) the class and number of shares of the Corporation's capital
stock which are beneficially owned by the stockholder, and (d) any material
interest of the stockholder in such business. Notwithstanding anything in the
Bylaws to the contrary, no business shall be conducted at any meeting of the
stockholders except in accordance with the procedures set forth in this Section
1.8. The Chair of the meeting shall, if the facts warrant, determine and declare
to the meeting that business was not properly brought before the meeting in
accordance with the Bylaws and, in such event, such business shall not be
transacted.
1.9 Nominations for Election as Directors. Only persons who are
nominated in accordance with the procedures set forth in this Section 1.9 shall
be eligible for election as Directors of the Corporation. Nominations of persons
for election to the Board of Directors of the Corporation may be made at a
meeting of stockholders (a) by or at the direction of the Board of Directors, or
(b) by any stockholder of the Corporation entitled to vote for the election of
Directors at the meeting who gives timely notice of his/her/its intention to
make such nomination at the meeting. Such notice shall be made in writing to the
Secretary of the Corporation, and must be delivered to or mailed and received at
the principal executive offices of the Corporation not less than 60 days nor
more than 90 days prior to the meeting; provided, however, that in the event
that less than 70 days' notice or prior public disclosure of the date of the
meeting is given or made to stockholders, notice by the stockholder to be timely
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<PAGE>
must be so received not later than the close of business on the 10th day
following the day on which such notice of the date of the meeting was mailed or
such public disclosure was made. Such stockholder's notice shall set forth (x)
as to each person whom the stockholder proposes to nominate for election or
re-election as a Director (i) the name, age, business address and residence
address of such person, (ii) the principal occupation or employment of such
person, (iii) the class and number of shares of the Corporation which are
beneficially owned by such person, and (iv) any other information relating to
such person that is required to be disclosed in solicitations of proxies for the
election of directors or otherwise is required pursuant to Regulation 14A under
the Securities Exchange Act of 1934, as amended (including without limitation
such persons' written consent to being named in any proxy statement as a nominee
and to serving as a Director if elected); and (y) as to the stockholder giving
the notice (i) the name and address, as they appear on the Corporation's books,
of such stockholder and (ii) the class and number of shares of the Corporation
which are beneficially owned by such stockholder. At the request of the Board of
Directors any person nominated by the Board of Directors for election as a
Director shall furnish to the Secretary of the Corporation that information
required to be set forth in a stockholder's notice of nomination which pertains
to the nominee. No person shall be eligible for election as a Director of the
Corporation unless nominated in accordance with the procedures set forth in this
Section 1.9. The Chair of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
Bylaws and, in such event, the defective nomination shall be disregarded.
1.10 Applicability of Federal Securities Laws and Regulations. At any
time that the Corporation has a class of equity securities registered under the
Securities Exchange Act of 1934, to the extent that any provision of this
Article I shall be in conflict with rules and regulations of the Securities and
Exchange Commission promulgated under such Act with respect to the nomination
and/or election of Directors of the Corporation, or otherwise with respect to
the conduct of business at a meeting of stockholders, such rules and regulations
shall govern and this Article shall be interpreted and limited in its
application, as necessary, to conform with such rules and regulations.
ARTICLE II - Directors
2.1 General Powers. The business and affairs of the Corporation shall
be managed by or under the direction of the Board, which may exercise all of the
powers of the Corporation except as may be otherwise provided by law or the
Certificate of Incorporation.
2.2 Number and Term. The Board of Directors shall have not less than
three (3) nor more than nine (9) members. Except as may be provided in the
Certificate of Incorporation and subject to any resolution of the stockholders,
the Board shall have the authority to determine the number of directors which
shall constitute the Board and the terms of office of directors.
2.3 Nomination by Stockholders. Nominations for election to the Board
of Directors may be made by the Board of Directors or by any stockholder of any
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<PAGE>
outstanding class of capital stock of the Corporation entitled to vote for the
election of directors in accordance with the procedures set forth in Article I
hereof.
2.4 Regular Meetings. Regular meetings of the Board may be held without
notice at such time and place, either within or without the State of Delaware,
as shall be determined from time to time by the Board.
2.5 Special Meeting. Unless the Board shall otherwise direct, special
meetings of the Board may be held at any time and place, within or without the
State of Delaware, and shall be called at any time by or at the request of the
President and shall be called by or at the written request of one-third of the
directors, or by one director in the event that there is only a single director
in office. Notice, which need not be written, of the time and place of special
meetings shall be given to each director at least twenty-four (24) hours before
the time for which the meeting is scheduled. A notice or waiver of notice of a
meeting of the Board need not specify the purposes of the meeting. Any business
may be transacted at a special meeting.
2.6 Meetings by Telephone Conference Calls. Directors or any members of
any committee designated by the Directors may participate in a meeting of the
Board or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation by such means shall constitute
presence in person at such meeting.
2.7 Quorum. A majority of all the directors in office shall constitute
a quorum at all meetings of the Board.
2.8 Committees. The Board may, by resolution passed by a majority of
the whole Board, designate one or more committees, each committee to consist of
one or more of the directors of the Corporation. The Board may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members of the
committee present at any meeting and not disqualified from voting, whether or
not such member or members constitute a quorum, may unanimously appoint another
member of the Board to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the Board and subject to the provisions of the General Corporation
Law of the State of Delaware, shall have and may exercise all the powers and
authority of the Board in the management of the business and affairs of the
Corporation.
ARTICLE III - Officers
3.1 Enumeration. The officers of the Corporation shall consist of a
President, a Secretary, a Treasurer and such other officers with such other
titles as the Board may determine.
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<PAGE>
3.2 Election. Officers shall be elected annually by the Board at its
first meeting following the annual meeting of stockholders.
3.3 Duties and Powers. Except as otherwise provided by the Board, the
officers shall have, exercise and perform the duties and powers usually incident
to their offices and as set forth herein:
(i) Chief Executive Officer and President. The President shall be
the chief executive officer of the Corporation unless the Board shall elect a
Chairman and vest in such Chairman the authority of chief executive officer of
the Corporation. The Chief Executive Officer of the Corporation shall, subject
to the direction of the Board, have general charge and supervision of the
business of the Corporation. Unless otherwise provided by the Board, the
President shall preside at all meetings of the stockholders, and if he is a
director, at all meetings of the Board. If the Chairman of the Board of
Directors shall be the chief executive officer of the Corporation, the President
shall perform such duties and possess such powers as the Board of Directors may
from time to time prescribe.
(ii) Vice President. Any Vice President shall perform such duties
and possess such powers as the Board or the President may from time to time
prescribe. In the event of the absence, inability or refusal to act of the
President, the Vice President (or if there shall be more than one, the Vice
President in the order determined by the Board) shall perform the duties of the
President and when so performing shall have all the powers of and be subject to
all the restrictions upon the President.
(iii) Secretary. The Secretary shall perform such duties and shall
have such powers as the Board or the President may from time to time prescribe,
including without limitation the duty and power to give notices of all meetings
of stockholders and special meetings of the Board, to attend all meetings of
stockholders and the Board and keep a record of the proceedings, to maintain a
stock ledger and prepare lists of stockholders and their addresses as required,
to be custodian of corporate records and the corporate seal and to affix and
attest to the same on documents.
(iv) Treasurer. The Treasurer shall perform such duties and shall
have such powers as may from time to time be assigned to him by the Board or the
President, including without limitation the duty and power to keep and be
responsible for all funds and securities of the Corporation, to deposit funds of
the Corporation in depositories selected by the Board, to disburse such funds as
ordered by the Board, to make proper accounts of such funds, and to render as
required by the Board statements of all such transactions and of the financial
condition of the Corporation.
3.4 Salaries. Officers of the Corporation shall be entitled to such
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board.
5
<PAGE>
ARTICLE IV - Transfer of Share Certificates
4.1 General. Except as otherwise established by rules and regulations
adopted by the Board and subject to applicable law, shares of stock may be
transferred on the books of the Corporation only by the registered holder or by
duly authorized attorney. Transfers shall be made only on surrender to the
Corporation or its transfer agent of the certificate representing such shares
properly endorsed or accompanied by a written assignment or power of attorney
properly executed, and with such proof of authority of the authenticity of
signature as the Corporation or its transfer agent may reasonably require.
Except as may be otherwise required by law, by the Articles of Incorporation or
by these By-Laws, the Corporation shall be entitled to treat the record holder
of stock as shown on its books as the owner of such stock for all purposes,
including the payment of dividends and the right to vote with respect to such
stock, regardless of any transfer, pledge or other disposition of such stock
until the shares have been transferred on the books of the Corporation in
accordance with the requirements of these By-Laws.
4.2 Restriction on Certain Transfers. Whenever shares of the
Corporation's capital stock are issued pursuant to exemptions from registration
under the Securities Act of 1933 or regulations adopted under that Act which
require or impose limitations on the resale or other transfers of such shares by
the holders thereof, no resale or other transfer of such shares shall be
permitted except in compliance with the terms and conditions of the exemption or
regulation pursuant to which the shares were issued.
ARTICLE V - Indemnification
5.1 Right to Indemnification. The Corporation shall indemnify any
person who was or is a party or threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (collectively, a "proceeding"), by reason of the
fact such person is or was (a) a director or executive officer of the
Corporation or a constituent corporation absorbed in a consolidation or merger
(hereinafter, a "constituent corporation"), or, (b) is or was serving at the
request of the Corporation or a constituent corporation as a director, officer,
partner, employee or agent of another corporation, partnership, joint venture or
other enterprise or entity, or (c) is or was a director or officer of the
Corporation serving at its request as an administrator, trustee or other
fiduciary of one or more of the employee benefit plans, if any, of the
Corporation or another entity which may be in effect from time to time, against
all expenses, liability and loss actually and reasonably incurred or suffered by
such person in connection with such proceeding, whether or not the indemnified
6
<PAGE>
liability arises or arose from any proceeding by or in the right of the
Corporation, to the extent that such person is not otherwise indemnified and to
the extent that such indemnification is not prohibited by law as it presently
exists or may hereafter be amended.
5.2 Advance of Expenses. The Corporation shall advance all expenses
reasonably incurred by a person entitled to indemnification pursuant to Section
5.1 above, in defending a proceeding in advance of the final disposition of such
proceeding, and may, but shall not be obligated to, advance expenses of other
persons entitled to indemnification pursuant to any other agreement or provision
of law.
5.3 Procedure for Determining Permissibility. To determine whether any
indemnification under this Article V is permissible, the Board by a majority
vote of a quorum consisting of directors not parties to such proceeding may, and
on request of a person seeking indemnification shall be required to, determine
in each case whether the applicable standards in any applicable statute have
been met, or such determination shall be made by independent legal counsel if
such quorum is not obtainable, or, even if obtainable, a majority vote of a
quorum of disinterested directors so directs. If a claim for indemnification
under this Article is not paid in full within ninety (90) days after a written
claim therefor has been received by the Corporation, the claimant may file suit
to recover the unpaid amount of such claim, and the Corporation shall have the
burden of proving that the claimant was not entitled to the requested
indemnification under applicable law. The reasonable expenses of any person in
prosecuting a successful claim for indemnification hereunder, and the fees and
expenses of any independent legal counsel engaged to determine permissibility of
indemnification, shall be borne by the Corporation. For purposes of this
paragraph, "independent legal counsel" means legal counsel other than that
regularly or customarily engaged by or on behalf of the Corporation.
5.4 Proceedings Initiated by Indemnitee. Notwithstanding any other
provision of this Article V, the Corporation shall be required to indemnify a
person in connection with a proceeding initiated by such person only if the
proceeding was authorized by the Board.
5.5 Indemnification Not Exclusive; Inuring of Benefit. The
indemnification provided by this Article V shall not be deemed exclusive of any
other right to which one seeking indemnification may have or hereafter acquire
under any statute, provision of the Articles of Incorporation, these By-Laws,
agreement, vote of stockholders or disinterested directors or otherwise, and
shall inure to the benefit of the heirs, executors and administrators of any
such person.
5.6 Insurance and Other Indemnification. The Board shall have the power
to (i) authorize the Corporation to purchase and maintain, at the Corporation's
expenses, insurance on behalf of the Corporation and on behalf of others to the
7
<PAGE>
extent that power to do so has not been prohibited by applicable law, and (ii)
give other indemnification to the extent not prohibited by applicable law.
5.7 Modification or Repeal. Any modification or repeal of any provision
of this Article V shall not adversely affect any right or protection of an
Authorized Representative existing hereunder with respect to any act or omission
occurring prior to such modification or repeal.
ARTICLE VI - Amendments
6.1 By the Board of Directors. These By-Laws may be altered, amended or
repealed or new By-Laws may be adopted by the affirmative vote of a majority of
the directors present at any regular or special meeting of the Board at which a
quorum is present.
6.2 By the Stockholders. These By-Laws may be altered, amended or
repealed or new By-Laws may be adopted by the affirmative vote of the holders of
a majority of the shares of the capital stock of the Corporation entitled to
vote at any regular meeting of stockholders, or at any special meeting of
stockholders, provided such change shall have been set forth, or a summary
thereof shall have been provided, in the notice of such special meeting.
[FRONT SIDE OF CERTIFICATE]
NOT VALID UNLESS COUNTERSIGNED BY TRANSFER AGENT
INCORPORATED UNDER THE LAWS OF THE STATE OF IDAHO
- --------------- ---------------
NUMBER SHARES
GENEREX
BIOTECHNOLOGY
CORPORATION
AUTHORIZED COMMON STOCK: 50,000,000 SHARES
PAR VALUE: $.001
THIS CERTIFIES THAT ____________________________________________________, THE
RECORD HOLDER OF ______________________________________________________ Shares
of GENEREX BIOTECHNOLOGY CORPORATION Common Stock, transferable on the books of
the Corporation in person or by duly authorized attorney upon surrender of this
Certificate properly endorsed. This Certificate is not valid until countersigned
by the Transfer Agent and registered by the Registrar.
Witness the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
- -------------------------------------- -------------------------------------
Secretary President
<PAGE>
[REVERSE SIDE OF CERTIFICATE]
NOTICE: Signature must be guaranteed by a firm which is a member of a
registered national stock exchange, or by a bank (other than a saving
bank), or a trust company. The following abbreviations, when used in
the inscription on the face of this certificate, shall be construed
as though they were written out in full according to applicable laws
or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT -- ........... Custodian ...........
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act..............................
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, _______________________________ hereby sell, assign
and transfer unto
_____________________________________________
(PLEASE INSERT SOCIAL SECURITY OR OTHER IDEN-
TIFYING NUMBER OF ASSIGNEE)
________________________________________________________________________________
(PLEASE PRINT NAME OR TYPEWRITE NAME AND ADDRESS,
INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the capital stock represented by the within certificate, and do hereby
irrevocably constitute and appoint
____________________________________________________________________ Attorney to
transfer the said stock on the books of the within named Corporation with full
power of substitution in the premises.
Dated _____________________
_________________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER
GENEREX BIOTECHNOLOGY CORPORATION
(a corporation organized under the General Corporation Law of
the State of Idaho)
Special Voting Rights Preferred Stock authorized - 1,000 shares,
par value $.001 per share
THIS CERTIFIES THAT __________________________________________________ is the
owner of ____________________________________________________ shares of the
SPECIAL VOTING RIGHTS PREFERRED STOCK of GENEREX BIOTECHNOLOGY
CORPORATION, full paid and non assessable and transferable on the books of said
Corporation in person or by attorney upon surrender of this Certificate,
properly endorsed, subject to the restrictions on transfer set forth below.
Holders of Special Voting Rights Preferred Stock are entitled only to such
rights, privileges and benefits of a shareholder of the Corporation as are set
forth below.
1. Divides. Holders of Special Voting Rights Preferred Stock
(hereinafter referred to as the "Preferred Shares" or "Shares") shall be
entitled to receive a dividend per Share which equals the dividend declared and
paid on shares of the Corporation's Common Stock as and when dividends are
declared and paid on the Corporation's Common Stock.
2. Rights and Liquidation, Dissolution or Winding Up. In the event of
any voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, the assets of the Corporation available for distribution to its
shareholders, whether from capital, surplus or earnings, shall be distributed in
the following order of priority:
a. First, to the holders of any class or series of Preferred Stock or
other capital stock of the Corporation which is entitled to a preference in
liquidation and dissolution over the Shares, but only to the extent of that
preference.
b. Next, to the holders of Shares and any class or series of Preferred
Stock or other capital stock of the Corporation which is of equal rank with the
Shares with respect to sharing in the proceeds of liquidation and dissolution of
the Corporation, pari passu, but only to the extent that such class or series of
capital stock is of equal rank. In any such distribution, holders of Shares
shall be entitled to receive, prior to and in preference to any distribution to
the holders of the Corporation's Common Stock or any other class or series of
capital stock of the Corporation which is inferior to the rights of holders of
Shares in liquidation and dissolution and winding up an amount equal to $.10 per
Preferred Share then outstanding (the "Shares Liquidation Preference").
1
<PAGE>
c. After distribution of the Shares Liquidation Preference to
holders of Shares, the remaining assets, if any, of the Corporation available
for distribution to the shareholders of the Corporation shall be distributed,
pari passu, to the holders of all shares of capital stock of the Corporation,
without distinction as to class, as their rights may appear.
3. Voting.
a. The holders of Preferred Shares are not entitled to vote, except as
specifically required by Delaware law or as expressly provided below:
(i) If a Change of Control (as hereinafter defined) occurs, thereafter,
holders of Preferred Shares shall be entitled to elect a number of directors of
the Corporation equal to a majority of the entire Board of Directors of the
Corporation. Any holder of Preferred Shares may call a meeting of holders of
Preferred Shares for the purpose of exercising these special voting rights (the
"Special Voting Rights") upon not less than ten (10) days notice. Holders of the
Preferred Shares may exercise the Special Voting Rights by written consent in
lieu of a meeting pursuant to Section 228 of the Delaware General Corporation
Law. Upon exercise of the Special Voting Rights by holders of the Preferred
Shares, the Bylaws of the Corporation shall be deemed amended to increase the
size of the Board of Directors to accommodate directors elected by the holders
of the Preferred Shares. After the Special Voting Rights have been exercised,
the Corporation shall give holders of Preferred Shares the same notice that is
required to be sent to holders of the Corporation's Common Stock of any meeting
at which directors of the Corporation are to be elected. Once Special Voting
Rights have been exercised, they shall remain in force at all times thereafter
until the Preferred Shares have been redeemed by the Corporation.
