UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended January 31, 2000
[ ] TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to .
-------------------- ---------------------
COMMISSION FILE NUMBER: 0-25169
GENEREX BIOTECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 82-0490211
- ------------------------------- --------------------------------
(State of other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
33 HARBOR SQUARE, SUITE 202
TORONTO, ONTARIO
CANADA M5J 2G2
(Address of principal executive offices)
416/364-2551
(Registrant's telephone number, including area code)
Not applicable
-----------------------------------------------------------------
(Former name, former address and former fiscal year
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of outstanding shares of the registrant's Common Stock, par value
$.001, was 15,213,773 as of January 31, 2000.
Page 1 of 19
<PAGE>
GENEREX BIOTECHNOLOGY CORPORATION
INDEX
PART I: FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements - unaudited
Consolidated Balance Sheets --
January 31, 2000 and July 31, 1999 ............................ 3
Consolidated Statements of Operations -- for the six month
periods ended January 31, 2000 and 1999, the six month periods
ended January 31, 2000 and 1999, and cumulative from November
2, 1995, to January 31, 2000................................... 4
Consolidated Statements of Cash Flows -- For the six-month
periods ended January 31, 2000 And 1999, the six month periods
ended January 31, 2000 and 1999, and cumulative from November
2, 1995, to January 31, 2000................................... 5
Notes to Consolidated Financial Statements..................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................ 11
PART II: OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 15
Item 5. Other Information.............................................. 17
Signatures................................................................... 19
Page 2 of 19
<PAGE>
Item I. Consolidated financial statements
GENEREX BIOTECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
January 31, July 31,
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 4,730,735 $ 5,633,201
Short-term investments 254,014 232,345
Miscellaneous receivables 69,897 182,413
Other current assets 87,657 119,010
------------ ------------
Total Current Assets 5,142,303 6,166,969
Property and Equipment, Net 2,189,462 1,879,547
Deposits 72,399 66,159
Due From Related Parties 778,828 776,991
------------ ------------
TOTAL ASSETS $ 8,182,992 $ 8,889,666
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 887,965 $ 428,874
Current maturities of long-term debt 560,896 550,589
------------ ------------
Total Current Liabilities 1,448,861 979,463
Long-Term Debt, Less Current Maturities 269,094 444,971
Due to Related Parties 161,916 155,383
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, $.001 par value; authorized 1,000,000 shares,
issued and outstanding 1,000 shares at January 31, 2000
and July 31, 1999 1 1
Common stock, $.001 par value; authorized 50,000,000 shares,
issued and outstanding 15,213,773 and 14,740,683 shares at
January 31, 2000 and July 31, 1999, respectively 15,214 14,741
Additional paid-in capital 23,622,419 20,903,728
Notes receivable - common stock (252,902) (434,903)
Deficit accumulated during the development stage (16,973,323) (12,975,678)
Accumulated other comprehensive loss (108,288) (198,040)
------------ ------------
Total Stockholders' Equity 6,303,121 7,309,849
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,182,992 $ 8,889,666
============ ============
</TABLE>
The Notes to Consolidated Financial Statements
are an integral part of these statements.
-3-
<PAGE>
GENEREX BIOTECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Cumulative
From
November 2,
1995 (Date of
For the Three Months Ended For the Six Months Ended Inception)
January 31, January 31, to January 31,
----------------------------- -----------------------------
2000 1999 2000 1999 2000
------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Revenues $ -- $ -- $ -- $ -- $ --
Operating Expenses:
Research and development 1,026,253 654,719 1,436,172 1,240,977 4,905,772
Research and development - related party -- -- -- -- 220,218
General and administrative 1,887,743 1,250,224 2,660,166 1,702,775 11,556,436
General and administrative - related party -- -- -- -- 314,328
------------ ------------ ------------ ------------ ------------
Total Operating Expenses 2,913,996 1,904,943 4,096,338 2,943,752 16,996,754
------------ ------------ ------------ ------------ ------------
Operating Loss (2,913,996) (1,904,943) (4,096,338) (2,943,752) (16,996,754)
Other Income (Expense):
Interest income 63,652 -- 127,474 66 182,664
Interest expense (28,529) (18,578) (28,781) (33,640) (159,233)
------------ ------------ ------------ ------------ ------------
Net Loss $ (2,878,873) $ (1,923,521) $ (3,997,645) $ (2,977,326) $(16,973,323)
============ ============ ============ ============ ============
Basic and Diluted Net Loss Per Common
Share $ (.19) $ (.15) $ (.27) $ (.24)
============ ============ ============ ============
Weighted Average Number of Shares of
Common Stock Outstanding 14,824,124 13,029,867 14,783,254 12,637,233
============ ============ ============ ============
</TABLE>
The Notes to Consolidated Financial Statements
are an integral part of these statements.
-4-
<PAGE>
GENEREX BIOTECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Cumulative
From
November 2,
For the Six Months Ended 1995 (Date of
January 31, Inception)
------------------------------- to January 31,
2000 1999 2000
------------ ------------ ------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net loss $ (3,997,645) $ (2,977,326) $(16,973,323)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 44,883 19,277 168,752
Reduction of notes receivable - common
stock in exchange for services rendered 182,001 -- 220,980
Common stock issued for services rendered -- 245,408 1,174,428
Stock options and warrants issued for
services rendered 924,350 340,564 2,605,224
Preferred stock issued for services rendered -- -- 100
Founders shares transferred for services
rendered -- -- 353,506
Changes in operating assets and liabilities:
Miscellaneous receivables 118,839 -- (23,769)
Other current assets 33,801 (24,387) (90,166)
Accounts payable and accrued liabilities 452,754 158,984 1,691,566
Other, net -- (9,215) 110,317
------------ ------------ ------------
Net Cash Used in Operating Activities (2,241,017) (2,246,695) (10,762,385)
Cash Flows From Investing Activities:
Purchase of property and equipment (85,095) (676,994) (377,886)
Change in restricted cash -- 105,655 (5,595)
Purchase of short-term investments (21,670) -- (254,015)
Change in deposits (3,419) 16,442 (21,020)
Change in due from related parties 30,491 403,459 (2,515,679)
Other, net -- -- 89,683
------------ ------------ ------------
Net Cash Used in Investing Activities (79,693) (151,438) (3,084,512)
Cash Flows From Financing Activities:
Proceeds from issuance of long-term debt -- -- 993,149
Repayment of long-term debt (393,182) (388,565) (873,220)
Change in due to related parties -- (80,299) 154,541
Proceeds from issuance of common stock, net 1,794,815 3,991,942 18,411,561
Purchase and retirement of common stock -- (119,066) (119,066)
------------ ------------ ------------
Net Cash Provided By Financing Activities 1,401,633 3,404,012 18,566,965
Effect of Exchange Rates on Cash and Cash Equivalents 16,611 (2,012) 10,667
------------ ------------ ------------
Net Increase (Decrease) in Cash and Cash Equivalents (902,466) 1,003,867 4,730,735
Cash and Cash Equivalents, Beginning of Period 5,633,201 2,090,827 --
------------ ------------ ------------
Cash and Cash Equivalents, End of Period $ 4,730,735 $ 3,094,694 $ 4,730,735
============ ============ ============
</TABLE>
The Notes to Consolidated Financial Statements
are an integral part of these statements.
-5-
<PAGE>
GENEREX BIOTECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
The accompanying unaudited interim consolidated financial statements have
been prepared pursuant to the rules and regulations for reporting Form
10-Q. Accordingly, certain information and disclosures required by
generally accepted accounting principles for complete financial statements
are not included herein. The interim statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's latest Annual Report on Form 10-K.
Interim statements are subject to possible adjustments in connection with
the annual audit of the Company's accounts for the fiscal year 2000; in the
Company's opinion, all adjustments necessary for a fair presentation of
these interim statements have been included and are of a normal and
recurring nature.
2. Comprehensive Income/(Loss)
The Company has adopted the provisions of Statement No. 130, Reporting
Comprehensive Income, which modifies the financial statement presentation
of comprehensive income and its components. Adoption of this statement had
no effect on the Company's financial position or operating results.
Comprehensive loss, which includes net loss and change in the foreign
currency translation account during the period, for the six months ended
January 31, 2000 and 1999 was $(3,907,893) and $(2,984,924), respectively.