(ii) The affirmative vote of the holders of a majority of the Preferred
Shares then outstanding, voting separately as a class, shall be required to
approve any transaction that would result in a Change of Control (a "Change of
Control Transaction"). The Corporation shall give each holder of Preferred
Shares at least twenty (20) days prior written notice of any meeting of
shareholders called for the purpose of voting on a Change of Control
Transaction. Holders of Preferred Shares may approve any Change of Control
Transaction by written consent in lieu of a meeting pursuant to Section 228 of
the Delaware General Corporation Law.
b. A "Change of Control" of the Corporation, as that term is used
herein, shall occur at any time that (a) the Current Management Group shall
cease to constitute at least sixty (60%) of all directors of the Corporation, or
(b) that any person becomes either the Chairman of the Board of Directors or
Chief Executive Officer of the Corporation without the prior approval of a
majority of the Current Management Group, acting in their capacities as
directors of the Corporation. The term "Current Management Group" as used herein
shall mean Anna H. Gluskin, Rose C. Perri, E. Mark Perri, Pankaj Modi and/or any
other person (a) who is appointed a director of the Corporation by action of the
Board of Directors of the Corporation with the approval of a majority of the
2
<PAGE>
Current Management Group then serving as directors of the Corporation, in their
capacities as directors, or (b) who is nominated for election as a director of
the Corporation by action of the Board of Directors of the Corporation with the
approval of a majority of the Current Management Group then serving as directors
of the Corporation, in their capacities as directors.
c. On any matter as to which the holders of Preferred Shares shall be
entitled to vote as provided above, they shall be entitled to one vote per
share.
4. Redemption.
a. The Corporation shall have the right, at any time after December 31,
2000, upon written notice (a "Preferred Shares Redemption Notice") to all
holders of Preferred Shares at their respective registered addresses stating
that the Corporation is exercising its right of redemption set forth herein and
fixing a date for such redemption (the "Preferred Shares Redemption Date") which
shall be no more than sixty (60) and no less than thirty (30) days following the
date of the Preferred Shares Redemption Notice, redeem Preferred Shares at a
price per Preferred Share (the "Preferred Share Redemption Price") equal to ten
($.10) cents.
b. From and after the Preferred Shares Redemption Date, holders of
Preferred Shares shall cease to be shareholders of the Corporation and the sole
right of holders of Preferred Shares shall be to receive the Preferred Shares
Redemption Price as provided herein.
c. The Corporation shall pay the Preferred Shares Redemption Price to
each holder of record of Preferred Shares as of the Preferred Shares Redemption
Date, provided, however, that as a condition precedent to the Corporation's
payment of the Preferred Shares Redemption Price to any holder, such holder
shall deliver to the Corporation the certificate representing the Preferred
Shares to be redeemed or, in lieu thereof, satisfactory evidence that such
certificate has been lost or destroyed, together with a bond or surety
satisfactory to the Corporation to protect it against loss should such
certificate subsequently be tendered for redemption.
d. If the Corporation at any time redeems fewer than all Preferred
Shares, it shall redeem the Preferred Shares pro-rata from all holders thereof.
e. The Corporation shall have the right to redeem Preferred Shares
owned by any Holder thereof upon the same terms and conditions set forth above
upon the death of the holder.
5. Transferability. The Preferred Shares shall not be transferrable by
a holder thereof without the prior written consent of the Corporation except
pursuant to the laws of descent and distribution.
6. Other. Except as expressly provided herein, Preferred Shares shall
have the same rights and privileges as shares of the Corporation's Common Stock.
3
<PAGE>
IN WITNESS WHEREOF, this Certificate has been signed by the President of the
Corporation and the Corporation has caused its corporate seal to be hereunto
affixed as of this _____ day of ______________, 1998.
GENEREX BIOTECHNOLOGY CORPORATION
By:
---------------------------------------------
Anna E. Gluskin, President
[CORPORATE SEAL]
Attest:
-----------------------------------------
Rose C. Perri, Secretary
4
GENEREX BIOTECHNOLOGY CORPORATION
1998 STOCK OPTION PLAN
1. Purpose. The Plan is intended as an additional incentive to key
employees, consultants, advisors and members of the Board of Directors
(together, the "Optionees") to enter into or remain in the service or employ of
Generex Biotechnology Corporation, an Idaho corporation (the "Company"), or any
Affiliate (as defined below) of the Company, and to devote themselves to the
Company's success by providing them with an opportunity to acquire or increase
their proprietary interest in the Company through receipt of rights (the
"Options") to acquire the Company's Common Stock, par value $.001 per share (the
"Common Stock"). Each Option granted under the Plan to a person who is employed
by the Company or an Affiliate is intended to be an incentive stock option
("ISO") within the meaning of section 422(b) of the Internal Revenue Code of
1986, as amended (the "Code"), for federal income tax purposes, except to the
extent (i) any such ISO grant would exceed the limitation of subsection 6(a)
below, or (ii) any Option is specifically designated at the time of grant (the
"Grant Date") as not being an ISO. No Option granted to a person who is not an
employee of the Company or any Affiliate on the Grant Date, or is not identified
as an ISO in the Option Documents (as hereinafter defined), shall be an ISO.
For purposes of the Plan, the term "Affiliate" shall mean a corporation
which is a parent corporation or a subsidiary corporation with respect to the
Company within the meaning of section 424(e) or (f) of the Code.
2. Administration. The Plan shall be administered by the Board of Directors
of the Company, without participation by any director on any matter pertaining
to him, provided that any director may join in a written consent to action
signed by all directors notwithstanding that such action pertains to such
director, in whole or in part. The Board of Directors may appoint a Stock Option
Committee composed of three or more of its members to operate and administer the
Plan in its stead. The Stock Option Committee or the Board of Directors in its
administrative capacity with respect to the Plan is referred to herein as the
"Committee."
The Committee shall hold meetings at such times and places as it may
determine. Acts approved at a meeting by a majority of the members of the
Committee or acts approved in writing by the unanimous consent of the members of
the Committee shall be the valid acts of the Committee.
The Committee shall from time to time at its discretion grant Options
pursuant to the terms of the Plan. The Committee shall have plenary authority to
determine the Optionees to whom and the times at which Options shall be granted,
the number of Option Shares (as defined in Section 4 below) to be covered by
<PAGE>
such Options and the price and other terms and conditions thereof, including a
specification with respect to whether an Option is intended to be an ISO,
subject, however, to the express provisions of the Plan. In making such
determinations the Committee may take into account the nature of the Optionee's
services and responsibilities, the Optionee's present and potential contribution
to the Company's success and such other factors as it may deem relevant. The
interpretation and construction by the Committee of any provision of the Plan or
of any Option granted under it shall be final, binding and conclusive.
No member of the Board of Directors or the Committee shall be personally
liable for any action or determination made in good faith with respect to the
Plan or any Option granted under it, nor shall any member of the Board of
Directors or Committee be liable for any act or omission of any other member of
the Committee or for any omission on his own part, including but not limited to
the exercise of or the failure to exercise any power or discretion given to him
under the Plan, except that this section shall not absolve any member of
personal responsibility for liabilities which arises out of or result from (i)
an intentional infliction of harm on the Company or its shareholders, (ii)
intentional violation of criminal law, (iii) acts or omissions that would result
in liability under Section 30-1-833 of Idaho Business Corporation Act, and (iv)
the receipt of an improper personal financial benefit, to the extent of the
amount of such benefit.
In addition to such other rights of indemnification as he may have as a
member of the Board of Directors or the Committee, and with respect to the
administration of the Plan and the granting of Options under it, each member of
the Board of Directors and of the Committee shall be entitled without further
action on his part to indemnity from the Company for all expenses (including the
amount of judgment and the amount of approved settlements made with a view to
the curtailment of costs of litigation, other than amounts paid to the Company
itself) reasonably incurred by him in connection with or arising out of any
action, suit or proceeding with respect to the administration of the Plan or the
granting of Options under it in which he may be involved by reason of his being
or having been a member of the Board of Directors or the Committee, whether or
not he continues to be such member of the Committee at the time of the incurring
of such expenses; provided, however, that such indemnity shall not include any
expenses incurred by such member of the Board of Directors or Committee: (i) in
respect of matters as to which he shall be finally adjudged in such action, suit
or proceeding to have been guilty of gross negligence or willful misconduct in
the performance of his duties as a member of the Board of Directors or the
Committee; or (ii) in respect of any settlement amount in excess of an amount
approved by the Company on the advice of its legal counsel; and provided further
that no right of indemnification hereunder shall be available to or accessible
by any such member of the Committee unless within a reasonable time after
institution of any such action, suit or proceeding (which shall be no later than
the earlier of ten (10) days prior to the date that any responsive pleading or
other action in response to the institution of any such proceeding is due, or
ten (10) days after he has actual notice of the institution of such proceeding)
he shall have offered the Company in writing the opportunity to handle and
defend such action, suit or proceeding at its own expense. The foregoing right
of indemnification shall inure to the benefit of the heirs, executors or
administrators of each such member of the Board of Directors or the Committee
and shall be in addition to all other rights to which such member of the Board
of Directors or the Committee would be entitled to as a matter of law, contract
or otherwise.
-2-
<PAGE>
3. Eligibility. All key employees of the Company or its Affiliates (who may
also be directors of the Company or its Affiliates) shall be eligible to receive
Options hereunder, and such Options may be either ISOs or Options which are not
ISOs (hereinafter, "Nonqualified Options"). Consultants, advisors and directors
of the Company shall be eligible to receive Nonqualified Options hereunder. The
Committee, in its sole discretion, shall determine whether an individual
qualifies as an employee or an Optionee. An Optionee may receive more than one
Option.
4. Option Shares. The aggregate maximum number of shares of the Common
Stock for which Options may be granted under the Plan is One Million (1,000,000)
shares (the "Option Shares"), which number is subject to adjustment as provided
in Section 8(b). Option Shares shall be issued from authorized and unissued
Common Stock or Common Stock held in or hereafter acquired for the treasury of
the Company. If any outstanding Option granted under the Plan expires, lapses or
is terminated for any reason, the Option Shares allocable to the unexercised
portion of such Option may again be the subject of an Option granted pursuant to
the Plan.
5. Term of Plan. The Plan is adopted by the Board of Directors effective on
February 1, 1998, but shall terminate (a) on the first anniversary of the
Effective Date unless the Plan is approved by the stockholders of the Company as
set forth in section 422(b)(1) of the Code, and (b) if the Plan is so approved,
on the tenth anniversary of the Effective Date. Notwithstanding anything to the
contrary herein or in any Option Document (as hereinafter defined), all Options
granted hereunder shall be Nonqualified Options if the Plan is not approved by
shareholders of the Company prior to the first anniversary of the Effective
Date.
6. Terms and Conditions of Options. Options granted pursuant to the Plan
shall be evidenced by written documents (the "Option Documents") in such form as
the Committee shall from time to time approve, which Option Documents shall
comply with and be subject to the following terms and conditions and with any
other terms and conditions (including vesting schedules for the exercisability
of Options) which the Committee shall from time to time provide which are not
inconsistent with the terms of the Plan.
a. Number of Option Shares. Each Option Document shall state the number
of Option Shares to which it pertains. In no event shall the aggregate fair
market value, as of the Grant Date, of Option Shares with respect to which an
ISO is exercisable for the first time by the Optionee during any calendar year
(under all incentive stock option plans of the Company or its Affiliates) exceed
$100,000.
b. Option Price. Each Option Document shall state the price at which
Option Shares may be purchased (the "Option Price"), which, for any ISO, shall
be at least 100% of the fair market value of the Common Stock on the date the
option is granted as determined by the Committee; provided, however, that if an
ISO is granted to an Optionee who then owns, directly or by attribution under
section 424(b) of the Code, shares possessing more than ten percent of the total
combined voting power of all classes of stock of the Company or an Affiliate,
then the ISO Option Price shall be at least 110% of the fair market value of the
-3-
<PAGE>
Option Shares on the Grant Date. The Option Price of Nonqualified Options may be
below 100% of the fair market value of the Common Stock on the Grant Date. The
fair market value of the Common Stock shall be as determined by the Committee,
provided that the fair market value of the Common Stock on the Grant Date in
respect of the grant of an ISO shall be determined in accordance with Section
422(b)(4) of the Code and Regulations hereunder.
c. Medium of Payment. An Optionee shall pay for Options Shares (i) in
cash, (ii) by certified check payable to the order of the Company, or (iii) by
such other mode of payment as the Committee may approve, including payment
through a broker in accordance with procedures permitted by Regulation T of the
Federal Reserve Board.
d. Termination of Options. No Option shall be exercisable after the
first to occur of the following:
(i) Expiration of the Option term specified in the Option Documents
pertaining thereto, which shall not exceed ten years from the date of grant (or
five years from the date of grant in the case of an ISO if, on such date the
Optionee owns, directly or by attribution under section 424(b) of the Code,
shares possessing more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or an Affiliate);
(ii) If the Optionee is an employee of the Company or an Affiliate,
expiration of three months (or such shorter period as the Committee may select)
from the date the Optionee's employment with the Company or its Affiliates
terminates for any reason other than (A) disability (within the meaning of
section 22(e)(3) of the Code) or death, or (B) circumstances described by
subsection (d)(v), below; or expiration of one year from the date the Optionee's
employment with the Company or its Affiliates terminates by reason of the
Optionee's disability (within the meaning of section 22(e)(3) of the Code) or
death;
(iii) The date, if any, fixed by the Committee as an accelerated
expiration date in the event of a "Change in Control" described in sub-Section
6(e)(i) and (ii) below, provided an Optionee who holds an Option affected by
such acceleration of expiration date is given written notice at least sixty (60)
days before the date so fixed;
(iv) The date set by the Committee to be an accelerated expiration
date after a finding by the Committee that a change in the financial accounting
treatment for Options from that in effect on the date the Plan was adopted
adversely affects or, in the determination of the Committee, may adversely
affect in the foreseeable future, the Company, provided that (A) an Optionee who
holds an Option affected by such acceleration of expiration date is given
written notice at least sixty (60) days before the date so fixed, and (B) the
Committee may take whatever other action, including acceleration of any exercise
provisions, it deems necessary or appropriate should it make the determination
referred to hereinabove; or
-4-
<PAGE>
(v) A finding by the Committee, after full consideration of the facts
presented on behalf of both the Company and the Optionee, that the Optionee has
been discharged from employment or service with the Company or an Affiliate for
Cause. For purposes of this Section, "Cause" shall mean: (A) a breach by
Optionee of his employment or service agreement with the Company or an
Affiliate, (B) a breach of Optionee's duty of loyalty to the Company or an
Affiliate, including without limitation any act of dishonesty, embezzlement or
fraud with respect to the Company or an Affiliate, (C) the commission by
Optionee of a felony, a crime involving moral turpitude or other act causing
material harm to the Company's or an Affiliate's standing and reputation,
(D) Optionee's continued failure to perform his duties to the Company or an
Affiliate or (E) unauthorized disclosure of trade secrets or other confidential
information belonging to the Company or an Affiliate. In the event of a finding
that the Optionee has been discharged for Cause, in addition to immediate
termination of the Option, the Optionee shall automatically forfeit all Option
Shares for which the Company has not yet delivered the share certificates upon
refund of the Option Price; provided, however, that, with respect to any
Non-Qualified Option, the Committee may provide other and additional terms and
conditions in the Option Document which are expressly or by implication at
variance with the above terms and conditions, in which case the terms and
conditions set forth in the Option Documents shall be controlling.
e. Change of Control. In the event of a Change in Control (as defined
below), the Committee may take whatever action with respect to the Options
outstanding it deems necessary or desirable, including, without limitation,
accelerating the vesting, expiration or termination dates in the respective
Option Documents to a date no earlier than thirty (30) days after notice of such
acceleration is given to the Optionee; provided, however, that (x) the Committee
shall not accelerate the expiration or termination date of any outstanding
option except in the case of a Change in Control as described in sub-Sections
(i) or (ii) below, and (y) the Committee may provide in the Option Documents
other and additional terms and conditions of such Option which are applicable if
a Change of Control occurs, including terms and conditions which limit the
Committee's discretion under this section. A Change of Control shall be deemed
to have occurred upon the earliest to occur of the following events:
(i) the date the stockholders of the Company (or the Board of
Directors, if stockholder action is not required) approve a plan or other
arrangement pursuant to which the Company will be dissolved or liquidated;
(ii) the date the stockholders of the Company (or the Board of
Directors, if stockholder action is not required) approve a definitive agreement
to sell or otherwise dispose of substantially all of the assets of the Company;
(iii) the date the stockholders of the Company (or the Board of
Directors, if stockholder action is not required) and the stockholders of the
other constituent corporation (or its board of directors if stockholder action
is not required) have approved a definitive agreement to merge or consolidate
the Company with or into such other corporation, other than, in either case, a
merger or consolidation of the Company in which holders of shares of the Common
-5-
<PAGE>
Stock immediately prior to the merger or consolidation will hold at least a
majority of the ownership of common stock of the surviving corporation (and, if
one class of common stock is not the only class of voting securities entitled to
vote on the election of directors of the surviving corporation, a majority of
the voting power of the surviving corporation's voting securities) immediately
after the merger or consolidation, which common stock (and, if applicable,
voting securities) is to be held in the same proportion as such holders'
ownership of Common Stock immediately before the merger or consolidation;
(iv) the date any entity, person or group, (within the meaning of
Section 13(d)(3) or Section 14(d)(2) of the Securities Exchange Act of 1934, as
amended), other than (A) the Company or any of its subsidiaries or any employee
benefit plan (or related trust) sponsored or maintained by the Company or any of
its subsidiaries or (B) any person who, on the date the Plan is effective, shall
have been the beneficial owner of at least twenty percent (20%) of the
outstanding Common Stock, shall have become the beneficial owner of, or shall
have obtained voting control over, more than fifty percent (50%) of the
outstanding shares of the Common Stock; or
(v) the first day after the first anniversary of the adoption of this
Plan by the Board of Directors a majority of the directors comprising the Board
of Directors shall have been members of the Board of Directors for less than
twenty-four (24) months, unless each director who was not a director at the
beginning of such twenty-four (24) month period was either appointed or
nominated for election with the approval of at least two-thirds of the directors
then still in office who were directors at the beginning of such period.
f. Transfers. No Option granted under the Plan may be transferred,
except by will or by the laws of descent and distribution and, in the case of a
Non-Qualified Option, as expressly set forth in the Option Documents. During the
lifetime of the person to whom an Option is granted, such Option may be
exercised only by the Optionee.
g. Other Provisions. The Option Documents shall contain such other
provisions including, without limitation, additional restrictions upon the
exercise of the Option or additional limitations upon the term of the Option, as
the Committee shall deem advisable.
h. Amendment. Subject to the provisions of the Plan, the Committee shall
have the right to amend Option Documents issued to such Optionee, subject to the
Optionee's consent if such amendment is not favorable to the Optionee except
that the consent of the Optionee shall not be required for any amendment made
under subsection 6(e) above.
7. Exercise. No Option shall be deemed to have been exercised prior to the
receipt by the Company of written notice of such exercise and of payment in full
of the Option Price for the Option Shares to be purchased. Each such notice
shall specify the number of Option Shares to be purchased and shall satisfy the
securities law requirements set forth in this Section 7.
-6-
<PAGE>
Each exercise notice shall (unless the Option Shares are covered by a then
current registration statement or a Notification under Regulation A under the
Securities Act of 1933 (the "Act")), contain the Optionee's acknowledgment in
form and substance satisfactory to the Company that (i) such Option Shares are
being purchased for investment and not for distribution or resale (other than a
distribution or resale which, in the opinion of counsel satisfactory to the
Company, may be made without violating the registration provisions of the Act),
(ii) the Optionee has been advised and understands that (A) the Option Shares
have not been registered under the Act and are "restricted securities" within
the meaning of Rule 144 under the Act and are subject to restrictions on
transfer and (B) the Company is under no obligation to register the Option
Shares under the Act or to take any action which would make available to the
Optionee any exemption from such registration, (iii) such Option Shares may not
be transferred without compliance with all applicable federal and state
securities laws, and (iv) an appropriate legend referring to the foregoing
restrictions on transfer and any other restrictions imposed under the Option
Documents may be endorsed on the certificates. Notwithstanding the above, should
the Company be advised by counsel that the issuance of Option Shares upon the
exercise of an Option should be delayed pending (A) registration under federal
or state securities laws or (B) the receipt of an opinion that an appropriate
exemption therefrom is available, (C) the listing or inclusion of the shares on
any securities exchange or in an automated quotation system or (D) the consent
or approval of any governmental regulatory body whose consent or approval is
necessary in connection with the issuance of such Option Shares, the Company may
defer the exercise of any Option granted hereunder until either such event in A,
B, C or D has occurred.
8. Adjustments on Changes in Common Stock.
a. In case the Company shall (i) declare a dividend or make a
distribution on outstanding shares of its Common Stock in shares of Common
Stock, (ii) subdivide or reclassify the outstanding shares of its Common Stock
into a greater number of shares, or (iii) combine or reclassify the outstanding
shares of its Common Stock into a lesser number of shares, the number of Option
Shares subject to outstanding Options shall be increased or decreased in
proportion to the increase or decrease, as the case may be, in the total number
of outstanding shares of Common Stock of the Company as a result of such
subdivision, combination or reclassification. Such adjustment shall be effective
as of the record date of such subdivision, combination or reclassification.
Adjustments hereunder shall be made successively whenever any event specified
above shall occur.
b. The aggregate number of shares of Common Stock as to which Options
may be granted hereunder shall be adjusted in proportion to any adjustment made
in the number of Option Shares covered by outstanding Options pursuant to
Section 8(a) above.
c. In case of any reclassification, recapitalization or other change in
the capital structure of the Company affecting its Common Stock, other than a
change in par value, or from par value to no par value, or as a result of a
subdivision or combination, but including any change in the Common Stock into
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<PAGE>
two or more classes or series of shares), the Optionee shall have the right
thereafter to receive upon exercise of this Option solely the kind and amount of
shares of stock and other securities, property, cash or any combination thereof
receivable in connection with such reclassification, recapitalization or other
change by a holder of a number of shares of Common Stock equal to the number of
Option Shares for which this Option might have been exercised immediately prior
to such event.
d. In case of a Change of Control of the Company involving a
consolidation with or merger of the Company into another corporation (other than
a merger of consolidation in which the Company is the continuing or surviving
corporation), the Optionee shall have the right thereafter to receive upon
exercise of the Option solely the kind and amount of shares of stock and other
securities, property, cash or any combination thereof receivable upon such
consolidation, merger, sale, lease or conveyance by a holder of a number of
shares of Common Stock equal to the number of Option Shares for which this
Option might have been exercised immediately prior to such consolidation or
merger.
9. Amendment of the Plan. The Board of Directors may amend the Plan from
time to time in such manner as it may deem advisable, subject to compliance with
applicable corporate laws, securities laws and exchange requirements.
Notwithstanding the foregoing, any amendment which would change the class of
individuals eligible to receive an ISO, extend the expiration date of the Plan,
decrease the Option Price of an ISO granted under the Plan or increase the
maximum number of shares as to which Options may be granted will only be
effective if such action is approved by a majority of the outstanding voting
stock of the Company within twelve months before or after such action.
10. Continued Employment. The grant of an Option pursuant to the Plan shall
not be construed to imply or to constitute evidence of any agreement, express or
implied, on the part of the Company or any Affiliate to retain the Optionee in
the employ of the Company or an Affiliate, as a member of the Board of
Directors, as an independent contractor or in any other capacity.
11. Withholding of Taxes. Whenever the Company proposes or is required to
issue or transfer Option Shares, the Company shall have the right to (a) require
the recipient or transferee to remit to the Company an amount sufficient to
satisfy any federal, state and/or local withholding tax requirements prior to
the delivery or transfer of any certificate or certificates for such Option
Shares or (b) take whatever action it deems necessary to protect its interests.
12. Assumption by Successors. Any agreement providing for a Change of
Control involving a consolidation with or merger into another corporation (other
than a merger or consolidation in which the Company is the continuing or
surviving corporation) shall make express, effective provisions for the
assumption of the Company's obligations under this Plan by the surviving or
continuing corporation, and/or by the parent of the surviving or continuing
corporation in the case of a "triangular" merger in which holders of the
Company's Common Stock receive securities of such parent corporation in exchange
for or in conversion of the Company's Common Stock.
-8-
THE WARRANT REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES ISSUABLE
UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE
SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS SO REGISTERED OR UNLESS
IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY, AN
EXEMPTION FROM REGISTRATION UNDER ALL SUCH LAWS IS AVAILABLE.
GENEREX BIOTECHNOLOGY CORPORATION
Series A Redeemable Common Stock Purchase Warrant
No. SA-____ __________ Shares
THIS CERTIFIES THAT, for value received, _________________________________
_________________________________________ ("Holder"), is entitled to subscribe
for and purchase from GENEREX BIOTECHNOLOGY CORPORATION, an Idaho corporation
(the "Company"), at any time from the date hereof through and including the last
day of the Exercise Period described below, ____________________________________
(____________) fully paid and nonassessable shares (the "Shares") of the
Company's Common Stock, $.001 par value per share (the "Common Stock"), at a
price of Five and zero/100 ($5.00) Dollars per Share (the "Exercise Price"),
subject to the limitations, terms and conditions set forth herein. This Warrant
is one of a series of warrants of like tenor representing, in the aggregate, the
right to purchase up to four hundred thousand shares of Common Stock (the
"Series A Warrants") issued by the Company. Transfer, assignment or
hypothecation of this Warrant by the Holder may be made only in accordance with
and subject to the terms, conditions and other provisions of this Warrant. The
term "Holder", as used herein, shall include the original Holder and only such
persons to whom this Warrant is transferred in strict conformity with the terms
and conditions set forth or incorporated by reference herein. As used herein,
the term "Warrant" shall mean and include this Warrant and any Warrant or
Warrants hereafter issued in consequence of the exercise or transfer of this
Warrant, in whole or in part.
1. This Warrant shall expire on December 31, 2000, unless the term of the
Warrant is extended pursuant to Section 13(f) below, in which case the Warrant
shall expire on a date to be determined in accordance with Section 13(f).
2. The period during which this Warrant may be exercised (the "Exercise
Period") shall end on (a) the earlier of (i) the expiration date described in
Section 2 hereof and (ii) the date determined pursuant to Section 13(f) hereof,
or (b) the Redemption Date as described in Section 16 hereof, as to all or less
than all Shares by the surrender of this Warrant (with the form of Election at
the end hereof duly completed and executed) to the Company, marked to the
attention of its President, 33 Harbor Square, Suite 202, Toronto, Ontario,
Canada M5J 2G2, or such other place as is designated in writing and delivered to
Holder by the Company, accompanied by a certified or bank cashier's check
payable to the order of the Company in an amount equal to the Exercise Price
multiplied by the number of Shares covered by such exercise (the "Shares
Purchase Price").
<PAGE>
3. Exercise of this Warrant shall be deemed to have been effected as of the
close of the business day on which the Company has received the last of this
Warrant, a duly executed form of election, the Shares Purchase Price and such
further documentation as may be required pursuant to Section 9(c) below. Upon
each exercise of this Warrant, the Holder shall be deemed to be the holder of
record of the Shares issuable upon such exercise, notwithstanding that the stock
transfer books of the Company shall then be closed. As soon as practicable after
each such exercise of this Warrant, the Company shall issue and deliver to the
Holder a certificate or certificates for the Shares issuable upon such exercise,
registered in the name of the Holder or its designee. If this Warrant should be
exercised in part only, the Company shall, upon surrender of this Warrant for
cancellation, execute and deliver a new Warrant evidencing the right of the
Holder to purchase the balance of the Shares subject to purchase hereunder.
4. The Company shall maintain a register (the "Warrant Register") on which
the names and addresses of the persons to whom this Warrant is issued and shall
be entitled to treat the registered holder of any Warrant on the Warrant
Register as the owner in fact thereof for all purposes and shall not be bound to
recognize any equitable or other claim to or interest in such Warrant on the
part of any other person, and shall not be liable for any registration or
transfer of Warrants which are registered or to be registered in the name of a
fiduciary or the nominee of a fiduciary unless made with the actual knowledge
that a fiduciary or nominee is committing a breach of trust in requesting such
registration or transfer, or with the knowledge of such facts that its
participation therein amounts to bad faith. Subject to compliance with
applicable securities laws and any other restrictions set forth herein, this
Warrant shall be transferable on the books of the Company only upon delivery
thereof with the form of Assignment at the end hereof duly completed by the
Holder or by his duly authorized attorney or representative, or accompanied by
proper evidence of succession, assignment or authority to transfer. In all cases
of transfer by an attorney, the original power of attorney, duly approved, or an
official copy thereof, duly certified, shall be deposited with the Company. In
case of transfer by executors, administrators, guardians or other legal
representatives, duly authenticated evidence of their authority shall be
produced, and may be required to be deposited with the Company in its
discretion. Upon any registration of transfer, the Company shall deliver a new
Warrant or Warrants exchanged, at the option of the Holder thereof, for another
Warrant, or other Warrants of different denominations, of like tenor and
representing in the aggregate the right to purchase a like number of shares of
Common Stock upon surrender to the Company or its duly authorized agent.
Notwithstanding the foregoing, the Company shall have no obligation to cause
Warrants to be transferred on its books to any person, unless the Holder of such
Warrants shall furnish to the Company evidence of compliance with all applicable
securities laws in accordance with the provisions of Section 9 hereof.
5. The Company shall at all times reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of providing for
the exercise of this Warrant, such number of Shares as shall, from time to time,
be sufficient therefor.
6. The Exercise Price shall be subject to adjustment from time to time as
follows:
(a) In case the Company shall (i) declare a dividend or make a
distribution on outstanding shares of its Common Stock in shares of Common
Stock, (ii) subdivide or reclassify the outstanding shares of Common Stock into
a greater number of shares, or (iii) combine or reclassify the outstanding
shares of Common Stock into a lesser number of shares, the Exercise Price in
effect at the time of the record date for such dividend or distribution on the
effective date of such subdivision, combination or reclassification shall be
adjusted so that it shall equal the price determined by multiplying the Exercise
Price then in effect by a fraction, the denominator of which shall be the number
of shares of Common Stock outstanding immediately after giving effect to such
action, and of which the numerator shall be the number of shares of Common Stock
outstanding immediately prior to such action. Such adjustment shall be made
successively whenever any event specified above shall occur.
-2-
<PAGE>
(b) Whenever the Exercise Price payable upon exercise of this Warrant is
adjusted pursuant to subparagraph (a) above, the number of Shares purchasable
upon exercise of this Warrant shall simultaneously be adjusted by multiplying
the number of Shares initially issuable upon exercise of this Warrant by the
initial Exercise Price in effect on the date hereof and dividing the product so
obtained by the Exercise Price, as adjusted.
(c) All calculations under this Section 6 shall be made to the nearest
one-hundredth of a cent and to the nearest whole Share.
7. (a) In case of any consolidation with or merger of the Company with or
into another corporation (other than a merger of consolidation in which the
Company is the continuing or surviving corporation), or in case of any sale,
lease or conveyance to another corporation of the property of the Company as an
entirety or substantially as an entirety, appropriate provisions shall be made
so that the Holder shall have the right thereafter to receive upon exercise of
this Warrant solely the kind and amount of shares of stock and other securities,
property, cash or any combination thereof receivable upon such consolidation,
merger, sale, lease or conveyance by a holder of the number of Shares of Common
Stock for which this Warrant might have been exercised immediately prior to such
consolidation, merger, sale, lease or conveyance and, in any such case,
effective provision shall be made in its Articles of Incorporation or otherwise,
if necessary, in order to effect such agreement. Such agreement shall provide
for adjustments which shall be as nearly equivalent as practicable to the
adjustments in Section 6.
(b) In case of any reclassification or change in the Shares of Common
Stock issuable upon exercise of this Warrant (other than a change in par value,
or from par value to no par value, or as a result of a subdivision or
combination, but including any change in the Shares into two or more classes or
series of shares) or in case of any consolidation or merger of another
corporation into the Company in which the Company is the continuing corporation
and in which there is a reclassification or change (including a change to the
right to receive cash or other property) in the Shares of Common Stock (other
than a change in par value, or from par value to no par value, or as a result of
a subdivision or combination, but including any change in the Shares into two or
more classes or series of Shares), the Holder shall have the right thereafter to
receive upon exercise of this Warrant solely the kind and amount of shares of
stock and other securities, property, cash or any combination thereof receivable
by the holder of the number of Shares for which this Warrant might have been
exercised immediately prior to such reclassification, change, consolidation or
merger. Thereafter, appropriate provision (as reasonably determined by the Board
of Directors) shall be made for adjustment which shall be as nearly equivalent
as practicable to the adjustments in Section 6.
(c) The above provisions of this Section 7 shall similarly apply to
successive reclassification and changes in Shares of Common Stock and to
successive consolidations, mergers, sales or conveyances.
8. The issue of any stock or other certificate upon the exercise of this
Warrant shall be made without charge to the Holder for any tax in respect of the
issue of such certificate. The Company shall not, however, be required to pay
any tax which may be payable in respect of any transfer involved in the issue
and delivery of any certificate in a name other than that of the Holder and the
Company shall not be required to issue or deliver any such certificates unless
and until the person or persons requesting the issue thereof shall have paid to
the Company the amount of such tax or shall have established to the satisfaction
of the Company that such tax has been paid.
-3-
<PAGE>
9. (a) Unless registered under the Securities Act of 1933, as amended (the
"Securities Act"), the Warrants, Shares or other securities issued upon exercise
of the Warrants shall not be transferrable unless, in the opinion of counsel
reasonably satisfactory to the Company, an exemption from registration under
applicable securities laws is available. The Warrants, Shares and other
securities which may be issued upon the exercise of this Warrant shall be
subject to a stop-transfer order and the certificate or certificates evidencing
any such Shares or securities shall bear the following legend and any other
legend which counsel for the Company may deem necessary or advisable:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, PLEDGED, OR HYPOTHECATED UNLESS SO REGISTERED OR UNLESS IN
THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY, AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
(b) Additional restrictions and limitations may apply to the resale of
Warrants and Shares outside the United States or to resales by Holders who are
Canadian residents or citizens or otherwise are not "U.S. Persons", as that term
is defined in Regulation S under the Securities Act. Such further limitations
and restrictions shall be evidenced by legends placed on the certificates
evidencing such securities.
(c) Notwithstanding any other term of this Warrant, the Company may
require, as a condition of issuing Shares or other securities upon the exercise
of this Warrant or permitting the transfer of this Warrant or Shares or other
securities issued upon exercise of this Warrant, that the Holder and/or
transferee execute such agreements or give such assurances and information as
may be required, in the opinion of counsel for the Company, to satisfy
applicable securities laws' requirements.
10. Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction or mutilation of any Warrant and upon surrender and
cancellation of any Warrant if mutilated, and upon reimbursement of the
Company's reasonable incidental expenses, the Company shall execute and deliver
to the Holder thereof a new Warrant of like date, tenor and denomination.
11. The Holder of any Warrant shall not have, solely on account of such
status, any rights of a shareholder of the Company, either at law or in equity,
or to any notice of meetings of shareholders or of any other proceedings of the
Company.
12. This Warrant shall be governed by and construed in accordance with the
laws of the State of Idaho.
13. (a) The Company shall use its best efforts to prepare, file and process
to effectiveness a Registration Statement ("Registration Statement") under the
Securities Act with respect to the Shares, provided that the Company shall have
no obligation to file a Registration Statement prior to June 30, 1999, or if the
Warrants have previously been exercised or redeemed. The Company shall give
prompt written notice of such filing and of the effectiveness of such
Registration Statement to Holder, and shall use its best efforts to keep such
Registration Statement in effect for a period of at least ninety (90) days from
its effective date.
(b) In addition to its obligations pursuant to Section 13(a) above, if,
prior to the effectiveness of a Registration Statement, or following the
effectiveness of a Registration Statement if the Company fails to maintain the
effectiveness of such Registration Statement for at least ninety (90) days, the
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<PAGE>
Company proposes to file a Registration Statement under the Securities Act
(other than in connection with an exchange offer, a "rights" offering to
shareholders, a Registration Statement on Form S-8 or Form S-4 or any successor
forms relating to employee benefit plans, an acquisition of another entity or in
connection with a dividend reinvestment plan, an employee benefit plan, the
conversion of any convertible securities, or a stand-by underwriting with
respect to the call of a warrant, option, right or convertible security for
redemption) with respect to shares of Common Stock (a "Piggy Back Registration
Statement"), the Company shall give written notice of such proposed filing to
Holder at least thirty (30) calendar days before the anticipated filing date of
such Registration Statement or, in the event that the Company has not formulated
its intent to file such Registration Statement at least thirty (30) calendar
days before the anticipated filing date of such Registration Statement, as soon
as practicable upon the formation by the Company of such intent. The notice
shall specify the information required to be provided to the Company by Holder
pursuant to paragraph 13(d) below and shall offer to Holder the opportunity to
include in the Piggy Back Registration Statement such number of Shares then
issuable upon exercise of this Warrant as Holder may request. The Company shall
not be required to honor any such request to register in the aggregate fewer
than 10,000 Shares. The Company shall permit, or, in the case of an offering
made through an underwriter or group of underwriters on a "firm commitment"
basis (an "Underwritten Offering"), shall use its best efforts to cause the
managing underwriter of the proposed offering to permit, such Shares to be
included in the proposed offering on the same terms and conditions as applicable
to the shares of Common Stock offered by the Company and for the account of any
person other than the Company, as the case may be.
(c) Notwithstanding the foregoing, if the managing underwriter of an
underwritten offering shall advise the Company in writing that, in its opinion,
the distribution of all or a portion of the Shares requested by Holder to be
included in the Piggy Back Registration Statement concurrently with the shares
of Common Stock being registered would materially adversely affect the
distribution of such securities by the Company for its own account or by persons
who had asserted demand registration rights under any other agreement with
respect to such registration for such persons' account, then such requested
Shares shall not be included in the Registration. If the managing underwriter
elects to include less than all Shares, then the number of Shares included for
Holder's account shall be pro rata with (i) other securities properly requested
to be included in the Piggy Back Registration Statement by other persons
pursuant to piggy back or incidental registration rights under Series A Warrants
or any other agreement or (ii) shares included in the Piggy Back Registration
Statement for the account of any corporate officer or director of the Company
and any of their respective family members, whichever results in the
registration of the greater number of Shares for Holder's account. The Company
shall not be required to maintain in effect the Piggy Back Registration
Statement as it relates to Shares beyond the period necessary to comply with the
Securities Act (otherwise than pursuant to Rule 415 or any similar regulation
permitting "shelf registration") with respect to the distribution of securities
for its own account.