3. Accounts Payable and Accrued Expense
Accounts payable and accrued expenses consist of the following:
January 31, July 31,
2000 1999
--------- ---------
Accounts Payable and Accrued Expenses $ 818,799 $ 366,927
Litigation Accrual 69,166 --
Consulting Accruals -- 61,947
--------- ---------
Total $ 888,965 $ 428,874
========= =========
4. 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. Sands alleged that it had the
right to receive, for nominal consideration, approximately 1.6 to 2.5
million shares of the Company's common stock. This claim was based upon an
October 1997 letter agreement, which purported to confirm an agreement
appointing Sands Brothers as the exclusive financial advisor to Generex
Pharmaceuticals, Inc., (GPI), now a subsidiary of the Company. In exchange
for agreeing to act in that capacity, the letter agreement purports to
grant Sands the right to acquire 17% of GPI's common stock for nominal
consideration. Following the Company's acquisition of GPI, Sands claimed
right to receive shares of GPI's common stock applies to the Company's
common stock since outstanding shares of GPI were converted into the
Company's shares in the acquisition. Sands' claims also included additional
shares as a fee related to that acquisition, and $144,000 in monthly fees
due under the terms of the purported agreement.
-6-
<PAGE>
GENEREX BIOTECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. Pending Litigation (Continued)
On October 1, 1999, the Company was informed that the arbitration panel
that heard this case had awarded Sands $14,070 and issued a declaratory
judgment to the effect that the Company is required to issue to Sands a
warrant to purchase 1,530,020 shares of the Company's common stock pursuant
to and in accordance with the terms of the October 9, 1997 letter
agreement. Thereafter, Sands filed a motion to confirm the award with the
New York Supreme Court. In November 1999, the Company filed a cross-motion
to vacate the award. Briefing of these motions was completed in December
1999, and a hearing on the motion took place in January 2000. The Company
is presently awaiting a decision of the court on these motions.
If the Company is unsuccessful in their effort to vacate the arbitration
award obtained by Sands and are required to issue warrants or other
securities to Sands under the October 1997 letter agreement, the Company
will record a charge to operations, and a corresponding increase to
Additional Paid in Capital, equal to the fair value of the securities
issued to Sands less any consideration which the Company receives for the
securities. However, the Company's ultimate legal and financial liability,
including a range of possible losses with respect to the award, cannot be
estimated at this time. Therefore, no provision for the award has yet been
recorded in the financial statements. The Company does not believe that the
final outcome of this case is reasonably likely to have a material adverse
effect on their consolidated financial position apart from any charge to
operations as previously described.
In February 1997, a claim of wrongful dismissal by a former employee
seeking damages of approximately $311,245 was brought in Ontario Court in
Toronto, Ontario. This case was tried without a jury in October 1999, and a
decision in favor of the plaintiff in the amount of approximately $131,908,
plus interest and costs was rendered against the Company in December 1999.
The Company is presently awaiting the resolution of certain issues relating
to the assessment of interests and costs by the court. When those issues
are resolved, the Company intends to appeal the trial court's decision.
The Company's management, after consultation with its legal counsel, has
determined the range of likely loss to be approximately $69,166 to $192,281
and therefore have recorded a charge to operations accordingly.
An action was also commenced against GPI and other companies and
individuals seeking approximately $4,080,000 for allegedly causing certain
adverse consequences of a plaintiff's investment in a particular 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. On December 9, 1999, an application was filed to set aside
the notice of default and permit the Company to enter a statement of
defense. The Company has not yet received a formal decision or a formal
order denying their applications. Once the order is served, the Company
will have a period of seven days to seek a new hearing before a judge,
which is in essence is a new proceeding at which new evidence can be
introduced. The Company cannot now predict whether it will succeed in
setting aside the notice of default. Failure to do so would preclude the
Company from contesting the issue of liability. The Company, however, would
be permitted to contest the amount of damages, if any, the plaintiff as a
result of the Company's actions or the actions for which the Company is
legally responsible.
-7-
<PAGE>
GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. Pending Litigation (Continued)
In February 1999, MQS, Inc., a former consultant to the Company, commenced
a civil action against the Company in the United States District Court for
the District of New Jersey claiming that 242,168 shares of the Company's
Common Stock, and $243,066 are due to it for services which it rendered
through December 22, 1998. MQS also claims compensation on a quantum merit
basis for the value of its services, and for punitive damages. In May 1999,
the Company responded to the complaint in which the Company denied that MQS
is entitled to the relief it seeks or that any of the Company's' products
or technology incorporates any proprietary technology belonging to MQS. The
Company has also filed a counterclaim against MQS, Inc. for breach of
contract.
In December 1999, the Company filed a motion with the court to amend their
answer and counterclaim to add additional claims against MQS, including
claims based upon unauthorized use and misappropriation of the Company's
trade secrets and technology by MQS, and to add additional parties as
counterclaim defendants. Subsequent to the Company's filing, MQS filed a
motion to amend its complaint to add certain officers of the Company as
individual defendants on the claims previously made. The Company and MQS
have agreed to allow the other to amend its pleadings in the manner sought
and are jointly developing a schedule for responding to the new pleadings
and conducting discovery in the case. The Company is unable to predict the
outcome of this litigation at this time.
With respect to all litigation, as additional information concerning the
estimates used by the Company become known, the Company reassesses its
position both with respect to accrued liabilities and other potential
exposures. Estimates that are particularly sensitive to future change
relate to legal matters, which are subject to change as events evolve and
as additional information becomes available during the administration and
litigation process.
5. Net Loss Per Share
Basic EPS and Diluted EPS for the six months ended January 31, 2000 and
1999 have been computed by dividing the net loss for each respective period
by the weighted average shares outstanding during that period. All
outstanding warrants and options have been excluded from the computation of
Diluted EPS as they are antidilutive.
6. Supplemental Disclosure of Cash Flow Information
<TABLE>
<CAPTION>
For the Six Months Ended
January 31,
------------------------
2000 1999
----------- --------
<S> <C> <C>
Cash paid during the period for:
Interest $ 28,781 $ 33,640
Income taxes $ -- $ --
Disclosure of non-cash investing and financing activities:
Issuance of common stock to satisfy accrued liability $ -- $ 738,000
Long-term debt incurred in conjunction with acquisition
of property and equipment $ 190,206 $ 81,492
</TABLE>
-8-
<PAGE>
GENEREX BIOTECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
8. Transactions with Related Parties
The Company's change in "Due from Related Parties" and "Due to Related
Parties" for the six months ended January 31, 1999 represents cash
collections and the effects of changes in exchange rates during the six
month period ended January 31, 2000.
9. Stockholders' Equity
In exchange for services rendered, the Company issued a warrant to purchase
150,000 shares of the Company's common stock at a price of $7.50 per share,
with an expiration date of January 31, 2004. This warrant was determined to
have a value of $355,500 and was charged to operations.
In conjunction with raising capital, the Company issued a warrant to its
underwriter to purchase 47,059 units, with an exercise price of $4.25 per
unit. Each unit, until January 6, 2003, consists of one share of the
Company's common stock and three quarters of one of the Company's Series CU
warrants. On or after January 7, 2003 until January 7, 2005, the holder
shall be entitled to only receive shares of the Company's common stock.
Attached to each share of common stock sold during the private placement of
470,590 shares in January 2000, was three quarters of one of the Company's
Series CU warrants. Each CU warrant has an exercise price of $7.00 and
expires in January 2003.
10. Stock Based Compensation
The Company granted 1,280,000 Incentive Stock Options (ISOs) to employees,
of which 985,000 vested upon grant, 265,000 on January 3, 2001, 15,000 on
January 3, 2002 and 15,000 on January 3, 2003. The exercise price for all
1,280,000 is $5.00 per share. Since the Company accounts for its options
under APB No. 25, no compensation cost was recognized.
The Company granted 155,000 stock options to consultants, which vested upon
grant with an exercise price of $5.00 - $5.50 per share. The options
granted were determined to have a value of $366,350 and was charged to
operations.
In exchange for services rendered, the Company issued a stock option to
purchase 125,000 shares of the Company's common stock at a price of $8.00
per share, with an expiration date of June 15, 2004. The options granted
were determined to have a value of $202,500 and was charged to operations.
The Company granted 15,000 ISOs to employees, which vested in three equal
increments on April 14, 2000, April 14, 2001 and April 14, 2002, with an
exercise price of $5.50. Since the Company accounts for its operations
under APB No. 25, no compensation cost was recognized.
-9-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Forward Looking Statements
Statements in this discussion and analysis include forward-looking
statements within the meaning of Section 27A of the Securities Act and Section
21E of the Securities Exchange Act. You can identify these statements by the
use of words such as "may", "will", "expect", "anticipate", "believe",
"estimate", and similar terminology. Forward-looking statements address, among
other things:
o implementing our clinical programs and other aspects of our business
plans;
o financing goals and plans; and
o our expectations of when regulatory approvals will be received or
other actions will be taken by parties other than us.