(d) In connection with any registration of Shares pursuant to
paragraphs 13 (a), (b) or (c) above, and as a condition to the Company's
obligation to register the Shares, Holder shall promptly furnish to the Company
such information regarding Holder, the proposed distribution of the Shares by
Holder and such other matters as the Company may reasonably request in writing.
(e) All expenses incident to the Company's performance of or compliance
with the provisions set forth herein (other than underwriting discounts and
commissions relating to the sale of the Shares, and the fees and disbursements
of Holder's counsel, if any) will be borne by the Company. In addition, the
Company shall, without charge to Holder, provide Holder with reasonable
quantities of preliminary prospectuses, final prospectuses and other material
required to effect sales of the Shares to the public, and will take appropriate
action to enable the Shares to be sold in the State of New York and such other
states as the Company may elect.
-5-
<PAGE>
(f) Notwithstanding any other term of this Warrant, unless the Company
shall have prepared, filed and processed to effectiveness a Registration
Statement pursuant to Sections !3(a) or 13 (b) on or before September 31, 1999,
and such Registration Statement has remained effective for a period of at least
ninety (90) days prior to the original Expiration Date, the Expiration Date
shall be extended until the earliest date upon which that condition is
satisfied.
14. Without limiting any indemnification rights of the Company or Holder
arising under any other agreement or law, in any registration of Shares pursuant
hereto:
(a) the Company will indemnify and hold harmless Holder against any
losses, claims, damages or liabilities (which shall include, but not be limited
to, all costs of defense and investigation and all attorneys' fees) to which
Holder may become subject under the Act, the Exchange Act or otherwise insofar
as such losses, claims, damages or liability (or actions in respect thereof)
arise out of or are based upon any untrue statement of any material fact
contained, during the effective period thereof, in any Registration Statement,
any preliminary or final prospectus furnished by the Company, or any amendment
or supplement thereto, or arise out of or are based upon the omission to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that the Company shall have no obligation to
Holder in respect of any such loss, claim, damage or liability arising out of or
based upon an untrue statement or liability arising out of or based upon an
untrue statement or omission made in a Registration Statement, preliminary
prospectus, prospectus, or amendment or supplement thereto, in reliance upon and
in conformity with written information furnished by Holder specifically for use
in the preparation thereof.
(b) Holder will indemnify and hold harmless the Company and each
person, if any, who controls the Company within the meaning of Section 20 of the
Exchange Act against any losses, claims, damages or liabilities (which shall
include, but not be limited to, all costs of defense and investigation and all
attorneys' fees) to which the indemnified party may become subject under the
Act, the Exchange Act or otherwise, insofar as such losses, claims, damages or
liability (or actions in respect thereof) arise out of or are based upon (i) an
untrue statement or omission made in a Registration Statement, preliminary
prospectus, prospectus, preliminary offering circular or offering circular, or
any amendment or supplement, in reliance upon and in conformity with written
information furnished by Holder for use by the Company in the preparation
thereof, or (ii) actions or omissions by Holder or persons acting on his behalf
in the sale of the Shares which are unrelated to the content of the Registration
Statement but which violate the Act, the Exchange Act or regulations thereunder.
15. (a) Notwithstanding any other term hereof, the Holder shall have the
right at any time after December 31, 1999, to convert this Warrant into that
number of Shares (hereinafter referred to as the "Conversion Shares") which
shall equal the product obtained by multiplying all Shares then issuable upon
exercise of the Warrant pursuant to paragraph 2 above by a fraction, the
denominator of which is the Market Price of the Company's Common Stock, as
defined below, and the numerator of which is the difference between the Market
Price and the Exercise price. Where the number of Conversion Shares equals "CS",
the number of Shares equals "S", the Exercise Price equals "EP" and the Market
Price equals "MP", the following formula shall determine the number of
Conversion Shares at any time issuable upon conversion of this Warrant to Common
Stock pursuant to this paragraph 15(a):
CS = S (MP - EP)
-----------
MP
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<PAGE>
(b) For purposes of paragraph 15(a) above, the term "Market Price" of
the Company's Common Stock shall mean: (i) if the Common Stock is listed on a
national securities exchange, the average closing prices for the Common Stock
reported on such exchange for the five (5) trading days immediately preceding
the date of exercise of the rights of conversion set forth in paragraph 15(a)
(the "Conversion Rights"); or (ii) if the Common Stock is not listed on a
national securities exchange but is quoted on the Nasdaq Stock Market (Small Cap
or National Market System), the average closing prices for the Common Stock on
the Nasdaq Stock Market for the five (5) trading days immediately preceding the
date of exercise of Conversion Rights; or (iii) if neither (i) nor (ii) above
applies, and "bid" and "asked" prices for the Common Stock are quoted on the
National Association of Securities Dealers, Inc. ("NASD") OTC Bulletin Board and
the average weekly trading volume for the Common Stock as reported on the NASD
Bulletin Board has averaged at least one (1%) percent of the total number of
shares of Common Stock outstanding during the four calendar weeks immediately
preceding the exercise of Conversion Rights, the average of the mean between the
closing "bid" and "asked" prices reported on the OTC Bulletin Board for the five
(5) trading days immediately preceding the date of exercise of Conversion
Rights; or (iv), if none of subsections (i), (ii) or (iii) apply, as determined
by the Board of Directors of the Company.
(c) The Conversion Rights shall be exercised in the same manner as
provided in paragraph 2 above, except that payment of the Shares Purchase Price
shall not be tendered.
16. (a) The Company shall have the right, at any time and from time to time
on or after September 1, 1998, upon written notice (a "Redemption Notice") to
the Holder at Holder's registered address stating that the Company is exercising
its right of redemption set forth herein and fixing a date for such redemption
(the "Redemption Date") which shall be no more than sixty (60) and no less than
twenty (20) days following the date of the Redemption Notice, to redeem this
Warrant at a price equal to $.025 per Share then issuable upon exercise of the
Warrant (the "Redemption Price").
(b) From and after the Redemption Date, the Holder shall cease to have
any rights as the Holder of this Warrant other than the right to receive the
Redemption Price as provided herein.
(c) The Company shall pay the Redemption Price to the Holder on the
Redemption Date, provided, however, that as a condition precedent to the
Company's payment of the Redemption Price Holder shall deliver to the Company
the certificate representing this Warrant or, in lieu thereof, satisfactory
evidence that such certificate has been lost or destroyed, together with a bond
or surety satisfactory to the Company to protect it against loss should such
certificate subsequently be tendered for redemption.
17. The Company warrants the due authorization, execution and delivery of
this Warrant this _______ day of __________________, 1998.
GENEREX BIOTECHNOLOGY CORPORATION
[SEAL]
By:
-------------------------------------
Anna E. Gluskin, President
-7-
<PAGE>
ELECTION TO PURCHASE
--------------------
The undersigned Holder hereby irrevocably elects (check one): [ ] to exercise
the within Warrant to purchase _____________________________ Shares* of Common
Stock issuable upon the exercise thereof; [ ] to convert the within Warrant to
shares of Common Stock pursuant to paragraph 15 thereof. The undersigned
requests that certificates for such Shares, or, in the case of conversion, the
number of Conversion Shares issuable pursuant to paragraph 15 thereof, be issued
in his/her/its name and delivered to him/her/it at the following address:
________________________________________________________________________________
Date:__________________
________________________________________________________________________________
Signature(s)(**)
________________________________________________________________________________
ASSIGNMENT
----------
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers the
within Warrant to the extent of _____________ Shares(*) purchasable upon
exercise thereof to ______________ whose address is ___________________________
_____________________________________ and hereby irrevocably constitutes and
appoints _______________________________ his/her/its Attorney to transfer said
Warrant on the book of the Company, with full power of substitution.
Date:___________________
________________________________________________________________________________
Signature(s)(**)
________________________________________________________________________________
* If the Warrant is to be exercised or transferred in its entirety, insert the
word "All" before "Shares"; otherwise insert the number of shares then
purchasable on the exercise thereof as to which transferred or exercised. If
such Warrants shall not be transferred or exercised to purchase all shares
purchasable upon exercise thereof, that a new Warrant to purchase the balance of
such shares be issued in the name of, and delivered to, the Holder at the
address stated below.
** Signature(s) must conform exactly to the names(s) of the Holder as set forth
on the first page of this Warrant.
-8-
THE WARRANT REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES ISSUABLE
UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE
SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS SO REGISTERED OR UNLESS
IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY, AN
EXEMPTION FROM REGISTRATION UNDER ALL SUCH LAWS IS AVAILABLE.
GENEREX BIOTECHNOLOGY CORPORATION
Warrant for the Purchase of Shares of Common Stock
--------------------------------------------------
No. GCR-____ __________ Shares
THIS CERTIFIES THAT, for value received, _________________________________
("Holder"), a ___________________________________________, is entitled to
subscribe for and purchase from GENEREX BIOTECHNOLOGY CORPORATION, a Delaware
corporation (the "Company"), at any time from the date hereof through and
including the Expiration Date set forth below (the "Exercise Period"), ________
_______________________________________ (____________) fully paid and
nonassessable shares (the "Shares") of the Company's Common Stock, $.001 par
value per share (the "Common Stock"), at a price of TWO DOLLARS AND FIFTY CENTS
($2.50) per Share (the "Exercise Price"), subject to the limitations, terms and
conditions set forth herein. This Warrant is one of a series of warrants of like
tenor representing, in the aggregate, the right to purchase seven hundred and
seventy five thousand shares of Common Stock (the "Series GC Warrants") issued
by the Company in connection with its organization and initial capitalization.
Transfer, assignment or hypothecation of this Warrant by the Holder may be made
only in accordance with and subject to the terms, conditions and other
provisions of this Warrant. The term "Holder", as used herein, shall include the
original Holder and only such persons to whom this Warrant is transferred in
strict conformity with the terms and conditions set forth or incorporated by
reference herein. As used herein, the term "Warrant" shall mean and include this
Warrant and any Warrant or Warrants hereafter issued in consequence of the
exercise or transfer of this Warrant, in whole or in part.
1. This Warrant shall expire on March 31, 2003.
2. This Warrant may be exercised during the Exercise Period as to the whole
or any lesser number of whole Shares by the surrender of this Warrant (with the
form of Election at the end hereof duly completed and executed) to the Company,
marked to the attention of its President, 33 Harbor Square, Suite 202, Toronto,
Ontario, Canada M5J 2G2, or such other place as is designated in writing and
delivered to Holder by the Company, accompanied by a certified or bank cashier's
check payable to the order of the Company in an amount equal to the Exercise
Price multiplied by the number of Shares covered by such exercise (the "Shares
Purchase Price").
<PAGE>
3. Exercise of this Warrant shall be deemed to have been effected as of the
close of the business day on which the Company has received the last of this
Warrant, a duly executed form of election, the Shares Purchase Price and such
further documentation as may be required pursuant to Section 9(c) below. Upon
each exercise of this Warrant, the Holder shall be deemed to be the holder of
record of the Shares issuable upon such exercise, notwithstanding that the stock
transfer books of the Company shall then be closed. As soon as practicable after
each such exercise of this Warrant, the Company shall issue and deliver to the
Holder a certificate or certificates for the Shares issuable upon such exercise,
registered in the name of the Holder or its designee. If this Warrant should be
exercised in part only, the Company shall, upon surrender of this Warrant for
cancellation, execute and deliver a new Warrant evidencing the right of the
Holder to purchase the balance of the Shares subject to purchase hereunder.
4. The Company shall maintain a register (the "Warrant Register") on which
the names and addresses of the persons to whom this Warrant is issued and shall
be entitled to treat the registered holder of any Warrant on the Warrant
Register as the owner in fact thereof for all purposes and shall not be bound to
recognize any equitable or other claim to or interest in such Warrant on the
part of any other person, and shall not be liable for any registration or
transfer of Warrants which are registered or to be registered in the name of a
fiduciary or the nominee of a fiduciary unless made with the actual knowledge
that a fiduciary or nominee is committing a breach of trust in requesting such
registration or transfer, or with the knowledge of such facts that its
participation therein amounts to bad faith. Subject to compliance with
applicable securities laws and any other restrictions set forth herein, this
Warrant shall be transferable on the books of the Company only upon delivery
thereof with the form of Assignment at the end hereof duly completed by the
Holder or by his duly authorized attorney or representative, or accompanied by
proper evidence of succession, assignment or authority to transfer. In all cases
of transfer by an attorney, the original power of attorney, duly approved, or an
official copy thereof, duly certified, shall be deposited with the Company. In
case of transfer by executors, administrators, guardians or other legal
representatives, duly authenticated evidence of their authority shall be
produced, and may be required to be deposited with the Company in its
discretion. Upon any registration of transfer, the Company shall deliver a new
Warrant or Warrants exchanged, at the option of the Holder thereof, for another
Warrant, or other Warrants of different denominations, of like tenor and
representing in the aggregate the right to purchase a like number of shares of
Common Stock upon surrender to the Company or its duly authorized agent.
Notwithstanding the foregoing, the Company shall have no obligation to cause
Warrants to be transferred on its books to any person, unless the Holder of such
Warrants shall furnish to the Company evidence of compliance with the Act and
applicable state securities law, in accordance with the provisions of Section 9
hereof.
5. The Company shall at all times reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of providing for
the exercise of this Warrant, such number of Shares as shall, from time to time,
be sufficient therefor.
6. The Exercise Price shall be subject to adjustment from time to time as
follows:
(a) In case the Company shall (i) declare a dividend or make a
distribution on outstanding shares of its Common Stock in shares of Common
Stock, (ii) subdivide or reclassify the outstanding shares of Common Stock into
a greater number of shares, or (iii) combine or reclassify the outstanding
shares of Common Stock into a lesser number of shares, the Exercise Price in
effect at the time of the record date for such dividend or distribution on the
effective date of such subdivision, combination or reclassification shall be
adjusted so that it shall equal the price determined by multiplying the Exercise
Price then in effect by a fraction, the denominator of which shall be the number
-2-
<PAGE>
of shares of Common Stock outstanding immediately after giving effect to such
action, and of which the numerator shall be the number of shares of Common Stock
outstanding immediately prior to such action. Such adjustment shall be made
successively whenever any event specified above shall occur.
(b) Whenever the Exercise Price payable upon exercise of this Warrant is
adjusted pursuant to subparagraph (a) above, the number of Shares purchasable
upon exercise of this Warrant shall simultaneously be adjusted by multiplying
the number of Shares initially issuable upon exercise of this Warrant by the
initial Exercise Price in effect on the date hereof and dividing the product so
obtained by the Exercise Price, as adjusted.
(c) All calculations under this Section 6 shall be made to the nearest
one-hundredth of a cent and to the nearest whole Share.
7. (a) In case of any consolidation with or merger of the Company with or
into another corporation (other than a merger of consolidation in which the
Company is the continuing or surviving corporation), or in case of any sale,
lease or conveyance to another corporation of the property of the Company as an
entirety or substantially as an entirety, appropriate provisions shall be made
so that the Holder shall have the right thereafter to receive upon exercise of
this Warrant solely the kind and amount of shares of stock and other securities,
property, cash or any combination thereof receivable upon such consolidation,
merger, sale, lease or conveyance by a holder of the number of Shares of Common
Stock for which this Warrant might have been exercised immediately prior to such
consolidation, merger, sale, lease or conveyance and, in any such case,
effective provision shall be made in its Articles of Incorporation or otherwise,
if necessary, in order to effect such agreement. Such agreement shall provide
for adjustments which shall be as nearly equivalent as practicable to the
adjustments in Section 6.
(b) In case of any reclassification or change in the Shares of Common
Stock issuable upon exercise of this Warrant (other than a change in par value,
or from par value to no par value, or as a result of a subdivision or
combination, but including any change in the Shares into two or more classes or
series of shares) or in case of any consolidation or merger of another
corporation into the Company in which the Company is the continuing corporation
and in which there is a reclassification or change (including a change to the
right to receive cash or other property) in the Shares of Common Stock (other
than a change in par value, or from par value to no par value, or as a result of
a subdivision or combination, but including any change in the Shares into two or
more classes or series of Shares), the Holder shall have the right thereafter to
receive upon exercise of this Warrant solely the kind and amount of shares of
stock and other securities, property, cash or any combination thereof receivable
by the holder of the number of Shares for which this Warrant might have been
exercised immediately prior to such reclassification, change, consolidation or
merger. Thereafter, appropriate provision (as reasonably determined by the Board
of Directors) shall be made for adjustment which shall be as nearly equivalent
as practicable to the adjustments in Section 6.
(c) The above provisions of this Section 7 shall similarly apply to
successive reclassification and changes in Shares of Common Stock and to
successive consolidations, mergers, sales or conveyances.
8. The issue of any stock or other certificate upon the exercise of this
Warrant shall be made without charge to the Holder for any tax in respect of the
issue of such certificate. The Company shall not, however, be required to pay
any tax which may be payable in respect of any transfer involved in the issue
and delivery of any certificate in a name other than that of the Holder and the
Company shall not be required to issue or deliver any such certificates unless
-3-
<PAGE>
and until the person or persons requesting the issue thereof shall have paid to
the Company the amount of such tax or shall have established to the satisfaction
of the Company that such tax has been paid.
9. (a) Unless registered under the Securities Act of 1933, as amended (the
"Act"), the Warrants and Shares or other securities issued upon exercise of the
Warrants shall not be transferrable unless, in the opinion of counsel reasonably
satisfactory to the Company, an exemption from registration under applicable
securities laws is available. The Warrants, Shares and other securities issued
upon the exercise of this Warrant shall be subject to a stop-transfer order and
the certificate or certificates evidencing any such Shares or securities shall
bear the following legend and any other legend which counsel for the Company may
deem necessary or advisable:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED,
PLEDGED, OR HYPOTHECATED UNLESS SO REGISTERED OR UNLESS IN THE OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE COMPANY, AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT IS AVAILABLE.
(b) Additional restrictions and limitations may apply to the resale of
Warrants and Shares outside the United States or to resales by Holders who are
Canadian residents or citizens or otherwise are not "U.S. Persons", as that term
is defined in Regulation S under the Securities Act. Such further limitations
and restrictions shall be evidenced by legends placed on the certificates
evidencing such securities.
(c) Notwithstanding any other term of this Warrant, the Company may
require, as a condition of issuing Shares or other securities upon the exercise
of this Warrant or permitting the transfer of this Warrant or Shares or other
securities issued upon exercise of this Warrant, that the Holder and/or
transferee execute such agreements or give such assurances and information as
may be required, in the opinion of counsel for the Company, to satisfy
applicable securities laws' requirements.
10. Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction or mutilation of any Warrant and upon surrender and
cancellation of any Warrant if mutilated, and upon reimbursement of the
Company's reasonable incidental expenses, the Company shall execute and deliver
to the Holder thereof a new Warrant of like date, tenor and denomination.
11. The Holder of any Warrant shall not have, solely on account of such
status, any rights of a shareholder of the Company, either at law or in equity,
or to any notice of meetings of shareholders or of any other proceedings of the
Company.
12. This Warrant shall be governed by and construed in accordance with the
laws of the State of Delaware.