While we believe it is important to communicate our expectations to
investors, these expectations involve known and unknown risks and uncertainties.
Future events that we are not able to accurately predict or which we do not
fully control may cause actual results to differ materially from those expressed
or implied by our forward-looking statements. Risks and uncertainties that may
affect our results may include, among others:
o unexpected costs or delays in carrying out our clinical programs;
o the availability of capital to carry out our clinical programs and
other business plans; and
o outcomes of pending litigations.
Because of these and other risks and uncertainties, we cannot guarantee
future results, levels of activity, performance or achievements.
General
Generex Biotechnology Corporation was incorporated in 1983 as Green Mt.
P.S., Inc. In January 1998, we 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 our corporate name
to Generex Biotechnology Corporation. The acquisition of Generex Pharmaceuticals
was effected by the merger of a recently formed Delaware corporation ("Generex
Delaware"), which had acquired all of the outstanding capital stock of Generex
Pharmaceuticals in October 1997, with a wholly-owned subsidiary which we formed
for this transaction (the "Reverse Acquisition"). As a result of the Reverse
Acquisition, the former shareholders of Generex Delaware acquired a majority of
our outstanding capital stock and, for accounting purposes, Generex Delaware was
treated as the acquiring corporation. Thus, the historical financial statements
of Generex Delaware, which essentially represent the historical financial
statements
Page 10 of 19
<PAGE>
of Generex Pharmaceuticals, are deemed to be the historical financial
statements of Generex Biotechnology Corporation.
On April 30, 1999, we completed a reorganization in which we merged into
Generex Delaware to change our state of incorporation from Idaho to Delaware.
This reorganization did not result in any material change in our historical
financial statements or current financial reporting. As part of the
reorganization, Generex Delaware changed its corporate name to "Generex
Biotechnology Corporation".
We are engaged in developing drug delivery systems. Our principal business
focus has been to develop a technology to administer large molecule drugs (i.e.,
drugs composed of molecules above a specified molecular weight) by the oral
route. Historically, large molecule drugs have been administered only by
injection because their size inhibits or precludes absorption if administered by
oral, transdermal, transnasal or other means.
The first product based on our large molecule drug delivery technology is a
liquid insulin formulation that is administered using a hand-held aerosol spray
applicator. The formulation, which includes insulin and various excipients
(i.e., non-active pharmaceutical ingredients) to facilitate the absorption of
insulin molecules through the mucous membranes in the mouth and upper
gastro-intestinal tract, is sprayed into and absorbed in the mouth and back of
the throat. This product is presently undergoing clinical trials in the United
States, Canada and England.
We do not expect to receive significant revenue from product sales in the
current fiscal year or in the next fiscal year. We may, however, receive
licensing income, or income in the nature of licensing income (e.g., "signing
bonuses" or "advance royalties") in connection with our entering into marketing
and distribution agreements. Income from such sources, if received, is likely to
be material relative to our total cash needs. We do not have any commitments to
receive such payments at the present time, and we do not expect to receive any
such payments in our current fiscal year.
Results of Operations - Three months ended January 31, 2000 and 1999
We have been in the development stage since its inception and have not
generated any operating revenues to date. Through January 31, 2000, we
accumulated an operating deficit of $16,973,323 as a result of research and
development and general and administrative expenses incurred during the
development stage.
Our accumulated operating deficit at January 31, 2000, includes an
operating loss of $2,913,996 for the quarter then ended. In the corresponding
quarter of the prior year our operating loss was $1,904,943. We had net interest
income of $35,123 in the quarter ended January 31, 2000 versus net interest
expense of $18,578 in the corresponding quarter of 1999.
The principal reason for the increase in our operating loss in the quarter
ended January 31, 2000, versus the quarter ended January 31, 1999, was an
increase in research and development expenses (to $1,026,253 from $654,719), and
in general and administrative expenses (to $1,887,743 from $1,250,224).
Page 11 of 19
<PAGE>
The increase in research and development expense in the current
period reflects the conduct of Phase II clinical trials of our oral insulin
formulation in the United States and Canada, preparation for the commencement
of clinical trials in Europe, and professional services relating to patents.
The increase in general and administrative expenses in the quarter ended
January 31, 2000, compared the prior year was primarily a result of increased
salary and other employee and consultant costs ($873,589 in the three months
ended January 31, 2000 versus $246,918 in the year earlier period), increased
legal and accounting expenses (to $455,170 from $349,962), and establishing a
$69,166 reserve for loss in a pending litigation. A significant portion of
personnel costs in the period were the result of non-cash compensation of
$924,350 in the form of options and warrants to purchase common stock. The
remaining increase in general and administrative expenses in the period was
attributable to travel expenses associated with administering our clinical
trials program and in presenting and attending industry seminars.
Results of Operations - Six months ended January 31, 2000 and 1999
Our operating loss for the six months ended January 31, 2000, was
$4,096,338, compared to an operating loss of $2,943,752 in the first half of the
preceding fiscal year. We had net interest income of $98,693 in the six month
period ended January 31, 2000 versus net interest expense of $33,574 in the
comparable six month period ended January 31, 1999.
The principal reasons for the increase in our operating loss in six month
period ended January 31, 2000, was an increase in research and development
expenses to $1,436,172 in the six month period ended January 31, 2000, from
$1,240,977 for the six month period ended January 31, 1999, and an increase in
general and administrative expenses to $2,660,166 in the six months ended
January 31, 2000 versus $1,702,775 in the year earlier period.
The increase in research and development expense in the six months ended
January 31, 1999, reflects the increase in such expenses in the second quarter.
Research and development expenses in the first quarter were slightly less this
year than last (by approximately $177,000), primarily because of consulting
expenses incurred in the first quarter last year.
The increase in general and administrative expenses the first six months of
the current year are primarily the result of the increase in such expenses
during the second quarter as discussed above. General and administrative
expenses increased approximately $319,872 in the first quarter, compared to the
comparable 1998 quarter, primarily as a result of increased legal and accounting
expenses incurred in connection with pending litigation and the registration of
securities under the Securities Act.
Liquidity and Capital Resources
To date we have financed our development stage activities primarily through
private placements of common stock. In January 2000, we raised approximately
$1.8 million of additional equity capital, net of costs of raising the capital
(approximately $200,000), in a private placement of common stock and warrants.
Primarily as a result of this additional equity financing, we had approximately
$4.7 of cash on hand at January 31, 2000 (versus approximately
Page 12 of 19
<PAGE>
$5.63 million cash on hand at July 31, 1999), despite our net loss in the
six months then ended and our use in this period of approximately $393,000 to
satisfy outstanding mortgages on certain of our Canadian facilities.
We believe that our cash on hand is sufficient to complete the Phase II
clinical programs for our oral insulin formulation in the United States and
Canada, to fund expected general and administrative expenses and anticipated
capital costs through the end of the current fiscal year, and to satisfy the
principal amount due in March 2000 (approximately $531,000) on a mortgage
incurred to purchase our existing executive and administrative offices.
Additional funds will be required, however, to carry out a Phase III clinical
program, to continue to fund other research and development activities and
general and administrative expenses in our next fiscal year, and to satisfy
obligations which become due next year. We expect to raise additional equity
capital in the third and fourth quarter of this year. As yet, however, we have
no commitments for additional financing of any kind. Thus, we face the risk that
unforeseen problems with our clinical program or materially negative
developments in general economic conditions could interfere with our ability to
raise the capital we need, or materially adversely affect the terms upon which
such capital is available. If we were unable to raise additional capital as
needed, we could be required to "scale back" or otherwise revise our business
plan. Any significant scale back of operations or modification of our business
plan due to a lack of funding could be expected to materially and adversely
affect our prospects.
We expect that a significant portion of our Phase III clinical program
costs will be obtained through licensing income and future marketing partners'
contributions to clinical program costs and/or equity investments. We do not,
however, have any licensing agreements or contractual arrangements for other
funding at the present time.
Transactions with Affiliates
Prior to January 1, 1999, a portion of our general and administrative
expenses resulted from transactions with affiliated persons, and a number of
capital transactions also involved affiliated persons. Although these
transactions were not the result of "arms-length" negotiations, we do not
believe that this fact had a material impact on our results of operations or
financial position. Prior to the current fiscal year, our classified payments to
its executive officers as compensation and expense reimbursements as "Research
and development - related party" because its executive officers received such
payments through personal services corporations rather than directly. For this
fiscal year and in the future, these payments have been and will be accounted
for as though the payments were made directly to the officers, and not as a
related party transaction. We do not foresee a need for, and therefore do not
anticipate, any related party transactions in the current fiscal year.
Year 2000 Issues
We have completed our assessment of year 2000 issues and believe that the
consequences of such issues will not have a material effect on our business,
results of operations or financial condition, without taking into account any
efforts by us to avoid such consequences.
Page 13 of 19
<PAGE>
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in either assets or
liabilities. As amended in June 1999 by SFAS No. 137 this statement is effective
for all fiscal years beginning after June 15, 2000, and is not to be applied
retroactively to financial statements for prior periods. The impact of the
adoption of the standard has not been determined.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Sands Brothers & Co. Ltd., a New York City-based investment banking
and brokerage firm, initiated an arbitration against us under New York Stock
Exchange rules on October 2, 1998. Sands alleged that it had the right to
receive, for nominal consideration, approximately 1.6 to 2.5 million shares
of our common stock. This claim was based upon an October 1997 letter
agreement which purported to confirm an agreement appointing Sands Brothers
as the exclusive financial advisor to Generex Pharmaceuticals, Inc., our
subsidiary. In exchange for agreeing to act in that capacity, the letter
agreement purports to grant Sands the right to acquire 17% of Generex
Pharmaceuticals common stock for nominal consideration. Following our
acquisition of Generex Pharmaceuticals, Sands claimed right to receive shares
of Generex Pharmaceuticals common stock applies to our common stock since
outstanding shares of Generex Pharmaceuticals were converted into our shares
in the acquisition. Sands' claims also included additional shares as a fee
related to that acquisition, and $144,000 in monthly fees due under the terms
of the purported agreement.
On October 1, 1999, we were informed that the arbitration panel that heard
this case had awarded Sands $14,070 and issued a declaratory judgment to the
effect that we are required to issue to Sands a warrant to purchase 1,530,020
shares of our common stock pursuant to and in accordance with the terms of the
October 9, 1997 letter agreement. Thereafter, Sands filed a motion to confirm
the award with the New York Supreme Court. In November 1999, we filed a
cross-motion to vacate the award. Briefing of these motions was completed in
December 1999, and a hearing on the motion took place in January 2000. We
presently are awaiting a decision of the court on these motions.
If we are unsuccessful in our effort to vacate the arbitration award
obtained by Sands and are required to issue warrants or other securities to
Sands under the October 1997 letter agreement, we will record a charge to
operations, and a corresponding increase to Additional Paid in Capital, equal to
the fair value of the securities issued to Sands less any consideration which we
receive for the securities. However, our ultimate legal and financial liability,
including a range of possible losses with respect to the award, cannot be
estimated at this time. Therefore, no provision for the award has yet been
recorded in our financial statements. We do not believe
Page 14 of 19
<PAGE>
that the final outcome of this case is reasonably likely to have a material
adverse effect on our consolidated financial position apart from any charge to
operations as previously described.
We also are involved in the following proceedings:
o In February 1997, a claim of wrongful dismissal by a former employee
seeking damages of CDN$450,000 was brought in Ontario Court in
Toronto, Ontario (Lorne Sparks v. Generex Pharmaceuticals, Inc.). This
case was tried without a jury in October 1999, and a decision in favor
of the plaintiff in the amount of CDN $193,981.80 (approximately
US$131,908), plus interest and costs, was rendered against us in
December 1999. We presently are awaiting the resolution of certain
issues relating to the assessment of interest and costs by the court.
When those issues are resolved, we intend to appeal the trial court's
decision.
o In June 1996, "Generex Inc." was named as an additional defendant in a
pending action in The Court of Queen's Bench of Alberta, in Calgary,
Alberta (Elbourne, et al. v. Acepharm, Inc., et al.). In this action
the plaintiffs seek injunctive relief relating to the ownership and
control of Acepharm, damages for an alleged reduction in the value of
their shares in Acepharm, Inc. (approximately $680,000 U.S.), and
punitive damages (approximately $3.4 million U.S.). In one paragraph,
plaintiff's amended Statement of Claim identifies Generex
Pharmaceuticals and mis-identifies it as a subsidiary of another
corporation. Except for this paragraph, there is no reference to us in
the amended Statement of Claim. The specific acts alleged in the
amended Statement of Claim to have violated plaintiffs' interests and
caused it injury are ascribed to other defendants, and occurred prior
to Generex Pharmaceuticals' incorporation in November 1995. We believe
that we were made a party to this case because Generex Pharmaceuticals
had expressed interest in acquiring certain assets of Acepharm, and
the plaintiffs wished to prevent the sale. Because of the dispute over
management, ownership and control of Acepharm, Inc., and because
Acepharm's assets are unrelated to its business plans and goals,
Generex Pharmaceuticals has long since abandoned any interest in
purchasing such assets.
We deny any wrongdoing relative to any of the matters upon which
plaintiff's claims in this action are based. We failed, however, to file a
Statement of Defense to those claims on a timely basis, and plaintiffs
caused a notice of default to be entered against us, and applied to the
court to have the notice of default set aside, and for leave to file a
Statement of Defense. Our application was referred to a Master, who
declined to set the Noting of Default aside, primarily because of our delay
in seeking relief. We have not yet received a formal decision from the
Master or a formal order denying our application. When the order is served,
we will have a period of seven days within which to seek a new hearing
before a judge, which in essence is a new proceeding at which new evidence
can be introduced.
If we do not succeed in setting aside the notice of default, we would be
precluded from contesting liability, but would be permitted to contest the
amount of damages, if any, which plaintiffs incurred as a result of our
actions or of actions for which we are legally responsible. We believe that
plaintiffs have suffered no loss or injury based on any action of ours or
for which we were responsible, and have made no provision in our financial
statements for any loss which might be incurred in this litigation.
Page 15 of 19
<PAGE>
o In February 1999, MQS, Inc., a former consultant of ours, commenced a
civil action against us in the United States District Court for the
District of New Jersey claiming that 242,168 shares of our Common
Stock and $243,065.50 are due to it for services which it rendered
through December 22, 1998. MQS also claimed that we used proprietary
technology of MQS in developing our aerosol applicator and in
formulating our oral insulin product for aerosol application. We filed
our answer to MQS's claims in May 1999, in which we denied that MQS is
entitled to the relief that it seeks, or that any of our products or
technology incorporates any proprietary technology belonging to MQS.
We also filed a counterclaim against MQS for breach of contract.
In December 1999, we filed a motion with the court to amend our answer and
counterclaim to add additional claims against MQS, including claims based
upon unauthorized use and misappropriation of our trade secrets and
technology by MQS, and to add additional parties as counterclaim
defendants. Subsequent to our filing, MQS filed a motion to amend its
complaint to add certain of our officers as individual defendants on the
claims previously made against us. We and MQS each has agreed to allow the
other to amend its pleadings in the manner sought, and presently are
jointly developing a schedule for responding to the new pleadings and
conducting discovery in the case. We are unable to predict the outcome of
this litigation at this time.
We maintain product liability coverage for claims arising from the use
of our products in clinical trials, etc., but do not have any insurance which
covers our potential liability in any of the legal proceedings described above.
Item 2. Changes in Securities and Use of Proceeds
Paragraphs (a) and (b) of Part II, Item 2 are inapplicable.
(c) Issuance of Unregistered Securities
(i) Private Placement of Common Stock and Warrants
In January 2000, we sold 450,790 units of securities ("Units") for
cash at a price of $4,25 per Unit. Each Unit consisted of one share of
Common Stock and 0.75 Series CU Warrants ("CU Warrants"). The Units were
purchased by six investors, as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Securities Purchased
- ------------------------------------------------------------------------------------------------------
Common
Purchaser Stock Warrants Consideration
- --------- ----- -------- -------------
($)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cranshire Capital, L.P. 105,883 79,413 450,000
- ------------------------------------------------------------------------------------------------------
Keyway Investments Ltd. 105,883 79,413 450,000
- ------------------------------------------------------------------------------------------------------
Lionhart Investments Ltd. 94,117 70,587 400,000
- ------------------------------------------------------------------------------------------------------
Howard Todd Horberg 58,824 44,118 250,000
- ------------------------------------------------------------------------------------------------------
</TABLE>
Page 16 of 19
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Securities Purchased
- ------------------------------------------------------------------------------------------------------
Common
Purchaser Stock Warrants Consideration
- --------- ----- -------- -------------
($)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Steve Levy 58,824 44,118 250,000
- ------------------------------------------------------------------------------------------------------
The dotCom Fund, LLC 47,049 35,924 200,000
--------- --------- ----------
- ------------------------------------------------------------------------------------------------------
Total 450,790 353,573 $2,000,000
- ------------------------------------------------------------------------------------------------------
</TABLE>
Coleman & Company Securities, Inc. acted as our placement agent in the
placement of the Units, and received in compensation for services in such
capacity a cash commission of $160,000 and warrants ("Placement Agent Warrants")
to purchase 23,528 Units $4.25 per Unit (i.e., 23,528 shares and 17,646 CU
Warrants). Coleman & Company assigned its right to receive the Placement Agent
Warrants to two of its officers, Ernest Pellegrino and Philip Puccio (11,764
Placement Agent Warrants to each). We also paid a "finder's fee" of $20,000
cash and 11,764 Placement Agent Warrants to each of Patrick G. Nolan and Zazoff
Associates LLC for their services in introducing certain of the investors to
Coleman & Company.