13. (a) The Company shall use its best efforts to prepare, file and process
to effectiveness a Registration Statement ("Registration Statement") under the
Act with respect to the Shares, provided that the Company shall have no
obligation to file a Registration Statement prior to the earlier of (i) December
31, 2000, or (ii) eighteen (18) months after the date that the Company becomes
subject to the periodic reporting requirements of the Securities Exchange Act of
1934 (the "Exchange Act") pursuant to Sections 13 or 15(d) thereof. The Company
shall give prompt written notice of such filing and of the effectiveness of such
-4-
<PAGE>
Registration Statement to Holder, and shall use its best efforts to keep such
Registration Statement in effect for a period of at least ninety (90) days from
its effective date (one hundred eighty [180] days if the Registration Statement
is on Form S-3).
(b) In addition to its obligations pursuant to Section 13(a) above, if,
after December 31, 2000, but prior to the effectiveness of a Registration
Statement, or following the effectiveness of a Registration Statement if the
Company fails to maintain the effectiveness of the Registration Statement for at
least ninety (90) days, the Company proposes to file a Registration Statement
under the Securities Act (other than in connection with an exchange offer, a
"rights" offering to shareholders, a Registration Statement on Form S-8 or Form
S-4 or any successor forms relating to employee benefit plans, an acquisition of
another entity or in connection with a dividend reinvestment plan, an employee
benefit plan, the conversion of any convertible securities, or a stand-by
underwriting with respect to the call of a warrant, option, right or convertible
security for redemption) with respect to shares of Common Stock (a "Piggy Back
Registration Statement"), the Company shall give written notice of such proposed
filing to Holder at least thirty (30) calendar days before the anticipated
filing date of such Registration Statement or, in the event that the Company has
not formulated its intent to file such Registration Statement at least thirty
(30) calendar days before the anticipated filing date of such Registration
Statement, as soon as practicable upon the formation by the Company of such
intent. The notice shall specify the information required to be provided to the
Company by Holder pursuant to paragraph 13(d) below and shall offer to Holder
the opportunity to include in the Piggy Back Registration Statement such number
of Shares as Holder may request. The Company shall not be required to honor any
such request (i) if, in the opinion of counsel to the Company reasonably
acceptable to Holder, registration under the Act is not required for the
transfer of the Shares in the manner proposed by Holder; or (ii) to register in
the aggregate fewer than 10,000 Shares. The Company shall permit, or, in the
case of an offering made through an underwriter or group of underwriters on a
"firm commitment" basis (an "Underwritten Offering"), shall use its best efforts
to cause the managing underwriter of the proposed offering to permit, such
Shares to be included in the proposed offering on the same terms and conditions
as applicable to the shares of Common Stock Offered by the Company and for the
account of any person other than the Company, as the case may be.
(c) Notwithstanding the foregoing, if the managing underwriter of an
underwritten offering shall advise the Company in writing that, in its opinion,
the distribution of all or a portion of the Shares requested by Holder to be
included in the Piggy Back Registration Statement concurrently with the shares
of Common Stock being registered by the Company would materially adversely
affect the distribution of such securities by the Company for its own account,
or for the account of any person or persons that have asserted demand
registration rights under any other agreement with respect to such registration,
then such requested Shares shall not be included in the Registration. If the
managing underwriter elects to include less than all Shares, then the number of
Shares shall be pro rata with (i) other securities properly requested to be
included in the Piggy Back Registration Statement by other holders pursuant to
piggy back or incidental registration rights under any other agreement or (ii)
shares included in the Piggy Back Registration Statement for the account of any
corporate officer or director of the Company and any of their respective family
members, whichever results in the registration of the greater number of Shares
for Holder's account. The Company shall not be required to maintain in effect
the Piggy Back Registration Statement as it relates to Shares beyond the period
necessary to comply with the Securities Act (otherwise than pursuant to Rule 415
or any similar regulation permitting "shelf registration") with respect to the
distribution of the Shares included therein.
(d) In connection with any registration of Shares pursuant to paragraphs
13 (a), (b) or (c) above, and as a condition to the Company's obligation to
register the Shares, Holder shall promptly furnish to the Company such
-5-
<PAGE>
information regarding Holder, the proposed distribution of the Shares by Holder
and such other matters as the Company may reasonably request in writing.
(e) All expenses incident to the Company's performance of or compliance
with the provisions set forth herein (other than underwriting discounts and
commissions relating to the sale of the Shares, and the fees and disbursements
of Holder's counsel, if any) will be borne by the Company. In addition, the
Company shall, without charge to Holder, provide Holder with reasonable
quantities of preliminary prospectuses, final prospectuses and other material
required to effect sales of the Shares to the public, and will take appropriate
action to enable the Shares to be sold in the State of New York and such other
states as the Company may elect.
14. Without limiting any indemnification rights of the Company or Holder
arising under any other agreement or law, in any registration of Shares pursuant
hereto:
(a) the Company will indemnify and hold harmless Holder against any
losses, claims, damages or liabilities (which shall include, but not be limited
to, all costs of defense and investigation and all attorneys' fees) to which
Holder may become subject under the Act, the Exchange Act or otherwise insofar
as such losses, claims, damages or liability (or actions in respect thereof)
arise out of or are based upon any untrue statement of any material fact
contained, during the effective period thereof, in any Registration Statement,
any preliminary or final prospectus furnished by the Company, or any amendment
or supplement thereto, or arise out of or are based upon the omission to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that the Company shall have no obligation to
Holder in respect of any such loss, claim, damage or liability arising out of or
based upon an untrue statement or liability arising out of or based upon an
untrue statement or omission made in a Registration Statement, preliminary
prospectus, prospectus, or amendment or supplement thereto, in reliance upon and
in conformity with written information furnished by Holder specifically for use
in the preparation thereof.
(b) Holder will indemnify and hold harmless the Company and each person,
if any, who controls the Company within the meaning of Section 20 of the
Exchange Act against any losses, claims, damages or liabilities (which shall
include, but not be limited to, all costs of defense and investigation and all
attorneys' fees) to which the indemnified party may become subject under the
Act, the Exchange Act or otherwise, insofar as such losses, claims, damages or
liability (or actions in respect thereof) arise out of or are based upon (i) an
untrue statement or omission made in a Registration Statement, preliminary
prospectus, prospectus, preliminary offering circular or offering circular, or
any amendment or supplement, in reliance upon and in conformity with written
information furnished by Holder for use by the Company in the preparation
thereof, or (ii) actions or omissions by Holder or persons acting on his behalf
in the sale of the Shares which are unrelated to the content of the Registration
Statement but which violate the Act, the Exchange Act or regulations thereunder.
15. (a) Notwithstanding any other term of this Warrant, unless the
Company shall have prepared, filed and processed to effectiveness a Registration
Statement under the Act with respect to all of the Shares on or before December
31, 2000, and such Registration Statement has remained effective for a period of
at least ninety (90) days prior to the Expiration Date (one hundred eighty [180]
days if the Registration Statement is on Form S-3), the Holder shall have the
right at any time after December 31, 2000, to convert this Warrant into that
number of Shares (hereinafter referred to as the "Conversion Shares") which
shall equal the product obtained by multiplying all Shares then issuable upon
exercise of the Warrant pursuant to paragraph 2 above by a fraction, the
denominator of which is the Market Price of the Company's Common Stock, as
-6-
<PAGE>
defined below, and the numerator of which is the difference between the Market
Price and the Exercise price. Where the number of Conversion Shares equals "CS",
the number of Shares equals "S", the Exercise Price equals "EP" and the Market
Price equals "MP", the following formula shall determine the number of
Conversion Shares at any time issuable upon conversion of this Warrant to Common
Stock pursuant to this paragraph 15(a):
CS = S (MP - EP)
-----------
MP
(b) For purposes of paragraph 15(a) above, the term "Market Price" of
the Company's Common Stock shall mean: (i) if the Common Stock is listed on a
national securities exchange, the average closing prices for the Common Stock
reported on such exchange for the five (5) trading days immediately preceding
the date of exercise of the rights of conversion set forth in paragraph 15(a)
(the "Conversion Rights"); or (ii) if the Common Stock is not listed on a
national securities exchange but is quoted on the Nasdaq Stock Market (Small Cap
or National Market System), the average closing prices for the Common Stock on
the Nasdaq Stock Market for the five (5) trading days immediately preceding the
date of exercise of Conversion Rights; or (iii) if neither (i) nor (ii) above
applies, and "bid" and "asked" prices for the Common Stock are quoted on the
National Association of Securities Dealers, Inc. ("NASD") OTC Bulletin Board and
the average weekly trading volume for the Common Stock as reported on the NASD
Bulletin Board has averaged at least one (1%) percent of the total number of
shares of Common Stock outstanding during the four calendar weeks immediately
preceding the exercise of Conversion Rights, the average of the mean between the
closing "bid" and "asked" prices reported on the OTC Bulletin Board for the five
(5) trading days immediately preceding the date of exercise of Conversion
Rights; or (iv), if none of subsections (i), (ii) or (iii) apply, as determined
by the Board of Directors of the Company.
(c) The Conversion Rights shall be exercised in the same manner as
provided in paragraph 2 above, except that payment of the Shares Purchase Price
shall not be tendered.
16. The Company warrants the due authorization, execution and delivery of
this Warrant this ____ day of ________________, 1998.
GENEREX BIOTECHNOLOGY CORPORATION
[SEAL]
By:
---------------------------------------
Anna H. Gluskin, President
-7-
<PAGE>
ELECTION TO PURCHASE
--------------------
The undersigned Holder hereby irrevocably elects (check one): [ ] to exercise
the within Warrant to purchase _____________________________ Shares* of Common
Stock issuable upon the exercise thereof; [ ] to convert the within Warrant to
shares of Common Stock pursuant to paragraph 15 thereof. The undersigned
requests that certificates for such Shares, or, in the case of conversion, the
number of Conversion Shares issuable pursuant to paragraph 15 thereof, be issued
in his/her/its name and delivered to him/her/it at the following address:
________________________________________________________________________________
Date:__________________
________________________________________________________________________________
Signature(s)(**)
________________________________________________________________________________
ASSIGNMENT
----------
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers the
within Warrant to the extent of _____________ Shares(*) purchasable upon
exercise thereof to______________ whose address is_____________________________
____________________________________ and hereby irrevocably constitute and
appoint _______________________________ his/her/its Attorney to transfer said
Warrant on the book of the Company, with full power of substitution.
Date:___________________
________________________________________________________________________________
Signature(s)(**)
________________________________________________________________________________
* If the Warrant is to be exercised or transferred in its entirety, insert the
word "All" before "Shares"; otherwise insert the number of shares then
purchasable on the exercise thereof as to which transferred or exercised. If
such Warrants shall not be transferred or exercised to purchase all shares
purchasable upon exercise thereof, that a new Warrant to purchase the balance of
such shares be issued in the name of, and delivered to, the Holder at the
address stated below.
** Signature(s) must conform exactly to the names(s) of the Holder as set forth
on the first page of this Warrant.
-8-
THIS WARRANT WILL BE VOID AND OF NO VALUE UNLESS EXERCISED
ON OR BEFORE 5:00 P.M. (TORONTO TIME) ON SEPTEMBER 6, 2002
THIS WARRANT IS NOT TRANSFERABLE
GENEREX BIOTECHNOLOGY CORPORATION
(Incorporated under the laws of Idaho)
Right to Purchase 7,937 Common Shares
THIS IS TO CERTIFY THAT, for value received, BERCKELEY INVESTMENT GROUP LTD., 50
Shirley Street, Nassau, Bahamas (the "Holder") is entitled to subscribe for and
purchase 7,937 fully paid and non-assessable Common Shares in the capital of
Generex Biotechnology Corporation (the "Company") at a price of $21.82 per share
if purchased on or before September 6, 2002 subject, however, to the provisions
and upon the terms and conditions hereinafter set forth.
The rights represented by this Warrant may be exercised by the Holder hereof, in
whole or in part (but not as to a fractional shares of Common Shares), by
surrender of this Warrant (properly endorsed if required) at the office of the
Company, 33 Harbour Square, Suite 202, Toronto, Ontario M5J 2G2 together with a
certified cheque payable to the order of the Company in payment of the purchase
price of the number of Common Shares subscribed for.
In the event of any exercise of the rights represented by this Warrant,
certificates for the Common Shares so purchased shall be delivered to the Holder
hereof within a reasonable time, not exceeding ten days after the rights
represented by this Warrant shall have been so exercised, and, unless this
Warrant has expired, a new Warrant representing the number of Common Shares, if
any, with respect to which this Warrant shall not then have been exercised shall
also be issued to the Holder hereof within such time.
The Company covenants and agrees that all Common Shares which may be issued upon
the exercise of the rights represented by this Warrant will, upon issuance, be
fully paid and non-assessable and free of all liens, charges and encumbrances.
The Company further covenants and agrees that during the period within which the
rights represented by this Warrant may be exercised, the Company will at all
times have authorized and reserved, a sufficient number of Common Shares to
provide for the exercise of the rights represented by this Warrant.
THE FOLLOWING ARE THE TERMS AND CONDITIONS REFERRED TO IN THIS WARRANT:
I. In case the Company shall at any time subdivide its outstanding Common Shares
into a greater number of shares, the Warrant purchase price shall be
proportionately reduced and the number of subdivided Common Shares entitled to
be purchased proportionately increased, and conversely, in case the Company
shall at any time consolidate its outstanding Common Shares into a smaller
number of shares, the Warrant purchase price shall be proportionately increased
and the number of combined Common Shares entitled to be purchased hereunder
shall be proportionately decreased.
<PAGE>
If any capital organization, reclassification or consolidation of the
capital stock of the Company, or the merger or amalgamation of the Company with
another company shall be effected, then as a condition of such reorganization,
reclassification, subdivision or consolidation, merger or amalgamation, adequate
provision shall be made whereby the Holder hereof shall have the right to
purchase and receive upon the basis and upon the terms and conditions specified
in this Warrant and in lieu of the Common Shares immediately theretofore
purchasable and receivable upon the exercise of the rights represented hereby,
such shares of stock, or other securities as may be issued with respect to or in
exchange for such number of outstanding Common Shares equal to the number of
Common Shares purchasable and receivable upon the exercise of this Warrant had
such reorganization, reclassification, subdivision or consolidation, merger or
amalgamation not taken place. The Company shall not effect any merger or
amalgamation unless prior to or simultaneously with the consummation thereof the
successor company (if other than the Company) resulting from such merger or
amalgamation shall assume by written instrument executed and mailed or delivered
to the Holder of this Warrant the obligation to deliver to such Holder such
shares of the stock or securities in accordance with the foregoing provisions,
such Holder may be entitled to purchase.
II. In case at any time:
A. the Company shall pay any dividend payable in stock upon its Common Shares
or make any distribution to the holders of its Common Shares;
B. the Company shall offer for subscription pro rata to the holders of its
Common Shares any additional shares of stock of any class or other rights;
C. there shall be any capital reorganization, or reclassification of the
capital stock of the Company, or subdivision or consolidation or merger or
amalgamation of the Company with, or sale of all or substantially all of
its assets to, another company; or
D. there shall be a voluntary or involuntary dissolution, liquidation or
winding-up of the Company;
then, and in any one or more of such cases, the Company shall give to the Holder
of this Warrant, at least twenty days' prior written notice of the date on which
the books of the Company shall close or a record shall be taken for such
dividend, distribution or subscription rights, or for determining rights to vote
with respect to such reorganization, reclassification, subdivision or
consolidation, merger or amalgamation, dissolution, liquidation or winding up
and in the case of any such reorganization, reclassification, subdivision or
consolidation, merger, amalgamation, sale, dissolution, liquidation or
winding-up, at least twenty days' prior written notice of the date when the same
shall take place. Such notice in accordance with the foregoing clause, shall
also specify, in the case of any such dividend, distribution or subscription
rights, the date on which the holders of Common Shares shall be entitled
thereto, and such notice in accordance with the foregoing shall also specify the
date on which the holders of Common Shares shall be entitled to exchange their
Common Shares for securities or other property deliverable upon such
reorganization, reclassification, subdivision or consolidation, merger,
amalgamation, sale, dissolution, liquidation or winding-up as the case may be.
Each such written notice shall be given by first class mail, registered postage
prepared, addressed to the Holder of this Warrant at the address of such Holder,
as shown on the books of the Company.
III. As used herein, the term "Common Shares" shall mean and include the
Company's presently authorized Common Shares and shall also include any capital
stock of any class of the Company
2
<PAGE>
hereafter authorized which shall not be limited to a fixed sum or percentage in
respect of the rights of the holders thereof to participate in dividends and in
the distribution of assets upon the voluntary or involuntary liquidation,
dissolution or winding-up of the Company.
IV. This Warrant shall not entitle the Holder hereof to any rights as a
shareholder of the Company, including without limitation, voting rights.
V. This Warrant and all rights hereunder are not transferable.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by a duly
authorized officer under its corporate seal, and this Warrant to be dated the
29th day of September 1998.
GENEREX BIOTECHNOLOGY CORPORATION
Per: /S/Anna E. Gluskin
-------------------------------
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<PAGE>
SUBSCRIPTION FORM
TO: c/o Generex Biotechnology Corporation
33 Harbour Square
Suite 202
Toronto, Ontario
M5J 2G2
The undersigned, the holder of the within Non-Transferable Share Purchase
Warrant, subscribes for _______________ of the common shares referred to in the
same Non-Transferrable Share Purchase Warrant according to the conditions
thereof and herewith makes payment of the purchase price in full for the said
number of shares.
The undersigned hereby directs that the shares hereby subscribed for be issued
and delivered as follows:
Name(s) in full Address Number of Shares
- --------------- ------- ----------------
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
DATED this _____ day of _____________________________, 199_.
___________________________________________________
Signature of subscriber
___________________________________________________
Print name of subscriber
___________________________________________________
Address in full of subscriber
___________________________________________________
4
M. H. MEYERSON & CO., INC.
FOUNDED IN 1960
BROKERS & DEALERS IN SECURITIES
UNDERWRITERS
NEWPORT OFFICE TOWER
525 WASHINGTON BLVD. o P. O. BOX 260 o JERSEY CITY, NJ 07303-0260
201-459-9500 o 800-888-8118 o fax 201-459-9521 o www.mhmeyerson.com
Mr. Joseph Chicco, Esq.
Ms. Anna E. Gluskin, President
Chief Executive Officer
Generex Pharmaceuticals Inc.
1515 Market Street, 9th Floor
Philadelphia, PA 19102
Dear Mr. Chicco and Ms. Gluskin:
THIS AGREEMENT (the "AGREEMENT") is made as of November 17, 1998 between Generex
Biotechnology Corporation ("GENEREX ") and M. H. Meyerson & Co., Inc.
("MEYERSON").
In consideration of the mutual covenants contained herein and intending to
be legally bound thereby, GENEREX and MEYERSON hereby agree as follows:
1. MEYERSON will perform investment banking services, on a non-exclusive
basis, for GENEREX on the terms set forth below for a period of five
years from the date hereof, subject to early termination pursuant to
paragraph 17 below. Such services will be performed on a best efforts
basis and will include, without limitation, advising GENEREX with
respect to mergers, acquisitions, and internal capital structuring and
the placement of new debt and equity issues of GENEREX, all with the
objective of accomplishing GENEREX's business and financial goals. In
each instance, MEYERSON shall endeavor, subject to market conditions,
to assist GENEREX in identifying corporate candidates for mergers and
acquisitions and sources of private and institutional funds; to
provide planning, structuring, strategic and other advisory services
to GENEREX; and, at the request of GENEREX, to assist in negotiations
on behalf of GENEREX. In each instance, MEYERSON will render such
services as to which GENEREX and MEYERSON mutually agree and MEYERSON
will exert its best efforts to accomplish the goals agreed to by
MEYERSON and GENEREX.