No general solicitation was made in connection with the placement. All
securities sold were acquired for investment, and appropriate restrictions have
been placed upon the resale of any of the securities consistent, including
restrictive legends on the face of the securities and stop orders on the
Registrant's stock and warrant registers. The securities were sold without
registration under the Securities Act of 1933 in reliance upon the exemption
from registration provided in Section 4(2) thereof and Rule 506, Regulation D
promulgated thereunder.
The terms of exercise of the CU Warrants and Placement Agent Warrants
are as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Expiration Exercise Securities Issuable
Date Price per Issuable Upon Exercise
Warrant per Warrant
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CU Warrants 1/7/2005 $7.00 1 share of Common Stock
- ---------------------------------------------------------------------------------------------------
Placement Agent Warrants 1/7/2005 $4.25 1 share of Common Stock and
0.75 CU Warrants
- ---------------------------------------------------------------------------------------------------
</TABLE>
(ii) Issuance of Options and Warrants to Advisors
In January 2000, we issued warrants to purchase 150,00 shares of Common
Stock at a price of $7.50 per share to The Shemano Group, Inc. ("Shemano"), a
California-based broker-dealer, as compensation for financial advisory services.
The Warrant expires January 31, 2004. The right to receive these warrants was
assigned by Shemano to two of its officers.
Page 17 of 19
<PAGE>
We also entered into an Option Agreement with Wolfe Axelrod Weinberger LLC
("Wolfe"), a New York-based financial public relations company that has been
engaged by the Registrant to provide financial public relations services since
June 1999. Under the Agreement, Wolfe is entitled to purchase 125,000 shares of
Common Stock at a price of $8.00 per share until June 15, 2004.
None of the aforementioned securities has been registered under the
Securities Act of 1933, no public solicitation was involved in connection with
these transactions, and transfer of the securities is restricted. We relied on
the exemption provided by Section 4(2) of the Securities Act.
(d) Use of Proceeds from Sales of Registered Securities
The Registration Statement to which the following disclosures pertain is
Registration Statement on Form S-1 (Registration No. 333-82667) effective
November 19, 1999 (the "Registration Statement"). From the effective date of the
Registration Statement through January 31, 2000, net proceeds from the sale of
securities pursuant to the Registration Statement have been applied as follows*:
(1) Construction of plant, building and $ 0
facilities
(2) Purchase and installation of 0
machinery and equipment
(3) Purchase of real estate 0
(4) Acquisition of other businesses 0
(5) Repayment of debt 0
(6) Working capital 0
(7) Temporary investments 0
(8) Any other purpose expected to involve 0
$100,000 or more
(9) Research and development 0
Total applied through 1/31/00* 0
*The Registration Statement registered shares of outstanding Common
Stock for sale by certain of our stockholders, and we will receive no
proceeds from such sales. The registration statement also registered shares of
common Stock for sale by us upon the exercise of certain outstanding warrants.
At January 31, 2000, none of such warrants had been exercised.
Page 18 of 19
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit Exhibit Title
------- -------------
4.1 Registration Rights Agreement dated January 7, 2000, with purchasers
of Common Stock and CU Warrants in January 2000 placement
4.2 Form of CU Warrant issued to investors in January 2000 placement
4.3 Form of Placement Agent Warrant issued to Coleman & Company
Securities, Inc., Patrick G. Nolan and Zazoff Associates LLC in
January 2000 placement
4.4 Form of Warrant issued to principals of The Shemano Group, Inc.
4.5 Form of Option Agreement with Wolfe Axelrod Weinberger LLC
27 Financial Data Schedule
(b) Reports on Form 8-K.
On March 2, 2000, we filed a Current Report on Form 8-K in response
to Item 1 of Form 8-K - Change in Control of Registrant to report the
expansion of our Board of Directors to six persons, the election of Iain Brown
and William M. Hawke, M.D., as directors, and the formation of an Audit
Committee of the Board on which Dr. Hawke and Mr. Brown will serve along with
Mark Perri, our Chief Financial Officer.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, we
have duly caused this report to be signed on our behalf by the undersigned.
DATE: March 14, 2000
GENEREX BIOTECHNOLOGY CORPORATION
By: /s/ E. Mark Perri
-------------------------------------
E. Mark Perri
Chairman and Chief Financial Officer
Page 19 of 19
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of
January 7, 2000, is entered into by and among Generex Biotechnology Corp., a
Delaware corporation, with headquarters located at 33 Harbour Square, Suite
202, Toronto, Canada M5J 2G2 (the "Company"), and the undersigned buyers
(each, a "Buyer" and collectively, the "Buyers").
WHEREAS:
A. In connection with the Securities Purchase Agreement by and among the
parties dated as of January 6, 2000 (the "Securities Purchase Agreement"),
the Company has agreed, upon the terms and subject to the conditions of the
Securities Purchase Agreement, (i) to issue and sell to the Buyers 470,590
shares of the Company's Common Stock, par value $.001 per share (the "Common
Shares") and (ii) to issue Warrants (the "Warrants") which will be
exercisable to purchase 352,943 shares of Common Stock (the "Warrant
Shares"); and
B. To induce the Buyers to execute and deliver the Securities Purchase
Agreement, the Company has agreed to provide certain registration rights
under the Securities Act of 1933, as amended, and the rules and regulations
thereunder, or any similar successor statute (collectively, the "1933 Act"),
and applicable state securities laws.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Buyers hereby agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the following
meanings:
a. "Investor" means a Buyer, any transferee or assignee thereof to whom
a Buyer assigns its rights under this Agreement and who agrees to become
bound by the provisions of this Agreement in accordance with Section 9 and
any transferee or assignee thereof to whom a transferee or assignee assigns
its rights under this Agreement and who agrees to become bound by the
provisions of this Agreement in accordance with Section 9.
b. "Person" means a corporation, a limited liability company, an
association, a partnership, an organization, a business, an individual, a
governmental or political subdivision thereof or a governmental agency.
c. "Register," "registered," and "registration" refer to a registration
effected by preparing and filing one or more Registration Statements (as
defined below) in compliance with the 1933 Act and pursuant to Rule 415 under
the 1933 Act or any successor rule
1
<PAGE>
providing for offering securities on a continuous basis ("Rule 415"), and the
declaration or ordering of effectiveness of such Registration Statement(s) by
the United States Securities and Exchange Commission (the "SEC").
d. "Registrable Securities" means the Common Shares purchased pursuant
to the Securities Purchase Agreement and the Warrant Shares issued or
issuable upon exercise of the Warrants and any shares of capital stock issued
or issuable with respect to the Common Shares, Warrants or Warrant Shares as
a result of any stock split, stock dividend, recapitalization, exchange,
anti-dilution rights or similar event or otherwise, without regard to any
limitation on exercise of the Warrants.
e. "Registration Statement" means a registration statement of the
Company filed under the 1933 Act and pursuant to Rule 415.
Capitalized terms used herein and not otherwise defined herein shall have the
respective meanings set forth in the Securities Purchase Agreement.