2. In connection with the performance of this AGREEMENT, MEYERSON and
GENEREX shall comply with all applicable laws and regulations,
including, without limitation, those of the National Association of
Securities Dealers, Inc. and the Securities and Exchange Commission.
3. a) In consideration of the services previously rendered and to be
rendered by MEYERSON hereunder, MEYERSON is hereby granted five-year
Warrants to purchase, at a price of $10.00 per share, a total of
300,000 shares of Common Stock of GENEREX with demand and piggy back
registration rights as set forth in paragraph 4 below. Such Warrants
("MEYERSON Warrants") may be exercised at any time from the time that
such Warrants vest to and including November 17, 2003. The MEYERSON
Warrants shall vest as
<PAGE>
follows: 150,000 Warrants shall vest immediately upon the signing of
this AGREEMENT and the remaining 150,000 Warrants shall vest on May
17, 1999. After 18 months from the date of this AGREEMENT, MEYERSON
shall have, at MEYERSON's discretion, both a cashless exercise option
to exercise the Warrants and rights of registration as described in
paragraph 4 below. If the cashless exercise option is exercised, it
would be accomplished by surrendering the vested Warrants and
replacing them with the equivalent of shares that may be sold under
Rule 144. The amount of shares of common stock of GENEREX to be issued
will be based on the fair market value per share on the date of
exercise and shall be valued at the average of the daily closing price
for the five consecutive trading days immediately preceding the date
of exercise. The presentation of a copy of this AGREEMENT by MEYERSON,
together with a request that part or all of the Warrant be exercised
and a direction that the appropriate number of shares be withheld to
pay the exercise price, shall be deemed to be the surrender of such
number of shares for purposes of exercising the cashless exercise
option.
b) Unless a registration statement under the Securities Act of 1933
(the "1933 Act") covering the shares issuable upon exercise of the
MEYERSON Warrants (the "MEYERSON SHARES") is in effect at the time
such Warrants are exercised, the MEYERSON SHARES will be "restricted
securities", as that term is defined in Rule 144 under the 1933 Act,
and will be legended accordingly. MEYERSON acknowledges and agrees
that it will not make any resale or other transfer of any MEYERSON
SHARES that are Restricted Securities except in compliance with Rule
144. If some or all of the MEYERSON Warrants are assigned pursuant to
paragraph 16 below, any assignee attempting to exercise MEYERSON
Warrants shall furnish to GENEREX such undertakings, confirmations and
information as GENEREX may reasonably require in order to assure
compliance with the 1933 Act and other securities laws applicable to
the issuance of restricted securities to such assignees. No exercise
of MEYERSON Warrants by an assignee of MEYERSON shall be effective
unless and until this requirement is satisfied.
4. a) In addition to the exercise format described in paragraphs 3 a) and b)
above, an additional registration route may also be available to
MEYERSON, at their sole discretion, which is as follows: during the
period from May 17, 2000 to November 17, 2003, the holders of at least
51% of: (i) the MEYERSON Warrants not then exercised; and (ii)
MEYERSON SHARES previously issued upon exercise of any of the MEYERSON
Warrants (hereinafter, collectively, the "MEYERSON EQUITY",) may
demand, on one occasion only, that GENEREX at GENEREX's expense,
promptly file a Registration Statement under the Securities Act of
1933, as amended ("ACT"), to permit a public offering of the MEYERSON
SHARES. Additionally, if GENEREX during the period from May 17, 2000
to November 17, 2003, files a Registration Statement covering the sale
of any of GENEREX's common stock, then GENEREX on each such occasion,
at the request of the holders of at least 51% of the shares and
warrants constituting the MEYERSON EQUITY, shall include in any such
Registration Statement, at GENEREX`s expense, the MEYERSON SHARES,
provided that, if the sale of securities by GENEREX is being made
through an underwriter and the underwriter objects to inclusion of the
MEYERSON SHARES in the Registration Statement, the MEYERSON SHARES
shall not be so included in the Registration Statement or in any
registration statement filed within 90 days after the effective date
of the underwritten Registration Statement.
b) Notwithstanding anything to the contrary in paragraph 4(a) above, the
demand registration rights provided for in paragraph 4(a) shall be
suspended and may not be exercised (i) at any time (A) that a
registration statement for a primary offering of GENEREX securities (a
"GENEREX registration statement") is pending under the 1933 Act or (B)
that GENEREX
2
<PAGE>
is in the process of preparing and filing a GENEREX registration
statement pursuant to a letter of intent with an underwriter, or (ii)
within ninety (90) days following the effectiveness of a GENEREX
registration statement. The maximum period of time during which the
demand registration rights provided for in paragraph 4(a) shall be
suspended on any single occasion under this paragraph 4(b) shall not
exceed the earlier of (i) 135 days, or (ii) 90 days following the
effectiveness of a GENEREX registration statement.
5. In the event that GENEREX fails to honor the exercise by MEYERSON of
any vested warrants as set forth herein, by failing to deliver the
certificates(s) for the underlying shares of common stock to MEYERSON
within 10 days after the effective exercise thereof, then MEYERSON may
take legal action, without further notice to GENEREX to obtain such
underlying shares, and GENEREX agrees to pay all damages, costs and
expenses incurred by MEYERSON, including reasonable attorneys' fees.
In addition to any other damages sustained by MEYERSON as a result of
GENEREX`s failure to honor such exercise, including any diminution in
the value of the underlying shares over time, GENEREX agrees that it
will pay MEYERSON interest, at the average prime rate based on New
York City banking levels for the prior six months, on the market value
of the underlying shares as of the 10th day after the exercise, for
the period beginning on the 10th day after the exercise and ending on
the day the certificates for the underlying shares are received by
MEYERSON.
6. If GENEREX should, at any time, or from time to time hereafter, effect
a stock split, a reverse stock split, a business combination, a
recapitalization or merger, the terms of the MEYERSON Warrants shall
be proportionately adjusted to prevent the dilution or enlargement of
the rights of the MEYERSON interest except to the extent of, and in
proportion to, any dilution or enlargement in the interests of holders
of GENEREX common stock resulting from such event or action.
7. The obligation of GENEREX to register the MEYERSON SHARES, including
the shares issuable upon exercise of the MEYERSON Warrants, pursuant
to the demand or the piggy back registration rights set forth in
paragraph 6 above, shall be without regard to whether the MEYERSON
Warrants have been or will be exercised.
8. GENEREX agrees that, for a period of two (2) years from the date of
this AGREEMENT GENEREX will not issue, without the consent of
MEYERSON, which consent will not be unreasonably withheld, any
security or right that can be converted into or exercised to purchase
GENEREX securities at a price or ratio that is not "fixed" but rather
is to be determined at the time of exercise or otherwise in the future
based upon the market price of GENEREX securities.
9. This AGREEMENT constitutes the entire Warrant Agreement between the
parties and when a copy hereof is presented to GENEREX's transfer
agent, together with a request that all or part of the MEYERSON
Warrant be exercised and a certified check in the proper amount or a
direction, pursuant to the cashless exercise option, that shares be
withheld to pay for the exercise, the certificates for the appropriate
number of shares of Common Stock shall be promptly issued.
10. Upon the execution of this AGREEMENT, GENEREX shall include in its
next annual report and filings the highlights and terms of this
investment banking AGREEMENT. Except for such disclosure, no public
announcement or other disclosure of the parties' agreement hereunder
shall be made, except (a) by MEYERSON in connection with its release
of any research report or recommendation relating to GENEREX, and (b)
by
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<PAGE>
GENEREX if such disclosure is required, in its counsel's opinion, in
any public filing or other disclosure.
11. Upon the signing of this AGREEMENT, GENEREX shall pay MEYERSON $10,000
as a non-accountable and non-refundable expense allowance for due
diligence and general compliance review. In addition, if GENEREX
consummates a financing, merger, acquisition or other transaction that
is initiated by MEYERSON, the parties anticipate that MEYERSON will
receive "success fees", "transaction fees" or "commissions", provided,
that no additional compensation will be due or payable to MEYERSON in
respect of any such transaction or service unless MEYERSON and GENEREX
have agreed in writing that the transaction or service in question is
one for which MEYERSON will receive additional compensation. The
amount of additional compensation to be paid in such cases shall be
negotiated in good faith by MEYERSON and GENEREX, but shall not exceed
usual and customary investment banker/broker-dealer compensation for
comparable transactions and services. In addition, MEYERSON shall be
reimbursed by GENEREX for any reasonable out-of-pocket expenses that
MEYERSON may incur in connection with rendering any service to or on
behalf of GENEREX that is approved, in writing, in advance by
GENEREX's Chief Executive Officer.
12. GENEREX agrees to indemnify and hold MEYERSON and its directors,
officers and employees harmless from and against any and all losses,
claims, damages, liabilities, costs or expenses arising out of any
action or cause of action brought against MEYERSON in connection with
its rendering services under this AGREEMENT except for any losses,
claims, damages, liabilities, costs or expenses resulting from any
violation by MEYERSON of applicable laws and regulations including,
without limitation, those of the National Association of Securities
Dealers, Inc. and the Securities and Exchange Commission or any state
securities commission or from any act of MEYERSON involving willful
misconduct and except that GENEREX shall not be liable for any amount
paid in settlement of any claim that is settled without its prior
written consent.
13. MEYERSON agrees to indemnify and hold GENEREX and its directors,
officers and employees harmless from and against any and all losses
claims, damages, liabilities, costs or expenses resulting from any
violation by MEYERSON of applicable laws and regulations including,
without limitation, those of the National Association of Securities
Dealers, Inc., the Securities and Exchange Commission or any state
securities commission or from any act of MEYERSON involving willful
misconduct.
14. Within 90 days of the date of this AGREEMENT, a representative of
MEYERSON will visit the corporate headquarters of GENEREX. GENEREX
will submit to MEYERSON a current business plan setting forth how
GENEREX plans to proceed over the next two (2) years.
15. Nothing contained in this AGREEMENT shall be construed to constitute
MEYERSON as a partner, employee, or agent of GENEREX; nor shall either
party have any authority to bind the other in any respect, it being
intended that MEYERSON is, and shall remain an independent contractor.
16. This AGREEMENT may not be assigned by either party hereto, except that
MEYERSON may assign any or all of its Warrants to its employees, and
shall be interpreted in accordance with the laws of the State of New
Jersey applicable to agreements negotiated, entered into, and
performed wholly within the State of New Jersey, and shall be binding
upon the successors of the parties.
4
<PAGE>
17. a) This AGREEMENT, and the parties' rights and obligations hereunder, are
subject to early termination, as follows:
(i) GENEREX may terminate this AGREEMENT at any time, without cause;
(ii) MEYERSON may terminate this AGREEMENT on or prior to May 17,
1999, if GENEREX breaches any of its agreements or undertakings
herein; and
(iii) MEYERSON may terminate this AGREEMENT at any time after May 17,
1999, without cause.
b) Upon termination of this AGREEMENT:
(i) MEYERSON Warrants which are not vested at the time of
termination shall be canceled without the necessity of any
further action by GENEREX, and shall be of no further force or
effect;
(ii) MEYERSON Warrants which are then vested shall remain
outstanding, and the holders of such Warrants and any MEYERSON
SHARES issued on the exercise of MEYERSON Warrants shall retain
all of their rights relating thereto, including the registration
rights provided for in paragraphs 4(a) and 4(b) above;
(iii) MEYERSON's rights to receive additional compensation pursuant to
paragraph 11 above in respect of any pending or completed
transaction or service shall survive such termination; and
(iv) The parties' respective rights under paragraphs 12 and 13 above
shall survive such termination.
18. If any paragraph, sentence, clause or phrase of this AGREEMENT is for
any reason declared to be illegal, invalid, unconstitutional, void or
unenforceable, all other paragraphs, sentences, clauses or phrases
hereof not so held shall be and remain in full force and effect.
19. None of the terms of this AGREEMENT shall be deemed to be waived or
modified except by an express agreement in writing signed by the party
against whom enforcement of such waiver or modification is sought. The
failure of either party at any time to require performance by the
other party of any provision hereof shall, in no way, affect the full
right to require such performance at any time thereafter. Nor shall
the waiver by either party of a breach of any provision hereof be
taken or held to be a waiver of any succeeding breach of such
provision or as a waiver of the provision itself.
20. Any dispute, claim or controversy arising out of or relating to this
AGREEMENT, or the breach thereof, shall be settled by arbitration in
Jersey City, New Jersey, in accordance with the Commercial Arbitration
Rules of the American Arbitration. The parties hereto agree that they
will abide by and perform any award rendered by the arbitrator(s) and
that judgment upon any such award may be entered in any Court, state
or federal, having jurisdiction over the party against whom the
judgment is being entered. Any arbitration demand, summons, complaint,
other process, notice of motion, or other application to an
arbitration panel, Court or Judge, and any arbitration award or
judgment may be served upon any party hereto by registered or
certified mail, or by personal service, provided a reasonable time for
appearance or answer is allowed.
5
<PAGE>
21. For purposes of compliance with laws pertaining to potential inside
information being distributed unauthorized to anyone, all
communications regarding GENEREX`s confidential information should
only be directed to Martin H. Meyerson, Chairman, Michael Silvestri,
President, or Joseph Messina, Vice President, Compliance. If
information is being faxed, our confidential compliance fax number is
(201) 459-9534 for communication use.
IN WITNESS WHEREOF, the parties hereto have executed this AGREEMENT as of
the day and year set forth above.
M. H. Meyerson & Co., Inc. Generex Biotechnology Corporation
By: ______________________________ By: _____________________________________
Michael Silvestri Anna E. Gluskin
President President and Chief Executive Officer
Generex Biotechnology Corporation
Attn: Anna E. Gluskin, President
33 Harbour Square, Suite 202
Toronto, Ontario
CANADA M5J 2G2
RE: Subscription for Shares of Common Stock
Gentlemen/Ladies:
The undersigned (hereinafter referred to as "Investor") hereby subscribes
for and agrees to purchase FIVE HUNDRED THOUSAND (500,000) SHARES of Common
Stock (the "Shares") of Generex Biotechnology Corporation (hereinafter referred
to as the "Company"), an Idaho corporation, at a price of FOUR ($4.00) DOLLARS
per share, for a total purchase price of TWO MILLION ($2,000,000.00) DOLLARS, on
and subject to the following terms and conditions:
1. Investor is making this subscription in the expectation that the Company
will accept this subscription and deliver its acceptance promptly following
receipt of the subscription from Investor. If this subscription is not accepted
by the Company before the close of business on the fifth business day following
the date of delivery to the Company of the within subscription, the subscription
shall expire and have no further force or effect, and Investor shall have no
further obligation hereunder. Except as set forth in the preceding sentence and
in Section 9 below, the Investor acknowledges and agrees that this subscription
is irrevocable, Investor is not entitled to cancel, terminate or revoke the
subscription or any agreements of Investor hereunder, and that the subscription
shall survive the death or disability of the Investor.
2. (a) Payment for one hundred twenty-five thousand (125,000) of the
aforementioned shares, i.e. $500,000, is being tendered to the Company herewith
either by bank cashier's or certified check payable to the Company, or by wire
transfer of funds to the Company's account no. 400-764-7 in the name of the
Company at Royal Bank of Canada located at 200 Bay Street, Toronto, Ontario,
routing number 00002.
(b) Payment for the remaining three hundred seventy-five thousand
(375,000) shares (hereinafter sometimes referred to as the "Conditional Shares")
shall be paid to the Company on or prior to December 23, 1998, in the manner
described in (a) above.
(c) Time shall be of the essence with respect to the times for payment
of the subscription price for the Conditional Shares. If Investor shall fail to
make payment for the Conditional Shares when due, the Company may elect to
terminate its obligation to issue and sell to Investor hereunder any Conditional
Shares not previously paid for on or prior to December 23, 1998.
3. Unless Investor otherwise advises the Company, the Shares, when issued,
should be registered on the Company's books as follows: William H. Steinbrink,
MD, 122 Columbia Circle, Erie, PA 16505.
4. Investor understands and agrees that:
<PAGE>
(a) This subscription may be accepted or rejected, in whole or in part,
by the Company within the five day period referred to in Section 1 in its sole
and absolute discretion.
(b) No federal, state or provincial authority in Canada or the United
States of America (the "US") has made any finding or determination as to the
merits of an investment in the Company.
(c) Investor is an "accredited investor" as that term is defined in Rule
501(a), Regulation D, promulgated under the US Securities Act of 1933, as
amended (the "1933 Act"), and has conducted Investor's own investigation of the
Company, its business and financial position. Investor has requested and
received from the Company all information deemed necessary by Investor in order
to evaluate an investment in the Company. The Shares are being acquired for
Investor's own account and/or for the account of a limited number of friends,
family and/or close business associates of Investor, all of whom also are
accredited investors. Investor shall promptly advise the Company if anyone other
than the Investor is the beneficial owner of any Shares registered in Investor's
name, and shall furnish to the Company the name and residence address of such
beneficial owner(s).
(d) Because the Shares have not been registered under the 1933 Act or
the securities laws of any other country, state or province, and are being sold
to Investor in reliance upon an exemption from such registration requirements
for non-public offerings pursuant to Rule 506 of Regulation D under the 1933
Act, the Shares shall be subject to restrictions on resale and/or other
transfers to comply with and to assure future compliance with the 1933 Act.
Investor will not resell or otherwise transfer any Shares except in compliance
with the 1933 Act, and certificates for the Shares will bear a legend to the
effect that transfer of the Shares is subject to restrictions to insure that any
such transfer is in compliance with the 1933 Act. In addition, stop transfer
instructions will be placed with the transfer agent for the Company's Common
Stock to enforce such restrictions.
5. Investor understands that Investor must bear the economic risk of an
investment in the Shares for an indefinite period of time, and represents and
warrants to the Company that, except as indicated in paragraph 4(c) above,
Investor: is purchasing the Shares for Investor's own account and not for the
purpose of resale or otherwise effecting a distribution of the Shares; has no
contract, undertaking, agreement or arrangement with any person to sell,
transfer or pledge any Shares to such person or anyone else; has no present
plans to enter into any such contract, undertaking, agreement or arrangement;
and has full power and authority to execute and deliver this subscription and to
perform the obligations of Investor hereunder.
6. In addition to the investment representations and agreements set forth
in paragraphs 4 and 5 above, to induce the Company to accept this subscription
and as additional consideration for the Shares, the Investor agrees as follows:
(a) For a period of five (5) years from the date the Shares are issued
by the Company (the "Restricted Period"), Investor agrees to vote, or to
authorize a person designated by the Company's Board of Directors to vote, as
Investor's proxy, all Shares over which Investor has voting power as of the
record date of any meeting of shareholders of the Company in proportion to the
votes of all other shareholders of the Company cast at such meeting. Investor
further agrees that Investor will not authorize any other person to vote such
Shares in a manner inconsistent with Investor's agreements herein, provided that
nothing herein shall prevent Investor
2
<PAGE>
from selling or otherwise disposing of any Shares, subject to the terms of
paragraph (b) and (c) below.