2. REGISTRATION.
a. Mandatory Registration. The Company shall prepare, and, as soon as
practicable but in no event later than sixty (60) calendar days after the
date hereof, file with the SEC a Registration Statement or Registration
Statements (as is necessary) on Form S-3 (or if such form is unavailable,
such other form as is available for registration) covering the resale of all
of the Registrable Securities. The initial Registration Statement prepared
pursuant hereto shall register for resale at least that number of Company
common stock shares equal to the number of Registrable Securities as of the
date immediately preceding the date the Registration Statement is initially
filed with the SEC, subject to adjustment as provided in Section 3(b). The
Company shall use its best efforts to have the Registration Statement
declared effective by the SEC as soon as practicable, but in no event later
than one-hundred twenty (120) calendar days after the date hereof.
b. Piggy-Back Registrations. If at any time prior to the expiration of
the Registration Period (as defined in Section 3(a)) the Company proposes to
file with the SEC a Registration Statement relating to an offering for its
own account or the account of others under the 1933 Act of any of its
securities (other than on Form S-4 or Form S-8 (or their equivalents at such
time) relating to securities to be issued solely in connection with any
acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans) the Company
shall promptly send to each Investor written notice of the Company's
intention to file a Registration Statement and of such Investor's rights
under this Section 2(b) and, if within twenty (20) days after receipt of such
notice, such Investor shall so request in writing, the Company shall include
in such Registration Statement all or any part of the Registrable Securities
such Investor requests to be registered, subject to the priorities set forth
in Section 2(b) below. No right to registration of Registrable Securities
under this Section 2(b) shall be construed to limit any registration required
under Section 2(a). The obligations of the Company under this Section 2(b)
may be waived by the Buyers. If an offering in connection with which an
Investor is entitled to registration under this Section 2(b) is an
underwritten offering, then each Investor whose Registrable Securities are
included in such Registration Statement shall, unless otherwise agreed by the
Company, offer and sell such Registrable Securities in an underwritten
2
<PAGE>
offering using the same underwriter or underwriters and, subject to the
provisions of this Agreement, on the same terms and conditions as other
shares of Company common stock included in such underwritten offering. If a
registration pursuant to this Section 2(b) is to be an underwritten public
offering and the managing underwriter(s) advise the Company in writing, that
in their reasonable good faith opinion, marketing or other factors dictate
that a limitation on the number of shares of Company common stock which may
be included in the Registration Statement is necessary to facilitate and not
adversely affect the proposed offering, then the Company shall include in
such registration: (1) first, all securities the Company proposes to sell for
its own account, (2) second, up to the full number of securities proposed to
be registered for the account of the holders of securities entitled to
inclusion of their securities in the Registration Statement by reason of
demand registration rights, and (3) third, the securities requested to be
registered by the Investors and other holders of securities entitled to
participate in the registration, as of the date hereof, drawn from them pro
rata based on the number each has requested to be included in such
registration.
c. Allocation of Registrable Securities. The initial number of
Registrable Securities included in any Registration Statement and each
increase in the number of Registrable Securities included therein shall be
allocated pro rata among the Investors based on the number of Registrable
Securities held, or which could be held, by each Investor at the time the
Registration Statement covering such initial number of Registrable Securities
or increase thereof is declared effective by the SEC. In the event that an
Investor sells or otherwise transfers any of such Person's Registrable
Securities, each transferee shall be allocated a pro rata portion of the then
remaining number of Registrable Securities included in such Registration
Statement for such transferor. Any Common Shares included in a Registration
Statement and which remain allocated to any Person which ceases to hold any
Registrable Securities shall be allocated to the remaining Investors, pro
rata based on the number of Registrable Securities then held by such
Investors.
d. Legal Counsel. Subject to Section 5 hereof, the Buyers shall have the
right to select one legal counsel to review and oversee any offering pursuant
to this Section 2 ("Legal Counsel"), which shall be Katten Muchin Zavis or
such other counsel as thereafter designated by the holders of a majority of
Registrable Securities. The Company shall reasonably cooperate with Legal
Counsel in performing the Company's obligations under this Agreement.
e. [Reserved.]
f. Rule 416. The Company and the Investors each acknowledge that each
Registration Statement prepared in accordance hereunder shall include an
indeterminate number of Registrable Securities pursuant to Rule 416 under the
1933 Act so as to cover any and all Registrable Securities which may become
issuable (i) to prevent dilution resulting from stock splits, stock dividends
or similar transactions and (ii) if permitted by law, by reason of the
anti-dilution provisions contained in the Securities Purchase Agreement and
the Warrants in accordance with the terms thereof (collectively, the "Rule
416 Securities"). In this regard, the Company agrees to use all reasonable
efforts to ensure that the maximum number of Registrable
3
<PAGE>
Securities which may be registered pursuant to Rule 416 under the 1933
Act are covered by each Registration Statement and, absent guidance from the
SEC or other definitive authority to the contrary, the Company shall use all
reasonable efforts to affirmatively support and to not take any position
adverse to the position that each Registration Statement filed hereunder
covers all of the Rule 416 Securities. If the Company determines that the
Registration Statement filed hereunder does not cover all of the Rule 416
Securities, the Company shall immediately (i) provide to each Investor
written evidence setting forth the basis for the Company's position and the
authority therefor and (ii) prepare and file an amendment to such
Registration Statement or a new Registration Statement in accordance with
Section 2(Guarantor).
g. Sufficient Number of Shares Registered. In the event the number of
shares available under a Registration Statement filed pursuant to Section
2(a) is insufficient to cover all of the Registrable Securities or an
Investor's allocated portion of the Registrable Securities pursuant to
Section 2(c) (a "Deficit Failure"), the Company shall amend the Registration
Statement, or file a new Registration Statement (on the short form available
therefor, if applicable), or both, so as to cover at least one hundred
percent (100%) of such Registrable Securities in each case, as soon as
practicable, but in any event not later than fifteen (15) days after the
necessity therefor arises. The Company shall use it best efforts to cause
such amendment and/or new Registration Statement to become effective as soon
as practicable following the filing thereof. For purposes of the foregoing
provision, the number of shares available under a Registration Statement
shall be deemed "insufficient to cover all of the Registrable Securities" if
at any time the number of Registrable Securities is greater than the number
of shares of Company common stock available for resale under such
Registration Statement.
3. RELATED OBLIGATIONS.
Whenever an Investor has requested that any Registrable Securities be
registered pursuant to Section 2(b) or at such time as the Company is
obligated to file a Registration Statement with the SEC pursuant to Section
2(a) or 2(Guarantor), the Company will use its best efforts to effect the
registration of the Registrable Securities in accordance with the intended
method of disposition thereof and, pursuant thereto, the Company shall have
the following obligations:
a. The Company shall promptly prepare and file with the SEC a
Registration Statement with respect to the Registrable Securities (on or
prior to the sixtieth (60th) calendar day after the date hereof for the
registration of Registrable Securities pursuant to Section 2(a)) and use its
best efforts to cause such Registration Statement relating to the Registrable
Securities to become effective as soon as possible after such filing (but in
no event later than one-hundred twenty (120) calendar days after the date
hereof for the registration of Registrable Securities pursuant to Section
2(a)), and keep such Registration Statement effective pursuant to Rule 415 at
all times until the earlier of (i) the second (2nd) annual anniversary of the
date of this Agreement or (ii) the date on which the Investors shall have
sold all the Registrable Securities (the "Registration Period"), which
Registration Statement (including any amendments or supplements thereto and
prospectuses contained therein) shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein,
or necessary to
4
<PAGE>
make the statements therein, in light of the circumstances in which they
were made, not misleading.
b. The Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to a Registration
Statement and the prospectus used in connection with such Registration
Statement, which prospectus is to be filed pursuant to Rule 424 promulgated
under the 1933 Act, as may be necessary to keep such Registration Statement
effective at all times during the Registration Period, and, during such period,
comply with the provisions of the 1933 Act with respect to the disposition of
all Registrable Securities of the Company covered by such Registration Statement
until such time as all of such Registrable Securities shall have been disposed
of in accordance with the intended methods of disposition by the seller or
sellers thereof as set forth in such Registration Statement.
c. The Company shall permit Legal Counsel to review and comment upon a
Registration Statement and all amendments and supplements thereto at least
seven (7) days prior to their filing with the SEC, and not file any document
in a form to which Legal Counsel reasonably objects. The Company shall not
submit a request for acceleration of the effectiveness of a Registration
Statement or any amendment or supplement thereto without the prior approval
of Legal Counsel, which consent shall not be unreasonably withheld. The
Company shall furnish to Legal Counsel, without charge, (i) any
correspondence from the SEC or the staff of the SEC to the Company or its
representatives relating to any Registration Statement, (ii) promptly after
the same is prepared and filed with the SEC, one copy of any Registration
Statement and any amendment(s) thereto, including financial statements and
schedules, all documents incorporated therein by reference and all exhibits
and (iii) upon the effectiveness of any Registration Statement, one copy of
the prospectus included in such Registration Statement and all amendments and
supplements thereto.
d. The Company shall furnish to each Investor whose Registrable
Securities are included in any Registration Statement, without charge, (i)
promptly after the same is prepared and filed with the SEC, at least one copy
of such Registration Statement and any amendment(s) thereto, including
financial statements and schedules, all documents incorporated therein by
reference and all exhibits, (ii) upon the effectiveness of any Registration
Statement, ten (10) copies of the prospectus included in such Registration
Statement and all amendments and supplements thereto (or such other number of
copies as such Investor may reasonably request) and (iii) such other
documents, including copies of any preliminary or final prospectus, as such
Investor may reasonably request from time to time in order to facilitate the
disposition of the Registrable Securities owned by such Investor.
e. The Company shall use reasonable efforts to (i) register and qualify
the Registrable Securities covered by a Registration Statement under such
other securities or "blue sky" laws of such jurisdictions in the United
States as Legal Counsel or any Investor reasonably requests, (ii) prepare and
file in those jurisdictions, such amendments (including post-effective
amendments) and supplements to such registrations and qualifications as may
be necessary to maintain the effectiveness thereof during the Registration
Period, (iii) take such other actions as may be necessary to maintain such
registrations and qualifications in effect at all times during the
Registration Period, and (iv) take all other actions reasonably necessary or
advisable to qualify the Registrable Securities for sale in such
jurisdictions; provided, however, that the
5
<PAGE>
Company shall not be required in connection therewith or as a condition
thereto to (x) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(e), (y) subject
itself to general taxation in any such jurisdiction, or (z) file a general
consent to service of process in any such jurisdiction. The Company shall
promptly notify Legal Counsel and each Investor who holds Registrable
Securities of the receipt by the Company of any notification with respect to
the suspension of the registration or qualification of any of the Registrable
Securities for sale under the securities or "blue sky" laws of any
jurisdiction in the United States or its receipt of actual notice of the
initiation or threatening of any proceeding for such purpose.
f. In the event Investors who hold a majority of the Registrable
Securities being offered in the offering select underwriters for the
offering, the Company shall enter into and perform its obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
underwriters of such offering.
g. As promptly as practicable after becoming aware of such event, the
Company shall notify Legal Counsel and each Investor in writing of the
happening of any event as a result of which the prospectus included in a
Registration Statement, as then in effect, includes an untrue statement of a
material fact or 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, and promptly
prepare a supplement or amendment to such Registration Statement to correct
such untrue statement or omission, and deliver ten (10) copies of such
supplement or amendment to Legal Counsel and each Investor (or such other
number of copies as Legal Counsel or such Investor may reasonably request).
The Company shall also promptly notify Legal Counsel and each Investor in
writing (i) when a prospectus or any prospectus supplement or post-effective
amendment has been filed, and when a Registration Statement or any
post-effective amendment has become effective (notification of such
effectiveness shall be delivered to Legal Counsel and each Investor by
facsimile on the same day of such effectiveness and by overnight mail), (ii)
of any request by the SEC for amendments or supplements to a Registration
Statement or related prospectus or related information, and (iii) of the
Company's reasonable determination that a post-effective amendment to a
Registration Statement would be appropriate.
h. The Company shall use its best efforts to prevent the issuance of any
stop order or other suspension of effectiveness of a Registration Statement,
or the suspension of the qualification of any of the Registrable Securities
for sale in any jurisdiction and, if such an order or suspension is issued,
to obtain the withdrawal of such order or suspension at the earliest possible
moment and to notify Legal Counsel and each Investor who holds Registrable
Securities being sold (and, in the event of an underwritten offering, the
managing underwriters) of the issuance of such order and the resolution
thereof or its receipt of actual notice of the initiation or threat of any
proceeding for such purpose.
i. At the request of any Investor, the Company shall furnish to such
Investor, on the date of the effectiveness of the Registration Statement and
thereafter from time to time on such dates as an Investor may reasonably
request (i) if required by an underwriter, a letter, dated
6
<PAGE>
such date, from the Company's independent certified public accountants
in form and substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering, addressed to
the underwriters, and (ii) an opinion, dated as of such date, of counsel
representing the Company for purposes of such Registration Statement, in
form, scope and substance as is customarily given in an underwritten public
offering, addressed to the underwriters and the Investors.
j. The Company shall make available for inspection by (i) any Investor,
(ii) Legal Counsel, (iii) any underwriter participating in any disposition
pursuant to a Registration Statement, (iv) one firm of accountants or other
agents retained by the Investors, and (v) one firm of attorneys retained by
such underwriters (collectively, the "Inspectors") all pertinent financial
and other records, and pertinent corporate documents and properties of the
Company (collectively, the "Records"), as shall be reasonably deemed
necessary by each Inspector, and cause the Company's officers, directors and
employees to supply all information which any Inspector may reasonably
request; provided, however, that each Inspector shall hold in strict
confidence and shall not make any disclosure (except to an Investor) or use
of any Record or other information which the Company determines in good faith
to be confidential, and of which determination the Inspectors are so
notified, unless (a) the disclosure of such Records is necessary to avoid or
correct a misstatement or omission in any Registration Statement or is
otherwise required under the 1933 Act, (b) the release of such Records is
ordered pursuant to a final, non-appealable subpoena or order from a court or
government body of competent jurisdiction, or (c) the information in such
Records has been made generally available to the public other than by
disclosure in violation of this or any other agreement of which the Inspector
has knowledge. Each Investor agrees that it shall, upon learning that
disclosure of such Records is sought in or by a court or governmental body of
competent jurisdiction or through other means, give prompt notice to the
Company and allow the Company, at its expense, to undertake appropriate
action to prevent disclosure of, or to obtain a protective order for, the
Records deemed confidential.
k. The Company shall hold in confidence and not make any disclosure of
information concerning an Investor provided to the Company unless (i)
disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to
avoid or correct a misstatement or omission in any Registration Statement,
(iii) the release of such information is ordered pursuant to a subpoena or
other final, non-appealable order from a court or governmental body of
competent jurisdiction, or (iv) such information has been made generally
available to the public other than by disclosure in violation of this
Agreement or any other agreement of which the Company has knowledge. The
Company agrees that it shall, upon learning that disclosure of such
information concerning an Investor is sought in or by a court or governmental
body of competent jurisdiction or through other means, give prompt written
notice to such Investor and allow such Investor, at the Investor's expense,
to undertake appropriate action to prevent disclosure of, or to obtain a
protective order for, such information.
l. The Company shall use its best efforts either to (i) cause all the
Registrable Securities covered by a Registration Statement to be listed on
each securities exchange on which securities of the same class or series
issued by the Company are then listed, if
7
<PAGE>
any, if the listing of such Registrable Securities is then permitted under the
rules of such exchange, or (ii) secure designation and quotation of all
the Registrable Securities covered by the Registration Statement on the
Nasdaq Stock Market. The Company shall pay all fees and expenses in
connection with satisfying its obligation under this Section 3(l).
m. [Reserved.]
n. The Company shall provide a transfer agent and registrar of all such
Registrable Securities not later than the effective date of such Registration
Statement.
o. If requested by the managing underwriters or an Investor, the Company
shall (i) immediately incorporate in a prospectus supplement or
post-effective amendment such information as the managing underwriters and
the Investors agree should be included therein relating to the sale and
distribution of Registrable Securities, including, without limitation,
information with respect to the number of Registrable Securities being sold
to such underwriters, the purchase price being paid therefor by such
underwriters and any other terms of the underwritten (or best efforts
underwritten) offering of the Registrable Securities to be sold in such
offering; (ii) make all required filings of such prospectus supplement or
post-effective amendment as soon as notified of the matters to be
incorporated in such prospectus supplement or post-effective amendment; and
(iii) supplement or make amendments to any Registration Statement if
requested by a shareholder or any underwriter of such Registrable Securities.
p. [Reserved.]
q. [Reserved.]
r. The Company shall otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC in connection with any
registration hereunder and the Company shall use its best efforts to file
with the SEC in a timely manner all reports and documents required of the
Company under the 1933 Act and the 1934 Act (as defined in Section 6(a)).
s. Within two (2) business days after the Registration Statement which
includes the Registrable Securities is ordered effective by the SEC, the
Company shall deliver, and shall cause legal counsel for the Company to
deliver, to the transfer agent for such Registrable Securities (with copies
to the Investors whose Registrable Securities are included in such
Registration Statement) confirmation that the Registration Statement has been
declared effective by the SEC in the form attached hereto as Exhibit A.
t. [Reserved.]
u. The Company shall take all other reasonable actions necessary to
expedite and facilitate disposition by the Investors of Registrable
Securities pursuant to a Registration Statement.
8
<PAGE>
v. Notwithstanding anything to the contrary contained in this Agreement,
the Registration Statement shall register only the Registrable Securities.