(b) During the first year of the Restricted Period, Investor will not
sell or otherwise transfer any Shares without the Company's prior written
approval. Thereafter, for the remainder of the Restricted Period, and provided
that a public market exists for the Company's Common Stock, Investor will not
sell any Shares without first offering to sell such Shares to the Company at a
price equal to seventy (70%) percent of the then current Market Price of the
Company's publicly-traded shares of Common Stock. For this purpose, the Market
Price of shares of the Company's publicly-traded Common Stock shall be (i) the
average closing sale price during a period of twenty days immediately preceding
the date of such offer on which the New York Stock Exchange was open for trading
(the "Valuation Period")(or, if no sales are reported on any given day, the
closing "bid" price reported) for the Common Stock on NASDAQ/NMS or, (ii) if the
Common Stock is not listed on NASDAQ/NMS, such closing sale or "bid" price as
reported on any comparable automated quotation system or exchange on which the
Common Stock is then listed, or (iii) any combination thereof.
(c) Any offer by Investor to sell Shares to the Company pursuant to
paragraph (b) above shall be in writing, shall set forth the proposed manner in
which Investor intends to sell the Shares if the offer to the Company is not
accepted (including the identity of the proposed buyer if the proposed manner of
sale is other than in routine "brokers' transactions", within the meaning of
that term as used in Rule 144 under the 1933 Act), and shall be delivered to the
Company at its address as set forth above, or at such other address that the
Company may hereafter designate for notice purposes (the "Company Notice
Address"). The Company shall have fifteen (15) calendar days after receipt of
such offer to accept the offer by delivering written notice of its acceptance to
Investor personally by hand or by Federal Express courier to Investor at the
address specified for this purpose by Investor in Investor's offer to the
Company or, if no address is so specified, at the address for notice purposes as
set forth below Investor's signature hereon. The Company's acceptance shall be
effective upon delivery.
(d) If the Company timely accepts the offer, Investor shall tender the
Shares to the Company at office of the Company to which Investor's offer was
delivered, against payment for such Shares by certified check, bank check or
wire transfer funds to an account designated by Investor. If the Company fails
to timely accept the offer, Investor shall be free to sell the Shares but only
in the manner (and to the buyer identified in the offer if the proposed manner
of sale is not in routine brokers' transactions) set forth in Investor's offer
to the Company. If the Company accepts the offer but fails to pay for the Shares
specified in the offer in the manner provided herein, all restrictions on resale
of the Shares pursuant to paragraph (b) above shall terminate.
(e) Certificates representing the Shares shall be legended to reflect
the above restrictions, as well as the securities laws restrictions referred to
in Section 4 above.
7. Investor recognizes that the sale of the Shares to Investor is being
made in reliance upon Investor's agreements, representations and warranties set
forth in paragraphs 4, 5 and 6 hereof. Investor agrees to indemnify the Company,
its agents and controlling persons for, and to hold each of them harmless
against, any liability, loss, damage cost or expense (including reasonable
attorneys' fees) arising from any breach thereof by Investor.
3
<PAGE>
8. Acceptance of this subscription by the Company shall be effected by the
Company's signing (by its duly authorized officer) a copy of this subscription
in the space provided below, and by delivering that signed copy to Investor
personally by hand, or by delivering such signed copy via Federal Express
courier to Investor at the address for notice purposes set forth below
Investor's signature(s) hereon. The Company's acceptance shall be effective upon
delivery to Investor in accordance with this Section 8.
9. After December 31, 1999, the Company agrees to repurchase from Investor
such portion or all of the Shares as Investor may wish to resell to the Company
at a price equal to seventy (70%) percent of the then current Market Price of
the Company's publicly-traded shares of Common Stock, as determined in
accordance with paragraph 6(b) above. If Investor wishes to resell any Shares to
the Company pursuant to this paragraph, he will deliver to the Company, at the
Company Notice Address, the certificate(s) representing the Shares to be resold,
endorsed for transfer to the Company, and a demand that the Company repurchase
the Shares pursuant hereto. The Company shall effect the repurchase of the
Shares and remit payment to the Investor within five (5) business days following
its receipt of such notice and demand. If the Company fails to make timely
payment for the Shares, it will, in addition to the repurchase price, be
required to pay interest on the repurchase price at the rate of 18% per annum
until the repurchase price is paid in full. In addition, if the Company fails to
pay for such Shares within ten (10) days after payment is due, all restrictions
of resale of Shares by the Investor pursuant to paragraph 6 hereof shall
terminate.
IN WITNESS WHEREOF, and intending to be legally bound hereby, the Investor has
executed this Subscription Agreement this ____ day of __________________, 1998.
________________________________________________________________________________
(Print name(s) of Investor)
________________________________________________________________________________
(Signature of Investor(s) or Authorized Person. If signing in a representative,
please print name and title below signature.)
Investor's address for notice purposes is:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
********************************************************************************
This Subscription is hereby accepted by Generex Biotechnology Corporation this
____ day of ______________________, 1998.
GENEREX BIOTECHNOLOGY CORPORATION
By: _________________________________________
4
Generex Biotechnology Corporation
Attn: Anna E. Gluskin, President
33 Harbour Square, Suite 202
Toronto, Ontario
CANADA M5J 2G2
RE: Subscription for Shares of Common Stock
---------------------------------------
Gentlemen/Ladies:
The undersigned (hereinafter referred to as "Investor") hereby subscribes
for and agrees to purchase __________________________________________________
(US$________ ) SHARES of Common Stock of Generex Biotechnology Corporation
(hereinafter referred to as the "Company"), an Idaho corporation, at a price of
FOUR and 10/100 (US$4.10) DOLLARS per share, for a total purchase
price ________________________________ (US$____________ ) DOLLARS, on
and subject to the following terms and conditions:
1. Investor is making this subscription in the expectation that the
Company will accept this subscription and deliver its acceptance promptly
following receipt of the subscription from Investor. If this subscription is not
accepted by the Company before the close of business on the third business day
following the date of delivery to the Company of the within subscription, the
subscription shall expire and have no further force or effect, and Investor
shall have no further obligation hereunder. The Investor acknowledges and agrees
that this subscription is irrevocable, Investor is not entitled to cancel,
terminate or revoke the subscription or any agreements of Investor hereunder,
and that the subscription shall survive the death or disability of the Investor.
2. Payment for the aforementioned shares (the "Shares") will be delivered
to the Company at the above address by bank cashier's or certified check payable
to the Company, or by wire transfer of funds to the Company's account no.
400-764-7 in the name of the Company at Royal Bank of Canada located at 200 Bay
Street, Toronto, Ontario, routing number 00002, on the following dates in the
amounts indicated:
Date Due Payment Amount
-------- --------------
--
-------- --------------
<PAGE>
3. Unless Investor otherwise advises the Company, the Shares, when
issued, should be registered on the Company's books as follows:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4. Investor understands and agrees that:
(a) This subscription may be accepted or rejected, in whole or in
part, by the Company within the three business day period referred to in
Section 1 in its sole and absolute discretion.
(b) No federal, state or provincial authority in Canada or the United
States of America (the "US") has made any finding or determination as to
the merits of an investment in the Company.
(c) Investor is an "accredited investor" as that term is defined in
Rule 501(a), Regulation D, promulgated under the US Securities Act of 1933,
as amended (the "1933 Act"), and has conducted Investor's own investigation
of the Company, its business and financial position. Investor has requested
and received from the Company all information deemed necessary by Investor
in order to evaluate an investment in the Company. The Shares are being
acquired for Investor's own account and/or for the account of a limited
number of friends, family and/or close business associates of Investor, all
of whom also are accredited investors. Investor shall promptly advise the
Company if anyone other than the Investor is the beneficial owner of any
Shares registered in Investor's name, and shall furnish to the Company the
name and residence address of such beneficial owner(s).
(d) Because the Shares have not been registered under the 1933 Act or
the securities laws of any other country, state or province, and are being
sold to Investor in reliance upon an exemption from such registration
requirements for non-public offerings pursuant to Rule 506 of Regulation D
under the 1933 Act and from the prospectus requirements of Section 72(1)(d)
of the Ontario Securities Act, the Shares shall be subject to restrictions
on resale and/or other transfers to comply with and to assure future
compliance with such laws. Investor will not resell or otherwise transfer
any Shares except in compliance with such laws, and certificates for the
Shares will bear a legend to the effect that transfer of the Shares is
subject to restrictions to insure that any such transfer is in compliance
with such laws. In addition, stop transfer instructions will be placed with
the transfer agent for the Company's Common Stock to enforce such
restrictions.
2
<PAGE>
5. Investor understands that Investor must bear the economic risk of an
investment in the Shares for an indefinite period of time, and represents and
warrants to the Company that, except as indicated in paragraph 4(c) above,
Investor: is purchasing the Shares for Investor's own account and not for the
purpose of resale or otherwise effecting a distribution of the Shares; has no
contract, undertaking, agreement or arrangement with any person to sell,
transfer or pledge any Shares to such person or anyone else; has no present
plans to enter into any such contract, undertaking, agreement or arrangement;
and has full power and authority to execute and deliver this subscription and to
perform the obligations of Investor hereunder.
6. In addition to the investment representations and agreements set forth
in paragraphs 4 and 5 above, to induce the Company to accept this subscription
and as additional consideration for the Shares, the Investor agrees as follows:
(a) For a period of five (5) years from the date the Shares are issued
by the Company (the "Restricted Period"), Investor agrees to vote, or to
authorize a person designated by the Company's Board of Directors to vote,
as Investor's proxy, all Shares over which Investor has voting power as of
the record date of any meeting of shareholders of the Company in proportion
to the votes of all other shareholders of the Company cast at such meeting.
Investor further agrees that Investor will not authorize any other person
to vote such Shares in a manner inconsistent with Investor's agreements
herein, provided that nothing herein shall prevent Investor from selling or
otherwise disposing of any Shares, subject to the terms of paragraph (b)
and (c) below.
(b) During the first year of the Restricted Period, Investor will not
sell or otherwise transfer any Shares without the Company's prior written
approval. Thereafter, for the remainder of the Restricted Period, and
provided that a public market exists for the Company's Common Stock,
Investor will not sell any Shares without first offering to sell such
Shares to the Company at the then current Market Price of the Company's
publicly-traded shares of Common Stock. For this purpose, the Market Price
of shares of the Company's publicly-traded Common Stock shall be (i) the
average closing sale price during a period of twenty days immediately
preceding the date of such offer on which the New York Stock Exchange was
open for trading (the "Valuation Period")(or, if no sales are reported on
any given day, the closing "bid" price reported) for the Common Stock on
NASDAQ/NMS or, (ii) if the Common Stock is not listed on NASDAQ/NMS, such
closing sale or "bid" price as reported on any comparable automated
quotation system or exchange on which the Common Stock is then listed, or
(iii) any combination thereof.
(c) Any offer by Investor to sell Shares to the Company pursuant to
paragraph (b) above shall be in writing, shall set forth the proposed
manner in which Investor intends to sell the Shares if the offer to the
Company is not accepted (including the identity of the proposed buyer if
the proposed manner of sale is other than in routine "brokers'
transactions", within the meaning of that term as used in Rule 144 under
the 1933 Act), and shall be delivered to the Company at its address as set
3
<PAGE>
forth above, or at such other address that the Company may hereafter
designate for notice purposes. The Company shall have fifteen (15) calendar
days after receipt of such offer to accept the offer by delivering written
notice of its acceptance to Investor personally by hand or by Federal
Express courier to Investor at the address specified for this purpose by
Investor in Investor's offer to the Company or, if no address is so
specified, at the address for notice purposes as set forth below Investor's
signature hereon. The Company's acceptance shall be effective upon
delivery.
(d) If the Company timely accepts the offer, Investor shall tender the
Shares to the Company at office of the Company to which Investor's offer
was delivered, against payment for such Shares by certified check, bank
check or wire transfer funds to an account designated by Investor. If the
Company fails to timely accept the offer, Investor shall be free to sell
the Shares but only in the manner (and to the buyer identified in the offer
if the proposed manner of sale is not in routine brokers' transactions) set
forth in Investor's offer to the Company. If the Company accepts the offer
but fails to pay for the Shares specified in the offer in the manner
provided herein, all restrictions on resale of the Shares pursuant to
paragraph (b) above shall terminate.
(e) Notwithstanding anything to the contrary in paragraphs (b) and (c)
above, Investor may transfer record ownership of the Shares to any other
person who was the beneficial owner thereof at the time the Shares were
issued, subject to compliance with applicable securities laws and provided
that such person first enters into a separate agreement with the Company to
be bound by the provisions of this subscription relating to the voting and
transfer of Shares. In addition, after the first year of the Restricted
Period, Investor may sell in routine brokers' transactions during any
continuous ninety day period a number of Shares equal (in the aggregate) to
one (1%) percent of the total number of shares of the Common Stock of the
Company outstanding at the time of such sale.
(f) Certificates representing the Shares shall be legended to reflect
the above restrictions, as well as the securities laws restrictions
referred to in Section 4 above.
7. Investor recognizes that the sale of the Shares to Investor is being
made in reliance upon Investor's agreements, representations and warranties set
forth in paragraphs 4, 5 and 6 hereof. Investor agrees to indemnify the Company,
its agents and controlling persons for, and to hold each of them harmless
against, any liability, loss, damage cost or expense (including reasonable
attorneys' fees) arising from any breach thereof by Investor.
8. Acceptance of this subscription by the Company shall be effected by
the Company's signing (by its duly authorized officer) a copy of this
subscription in the space provided below, and by delivering that signed copy to
Investor personally by hand, or by delivering such signed copy via Federal
Express courier to Investor at the address for notice purposes set forth below
Investor's signature(s) hereon. The Company's acceptance shall be effective upon
delivery to Investor in accordance with this Section 8.
4
<PAGE>
9. Whenever a time for performance is specified herein, time shall be of
the essence of the parties' agreements herein and this subscription shall be
interpreted accordingly.
IN WITNESS WHEREOF, and intending to be legally bound hereby, the Investor has
executed this Subscription Agreement this ________ day of,_________________1998.
- --------------------------------------------------------------------------------
(Print name(s) of Investor)
- --------------------------------------------------------------------------------
(Signature of Investor(s) or Authorized Person. If signing in a representative,
please print name and title below signature.)
Investor's address for notice purposes is:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
*******************************************************************************
This Subscription is hereby accepted by Generex Biotechnology Corporation this
___ day of __________, 1998.
GENEREX BIOTECHNOLOGY CORPORATION
By:
----------------------------------
5
MEMORANDUM OF AGREEMENT
THIS AGREEMENT made as of the 7th day of January, 1998, between GENEREX
PHARMACEUTICALS INC., an Ontario corporation, GHI, INC. ("GHI"), a Turks and
Cacos corporation, GENEREX BIOTECHNOLOGY CORPORATION, a Delaware corporation,
DR. PANKAJ MODI ("Modi"), an individual, and GALAXY TECHNOLOGY, CANADA
("Galaxy"), a proprietorship of Modi's.
WHEREAS, Modi was engaged by Generex Pharmaceuticals, Inc. ("GPI") to
provide certain services to GPI in connection with its research and development
initiatives pursuant to a Consulting Agreement made as of the 1st day of
October, 1996 (the "Consulting Agreement") between CPI and Modi; and
WHEREAS, pursuant to an Assignment and Assumption Agreement made as of
the 1st day of October, 1997 (the "Assignment and Assumption Agreement"), Modi
assigned to GPI all of his rights, title and interests in and to certain drug
delivery systems and the intellectual property associated therewith
(collectively, the "Technology") and, in that regard, has executed and delivered
to GPI a number of related specific assignments (the "Specific Assignments");
and
WHEREAS, in connection with the execution of the Consulting Agreement
and Assignment of certain technology to GPI, Modi received shares of GPI common
stock, which shares were held of record by GHI for Modi's benefit, and
subsequently exchanged by GHI for shares of Generex Biotechnology corporation
("GBC"); and
WHEREAS, GBC now owns 100% of the outstanding capital stock of GPI; and
WHEREAS, Modi owns and controls Galaxy; and
WHEREAS, Modi has approached management of GPI and GBC, and indicated
that he executed and delivered the Consulting Agreement, Assignment and
Assumption Agreement and the Specific Assignments because he had satisfied
himself that E. Mark Perri, the current Chairman of the Board of GPI, Anna E.
Gluskin, the current President of GPI, and Rose C. Perri (collectively, the
"Management Group"), the founders and directing mind and will of GPI and the
individuals who currently manage or supervise the management of the business and
affairs of GPI, had the requisite skills, motivation and vision to make the
Technology a medical and commercial success on a worldwide basis, and in
reliance upon their representations to him that he would have a central role in
the ongoing research and development of the Technology; and
WHEREAS, Modi considers that his and the Management Group's continued
involvement is crucial to the successful development of the Technology and the
successful commercial marketing and sale of products employing the Technology
("Technology Products"); and
<PAGE>
WHEREAS, Modi has advised GPI that he intends to exercise his right to
terminate the Consulting Agreement in the absence of agreements and procedures
that will assure the continued involvement of Modi and the Management Group in
the development of the Technology and, ultimately, the manufacture of Technology
Products; and
WHEREAS, GPI and GBC consider that the continued involvement and
dedication of Modi is crucial to the successful creation and implementation of
the research and development initiatives required to create commercially viable
Technology Products;
NOW, THEREFORE, in consideration of Modi's continued support of GPI and
the Technology pursuant to the Consulting Agreement and for other good and
valuable consideration, the parties agree as follows:
1. Extension of Terms of Consulting Agreement. The Consulting Agreement
is hereby extended to and including December 31, 2004, and paragraph 5 of the
Consulting Agreement is amended accordingly. During the term of the Consulting
Agreement, Modi shall have the title of Vice President, Research and Development
of GPI and of GBC.
2. Compensation. Modi's annual fee for services is increased to
$132,000 (CDN) per year, payable in equal monthly installments of $11,000,
effective as of the earlier of (a) first day of the first month following the
date that GPI and GBC, collectively, receive additional equity capital of
$2,000,000 (US) or more, or (b) April 1, 1998.
3. Revisions of Section 7 of Consulting Agreement. Section 7 of the
Consulting Agreement is amended and restated in its entirety to provide the
following:
"7. Termination
This Agreement shall terminate upon the death of the Consultant or
declaration by a court of competent jurisdiction that the
Consultant is a mentally incompetent person or incapable of
handling his affairs due to mental incompetence, and may be
terminated:
(a) at any time by mutual agreement of the Corporation and the
Consultant in writing;
(b) by Consultant at any time after January 1, 2001, upon twelve
(12) months notice;
(c) by the Corporation for just cause at any time by giving thirty
(30) days written notice thereof to the Consultant. As used herein,
the term "just cause" shall mean and be limited to:
(i) a material breach of trust by the Consultant which causes
or threatens serious injury to the Corporation;
(ii) gross negligence or incompetence on the part of the
Consultant;
2
<PAGE>
(iii) a material breach of any provision of this Agreement by
the Consultant;
(iv) inability of the Consultant as a result of a bona fide
illness, physical or mental, to attend to his duties hereunder for
a period of twenty-four (24) consecutive weeks, which period shall
be deemed to commence with such inability and shall continue until
the Consultant is once again able to attend to his duties hereunder
on a regular basis;
(v) disobedience or intentional neglect by the Consultant of
any written directive of the Chief Executive Officer of the
Corporation which is neither inconsistent with Consultant's duties,
authority or rights under this or any other agreement between
Consultant and the Corporation, nor outside the scope of his normal
duties as Vice President, Research and Development; or
(vi) any action by the Consultant taken with the intent to
materially and adversely affect a material interest of the
Corporation."
4. Consent Required. During the term of the Consultant Agreement,
neither GPI nor GBC, without first consulting with Modi and obtaining his
express consent or approval, which consent or approval shall not be withheld by
Dr. Modi unreasonably, shall do any of the following or suffer or permit any
affiliate of theirs or any other person to do any of the following:
(a) Publish any papers or otherwise make any public disclosure of
previously unpublished research, formulations, test results or other
confidential and/or proprietary data relating to the Technology; or
(b) Enter into a contract for the manufacture of Technology
Products, or components of Technology Products; or
(c) License any other person or entity to use the Technology.
For purposes hereof, in determining whether or not withholding
consent to any of the foregoing actions is unreasonable, among the factors that
shall be considered, in the case of (a), are the possible injury to the
Corporation and/or the Corporation's research and development program and, in
the case of (b) and (c), the commercial and scientific reputation and expertise
and financial strength of a prospective manufacturer or licensee.
5. Election of Modi as a Director. So long as the Consulting Agreement
is in force, GPI and GBC shall use their best efforts to cause Modi to be
nominated for election and elected a director of both GPI and GBC.
6. Issuance of Special Voting Rights Preferred Stock. Simultaneously
with the execution and delivery of this Agreement, and in consideration of his
execution of this Agreement and the sum of $100.00 (US), receipt of which is
3
<PAGE>
acknowledged, GBC shall issue and deliver to Modi one thousand (1,000) shares of
GBC's Special Voting Rights Preferred Stock (the "SVR Preferred"), the special
voting and other rights of which are set forth in the form of "Designation of
Special Voting Rights Preferred Stock" attached hereto as Exhibit "A". So long
as the SVR Preferred is outstanding, GBC shall not issue any shares of capital
stock or take any other corporate actions which would limit or interfere with
the exercise of the voting rights of holders of SVR Preferred.
7. Reimbursement for Prior Costs Incurred. GPI shall pay $150,000 (CDN)
to Modi to reimburse Modi for costs previously incurred by him in connection
with preparation and filing of patent applications and conducting of tests and
clinical trials relating to the Technology. This amount shall be paid in three
$50,000 installments on March 31, 1998, June 30, 1998 and September 30, 1998.
8. Counsel for the Transaction. (a) each of the parties hereto has
requested Joseph Chicco ("Chicco") of the firm Connolly Epstein Chicco Foxman
Engelmyer & Ewing, Philadelphia, PA, to represent him/it in connection with the
preparation and execution of this Memorandum of Agreement. Each of the parties
understands that Chicco represents GPI and GBC in matters wholly unrelated to
this transaction, but that the business of GPI and GPC is materially dependent
on Modi's research and inventions. The parties understand that, with respect to
the transactions contemplated by this Memorandum of Agreement, no communications
to Chicco by a party shall be considered confidential so as to preclude
disclosure to other parties, and the parties acknowledge that Chicco has advised
them that he may communicate information obtained from one party to one or more
other parties, and will communicate all such information received to another
party upon its request. The parties understand that, in this capacity, Chicco
cannot be an advocate for his or its interest against the interest of one or
more of the other parties. Rather, his role shall be to advise each party on
the effect and meaning of various terms that may be proposed by one or more of
the parties, and to attempt to mediate and facilitate a resolution of any
disputed proposals. Chicco's fees and expenses in connection with this
representation shall be paid by GBC.
(b) Each of the parties waives all real and potential conflicts of
interests that arise out of Chicco's multiple representation of the parties in
this transaction.
9. GBC Common Stock. GHI presently owns 8,688,427 shares of GBC Common
Stock. GHI and each of the other parties hereto acknowledge that 3,095,238 of
such shares (the "Modi Shares") are held in trust for Modi. At Modi's request,
record ownership of the Modi Shares shall be transferred to Modi or his nominee
by GHI.
10. Galaxy. All assignments of Technology heretofore made by Modi are
intended to include all rights, title and interest of Galaxy in and to such
Technology.
11. Governing Law. This Memorandum of Agreement shall be governed by
the laws of the Province of Ontario and of Canada applicable therein, and the
parties hereby irrevocably attorn to the jurisdiction of the courts of the
Province of Ontario, except that the parties' rights and obligations with
respect to paragraph 6 above shall be governed by the laws of the State of
Delaware.
4
<PAGE>
12. Assignment. The benefits of this Memorandum of Agreement may not be
assigned, in whole or in part, by any party without the prior written consent of
the others, but this Agreement nevertheless shall be binding upon the parties,
their respective heirs, legal personal representatives, successors and permitted
assigns.
IN WITNESS WHEREOF, the parties have executive and delivered this
Memorandum of Agreement as of the date first written above.
Witness:
/S/ /S/ Pankaj Modi
- -------------------------- ----------------------------------------
Pankaj Modi, individually and on behalf Of
Galaxy Technology, Canada
GENEREX PHARMACEUTICALS INC.
Per: /S/ Anna E. Gluskin
------------------------------------
Anna E. Gluskin, President
Per: /S/ E. Mark Perri
------------------------------------
E. Mark Perri, Chairman
GENEREX BIOTECHNOLOGY CORP.
Per: /S/ Anna E. Gluskin
------------------------------------
Anna E. Gluskin, President
Per: /S/ E. Mark Perri
------------------------------------
E. Mark Perri, Chairman
GHI, INC.
Per: /S/ Anna E. Gluskin
------------------------------------
Anna E. Gluskin, President
Per: /S/ E. Mark Perri
------------------------------------
E. Mark Perri, Chairman
5
<PAGE>
CONSULTING AGREEMENT
THIS AGREEMENT made as of the 1st day of October, 1996.
B E T W E E N:
GENEREX PHARMACEUTICALS INC.,
a corporation incorporated under
the laws of the Province of Ontario
(the "Corporation")
- and -
DR. PANKAJ MODI,
an individual residing in the
City of Hamilton in the
Province of Ontario,
carrying on business as
Galaxy Technology Canada
(the "Consultant")
WHEREAS, the Corporation is engaged in the business of the development,
manufacturing, marketing, distribution and sale of generic drug products (the
"Business");
AND WHEREAS, the Corporation wishes to engage the Consultant and obtain
certain services of the Consulting on and subject to the terms of this
Agreement;
THE PARTIES AGREE AS FOLLOWS:
1. Appointment
The Corporation hereby appoints the Consultant to serve as a consultant to
the Corporation to perform such services or such duties as the management of the
Corporation may from time to time request, at a remuneration and upon and
subject to the terms set forth in this Agreement, which the Consultant accepts.
2. Services
Subject to section 1 hereof, the Consultant shall provide the following
services to, for and on behalf of the Corporation:
(a) the provision of management, administration and supervision in respect
of the Corporation's research and development activities in connection
with the Business;
<PAGE>
(b) the determination, establishment and implementation of effective
operating procedures for the conduct of the Corporation's research and
development activities in an efficient and effective manner;
(c) the implementation and achievement of the general corporate goals,
plans and objectives of the Corporation in respect of research and
development and, in connection therewith, full cooperation with the
officers and employees of the Corporation;
(d) the preparation and submission to the President of the Corporation of
periodic reports in respect of the Corporation's research and
development activities;
(e) the enhancement of the image and reputation of the Corporation; and
(f) the promotion of the best interests and well-being of the Corporation
generally,
and such other advisory, operational or consultative functions as the
Corporation may reasonably require in connection with the Business. During the
continuance of this Agreement, the Consultant shall well and faithfully serve
the Corporation and shall report to the President of the Corporation.
3. Full Time and Attention
Unless prevented by ill health or other sufficient cause, the Consultant
shall devote, during the term of this Agreement, his full working time,
attention, skill and efforts to the Corporation as required herein, and the
Consultant shall not, without the prior written consent of the Corporation,
engage in any other activities competitive with the Business or other
undertakings from time to time carried on by the Corporation or any affiliate
thereof.
Notwithstanding the foregoing, the Consultant shall be entitled to an
aggregate of three (3) weeks vacation during each of the first three (3) years
of the term of this Agreement and an aggregate of four (4) weeks vacation during
each year of the term of this Agreement thereafter.
4. Independent Contractor
Nothing herein contained shall be construed to be or have effect as a
relationship of employer and employee between the Corporation and the
Consultant. The Consultant acknowledges that any benefits not specifically
listed in this Agreement for his employees providing services under this
Agreement shall be for his sole account.
5. Term
Unless sooner terminated as provided for herein, this Agreement shall
commence on the 1st day of October, 1996, and shall continue until October 31,
2001.
<PAGE>
6. Compensation Fee and Benefits
For the services to be rendered by the Consultant to the Corporation
hereunder, subject to the provisions of this Agreement, the Consultant shall be
entitled to receive and the Corporation shall provide during the term of this
Agreement:
(a) a fee of Eighty Four Thousand Dollars ($84,000) for each year during
the term of this Agreement, which shall be paid in equal monthly
installments of Seven Thousand Dollars ($7,000) each payable on the
30th day of each month, not in advance; and
(b) the sum of Five Hundred Dollars ($500) per month payable on the 30th
day of each month, not in advance, to offset the expenses and costs
(including expenses and costs incurred in obtaining and operating an
automobile) incurred in connection with the performance of the
Consultant's services hereunder (for greater certainty, any and all
expenses and costs incurred by the Consultant in excess of such
offsetting payment shall be the sole responsibility of and borne by
the Consultant).
7. Termination
This Agreement shall terminate upon the death of the Consultant or
declaration by a court of competent jurisdiction that the Consultant is a
mentally incompetent person or incapable of handling his affairs due to mental
incompetency and may be terminated:
(a) at any time by mutual agreement of the Corporation and the Consultant
in writing;
(b) by either the Consultant or the Corporation without cause at any time
upon 12 months written notice;
(c) by the Corporation for just cause at any time by giving written notice
thereof to the Consultant. Without limiting the generality of the
foregoing, "just cause" shall include:
(i) any cause which would entitle the Corporation at law to terminate
the service of the Consultant without either notice or pay in
lieu of notice;
(ii) a material breach of trust or duty by the Consultant;
(iii) dishonesty on the part of the Consultant;
(iv) gross negligence or incompetence on the part of the Consultant;
(v) a material breach of any provision of this Agreement;
(vi) inability of the Consultant as a result of bona fide illness,
physical or mental, to attend on a fully time basis, to his
duties hereunder for a period of twenty-four (24) weeks, which
<PAGE>
period shall be deemed to commence on the first business day that
the Consultant does not attend to his duties hereunder on a full
time basis, statutory holidays and vacations excepted, and to
continue until the Consultant has resumed attendance to his
duties hereunder on a full time basis for thirty (30) consecutive
business days;
(vii) if the Consultant files an assignment in bankruptcy or is
adjudicated a bankrupt;
(viii) disobedience or neglect by the Consultant of any reasonable
directions of the President of the Corporation; or
(ix) any action done by the Consultant knowingly or intentionally
which is materially detrimental to the welfare or interest of the
Corporation, its reputation or the Business.
In the event of termination, either with or without cause, the Consultant shall
receive:
(a) all fees owing until the date of termination; and
(b) any benefit to which the Consultant is otherwise entitled to under
this Agreement, for services performed to date of termination.
The Consultant acknowledges that the amounts received under this section
constitute settlement in full of any claims against the Corporation in respect
of termination of this Agreement by the Corporation for just cause or otherwise.
8. Confidentiality
The Consultant covenants and agrees with the Corporation that he will not,
either during the continuance of this Agreement or at any time thereafter,
disclose any confidential information or trade secrets or any other information
received by him during the continuance of this Agreement with regard to the
financial, operational or other affairs of the Corporation to any person, nor
shall they use the same for any purpose other than in furtherance of the
Business.
9. Assignment and Disclosure of Inventions
The Consultant hereby assigns and transfer to the Corporation his entire
right, title and interest in and to all Inventions (as used in this Agreement,
"Inventions" shall include but not be limited to, ideas, improvements, designs
and discoveries), whether or not patentable and whether or not reduced to
practice, made or conceived by the Consultant (whether made solely by him or
jointly with others) during the term of this Agreement which relate in any
manner to the Business or the actual or demonstrably anticipated business, work,
undertaking or research and development of the Corporation or its subsidiaries
or results from or are suggested by any task assigned to the Consultant or work
performed by him for or on behalf of the Corporation or its subsidiaries either
alone or jointly with any other employee or agent of the Corporation and
acknowledge that all such Inventions are the sole property of the Corporation
<PAGE>
(including, without limitation, Inventions relating to controlled release drugs,
topical insulin, intra-nasal insulin and liposomes creams). The Consultant shall
disclose such Inventions promptly in writing to the President of the Corporation
in order to permit the Corporation to claim rights to which he may be entitled
under this Agreement. The Consultant shall, at the Corporation's request,
promptly execute written assignments of title to the Corporation for any
Invention required to be assigned by this Agreement (an "Assignable Invention")
and will preserve any such Assignable Invention as confidential information of
the Corporation. Upon request, the Consultant shall assist the Corporation or
its nominee at the Corporation's expense during and at any time subsequent to
the termination of this Agreement, in every reasonable way, in obtaining for the
Corporation's benefit patents and copyrights for Assignable Inventions in any
and all jurisdictions, which Inventions shall be and remain the sole and
exclusive property of the Corporation or its nominee whether or not patented or
copyrighted and shall execute such papers and perform such lawful acts as the
Corporation deems to be necessary to allow him to exercise all rights, title and
interest in such patents and copyrights. The request and at its expense all such
documents, including applications for patents and copyrights and assignments of
Inventions, patents and copyrights to be issued therefor, as the Corporation may
determine are necessary or desirable to apply for and obtain patents and
copyrights on Assignable Inventions in any and all countries and/or to protect
the interests of the Corporation or its nominees in such Inventions, patents and
copyrights and to vest title thereto in the Corporation or its nominee.
10. Severability
In the event that any covenant or portion of any covenant contained in this
Agreement shall be unenforceable or be declared invalid for any reason
whatsoever by a court of competent jurisdiction, such unenforceability or
invalidity shall not affect the enforceability or validity of the remaining
covenants or portion of such covenant, and such unenforceable or invalid
covenant or portion shall be severable from the remainder of this Agreement.
11. Non-Transferability
Neither the Consultant, nor any person claiming through the Consultant,
shall have any right to commute, anticipate, encumber or dispose of any payment
hereunder, which payments and rights thereto are expressly declared
non-assignable and non-transferable, except as otherwise specifically provided
herein.
12. Waiver
The failure of either party to insist upon performance of, or the waiver by
any party of a breach of, any terms or conditions of this Agreement shall not be
construed as a waiver of the future performance of such term or condition, and
the rights and obligations of either party with respect thereto shall continue
in full force and effect.
<PAGE>
13. Notices
All notices required or permitted to be given by one party to the other
shall be given in writing by personal delivery or by registered mail, postage
prepaid, addresses to such other party or delivered to such other party as
follows:
(a) to the Corporation, addressed to the attention of the President, at:
33 Harbour Square
Suite 202
Toronto, Ontario
M5J 2G2
(b) to the Consultant at:
1928 Main Street West
Suite 609
Hamilton, Ontario
L85 1J4
Or at such other address as may be given by either of them to the other in
writing from time to time and such notices shall be deemed to have been received
when delivered, or, if mailed, five (5) business days following the date of
mailing thereof; provided that if regular mail service shall be interrupted, any
mailed notice shall be deemed to have been received five (5) business days
following the resumption of normal mail service.
14. Governing Law
This Agreement shall be governed by and construed in accordance with the
laws of the Province of Ontario and the laws of Canada applicable therein.
15. Currency
All dollar amounts referred to in this Agreement are in Canadian funds.
16. Binding Effect
This Agreement shall enure to the benefit of and be binding upon the
parties hereto and their respective legal personal representatives, successors
and assigns, save and except as otherwise specifically provided herein.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
GENEREX PHARMACEUTICALS INC.
Per: /S/ Anna Gluskin
---------------------------------
Name: Anna Gluskin
Title: President
/S/ Pankaj Modi
- -------------------------- ---------------------------------
Witness DR. PANKAJ MODI
<PAGE>
CONSULTING AGREEMENT
THIS ADDITION IS MADE TO AGREEMENT made as of the 1st day of October, 1996
BETWEEN:
GENEREX PHARMACEUTICALS INC.
(the "Corporation")
DR. PANKAJ MODI
(the "Consultant")
Page 4, Clause 9
Further to the clause 9 of this Agreement, in consideration for the assignment
of the intellectual properties specified in schedule A, the consultant will be
receiving further compensation in the form of financial remuneration and shares,
subject to negotiation by separate agreement.
IN WITNESS WHEREOF the parties hereto have executed this Agreement as of the
date first written above.
GENEREX PHARMACEUTICALS INC.
Per: /S/ Anna Gluskin
---------------------------------
Name: Anna Gluskin
Title: President
/S/ Pankaj Modi
- -------------------------- ---------------------------------
Witness DR. PANKAJ MODI
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
Name Place of Incorporation
- ---- ----------------------
Generex Pharmaceuticals, Inc. Ontario, Canada
Generex Animal Health Group, Inc. New Jersey
GBT Delaware, Inc. Delaware
Generex Ecuador SA Ecuador
Centrum Biotechnologies Inc. Ontario, Canada
1097346 Ontario, Inc. Ontario, Canada
All subsidiaries conduct business only under their respective corporate names.
All subsidiaries are 100% owned except for Centrum Biotechnologies, Inc., which
is 50% owned.
Exhibit 23.1.1
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use in the Registration Statement of Generex
Biotechnology Corporation (the "Company") on Form 10 of our report dated October
15, 1998, on the consolidated financial statements of the Company as of July 31,
1998 and for the year then ended, and our joint report with Mintz & Partners
dated October 15, 1998, on the consolidated financial statements of the Company
as of July 31, 1997 and for the year ended July 31, 1997, and for the period
November 2, 1995 (date of inception) to July 31, 1996, which consolidated
financial statements appear in the Registration Statement.
Withum, Smith & Brown
New Brunswick, New Jersey
December 14, 1998
Exhibit 23.1.2
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use in the Registration Statement of Generex
Biotechnology Corporation (the "Company") on Form 10 of our joint report with
Withum, Smith & Brown dated October 3, 1997, on the consolidated financial
statements of the Company as of July 31, 1997 and for the year then ended, and
for the period November 2, 1995 (date of inception) to July 31, 1996, which
consolidated financial statements appear in the Registration Statement.
Mintz & Partners
Toronto, Ontario
December 14, 1998
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