4. OBLIGATIONS OF THE INVESTORS.
a. At least seven (7) days prior to the first anticipated filing date of
the Registration Statement, the Company shall notify each Investor in writing
of the information the Company requires from each such Investor if such
Investor elects to have any of such Investor's Registrable Securities
included in such Registration Statement. It shall be a condition precedent to
the obligations of the Company to complete the registration pursuant to this
Agreement with respect to the Registrable Securities of a particular Investor
that such Investor shall furnish to the Company such information regarding
itself and the Registrable Securities held by it as shall be reasonably
required to effect the registration of such Registrable Securities and shall
execute such documents in connection with such registration as the Company
may reasonably request.
b. Each Investor by such Investor's acceptance of the Registrable
Securities agrees to cooperate with the Company as reasonably requested by
the Company in connection with the preparation and filing of any Registration
Statement hereunder, unless such Investor has notified the Company in writing
of such Investor's election to exclude all of such Investor's Registrable
Securities from such Registration Statement.
c. In the event any Investor elects to participate in an underwritten
public offering pursuant to Section 2, each such Investor agrees to enter
into and perform such Investor's obligations under an underwriting agreement,
in usual and customary form, including, without limitation, customary
indemnification and contribution obligations, with the managing underwriter
of such offering and take such other actions as are reasonably required in
order to expedite or facilitate the disposition of the Registrable
Securities.
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation,
all registration, listing and qualifications fees, printers and accounting
fees, and fees and disbursements of counsel for the Company and, in the event
the Company fails to comply with the reasonable requests of Legal Counsel
made pursuant to Section 3(c) of this Agreement, the fees and disbursements
of Legal Counsel, shall be paid by the Company.
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
a. To the fullest extent permitted by law, the Company will, and hereby
does, indemnify, hold harmless and defend each Investor who holds such
Registrable Securities, the directors, officers, partners, employees, agents,
representatives of, and each Person, if any, who
9
<PAGE>
controls any Investor within the meaning of the 1933 Act or the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and any underwriter
(as defined in the 1933 Act) for the Investors, and the directors and
officers of, and each Person, if any, who controls, any such underwriter
within the meaning of the 1933 Act or the 1934 Act (each, an "Indemnified
Person"), subject to Section 6(d) below, against any losses, claims, damages,
liabilities, judgments, fines, penalties, charges, costs, attorneys' fees,
amounts paid in settlement or expenses, joint or several, (collectively,
"Indemnified Damages") incurred in investigating, preparing or defending any
action, claim, suit, inquiry, proceeding, investigation or appeal taken from
the foregoing by or before any court or governmental, administrative or other
regulatory agency, body or the SEC, whether pending or threatened, whether or
not an indemnified party is or may be a party thereto ("Claims"), to which
any of them may become subject insofar as such Claims (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out
of or are based upon: (i) any untrue statement or alleged untrue statement of
a material fact in a Registration Statement or any post-effective amendment
thereto or in any filing made in connection with the qualification of the
offering under the securities or other "blue sky" laws of any jurisdiction in
which Registrable Securities are offered ("Blue Sky Filing"), or the omission
or alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus if used prior to the effective date of such
Registration Statement, or contained in the final prospectus (as amended or
supplemented, if the Company files any amendment thereof or supplement
thereto with the SEC) or the omission or alleged omission to state therein
any material fact necessary to make the statements made therein, in light of
the circumstances under which the statements therein were made, not
misleading, (iii) any violation or alleged violation by the Company of the
1933 Act, the 1934 Act, any other law, including, without limitation, any
state securities law, or any rule or regulation thereunder relating to the
offer or sale of the Registrable Securities pursuant to a Registration
Statement or (iv) any material violation of this Agreement (the matters in
the foregoing clauses (i) through (iv) being, collectively, "Violations").
The Company shall reimburse the Investors and each such underwriter or
controlling person, promptly as such expenses are incurred and are due and
payable, for any legal fees or other reasonable expenses incurred by them in
connection with investigating or defending any such Claim. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 6(a): (i) shall not apply to a Claim by an
Indemnified Person arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to the
Company by such Indemnified Person or underwriter for such Indemnified Person
expressly for use in connection with the preparation of the Registration
Statement or any such amendment thereof or supplement thereto, if such
prospectus was timely made available by the Company pursuant to Section 3(d);
(ii) with respect to any preliminary prospectus, shall not inure to the
benefit of any such person from whom the person asserting any such Claim
purchased the Registrable Securities that are the subject thereof (or to the
benefit of any person controlling such person) if the untrue statement or
omission of material fact contained in the preliminary prospectus was
corrected in the prospectus, as then amended or supplemented, if such
prospectus was timely made available by the Company pursuant to Section 3(d),
and the Indemnified Person was promptly advised in writing not to use the
incorrect prospectus prior to the use giving rise to a violation and such
Indemnified Person, notwithstanding such advice, used it; (iii) shall not be
available to the extent such Claim is based on a failure of the Investor to
10
<PAGE>
deliver properly or to cause to be delivered properly the prospectus made
available by the Company, if such prospectus was timely made available by the
Company pursuant to Section 3(d); and (iv) shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior
written consent of the Company, which consent shall not be unreasonably
withheld. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of the Indemnified Person and shall
survive the transfer of the Registrable Securities by the Investors pursuant
to Section 9.
b. In connection with any Registration Statement in which an Investor is
participating, each such Investor agrees to severally and not jointly
indemnify, hold harmless and defend, to the same extent and in the same
manner as is set forth in Section 6(a), the Company, each of its directors,
each of its officers who signs the Registration Statement, each Person, if
any, who controls the Company within the meaning of the 1933 Act or the 1934
Act (collectively and together with an Indemnified Person, an "Indemnified
Party"), against any Claim or Indemnified Damages to which any Indemnified
Party may become subject, under the 1933 Act, the 1934 Act or otherwise,
insofar as such Claim or Indemnified Damages arise out of or are based upon
(i) any Violation, in each case to the extent, and only to the extent, that
such Violation occurs in reliance upon and in conformity with written
information furnished to the Company by such Investor expressly for use in
connection with such Registration Statement, and (ii) any Violation, in each
case to the extent and only to the extent that such Violation occurs as a
result of the failure of an Investor to deliver properly or to cause to be
delivered properly the prospectus made available by the Company, if such
prospectus was timely made available by the Company pursuant to Section 3(d);
and, subject to Section 6(d), such Investor will reimburse any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such Claim; provided, however, that the indemnity agreement
contained in this Section 6(b) and the agreement with respect to contribution
contained in Section 7 shall not apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written consent of
such Investor, which consent shall not be unreasonably withheld; provided,
further, however, that the Investor shall be liable under this Section 6(b)
for only that amount of a Claim or Indemnified Damages as does not exceed the
net proceeds to such Investor as a result of the sale of Registrable
Securities pursuant to such Registration Statement. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of such Indemnified Party and shall survive the transfer of the
Registrable Securities by the Investors pursuant to Section 9.
Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(b) with respect to any
preliminary prospectus shall not inure to the benefit of any Indemnified
Party if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected on a timely basis in the prospectus, as
then amended or supplemented.
c. The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities
industry professionals participating in any distribution, to the same extent
as provided above, with respect to information such persons so furnished in
writing expressly for inclusion in the Registration Statement.
d. Promptly after receipt by an Indemnified Person or Indemnified Party
under this Section 6 of notice of the commencement of any action or
proceeding (including any
11
<PAGE>
governmental action or proceeding) involving a Claim, such Indemnified
Person or Indemnified Party shall, if a Claim in respect thereof is to be
made against any indemnifying party under this Section 6, deliver to the
indemnifying party a written notice of the commencement thereof, and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume control of the defense thereof with counsel
mutually satisfactory to the indemnifying party and the Indemnified Person or
the Indemnified Party, as the case may be; provided, however, that an
Indemnified Person or Indemnified Party shall have the right to retain its
own counsel with the fees and expenses to be paid by the indemnifying party,
if, in the reasonable opinion of counsel retained by the indemnifying party,
the representation by such counsel of the Indemnified Person or Indemnified
Party and the indemnifying party would be inappropriate due to actual or
potential differing interests between such Indemnified Person or Indemnified
Party and any other party represented by such counsel in such proceeding. The
Company shall pay reasonable fees for only one separate legal counsel for the
Investors, and such legal counsel shall be selected by the Investors holding
a majority in interest of the Registrable Securities included in the
Registration Statement to which the Claim relates. The Indemnified Party or
Indemnified Person shall cooperate fully with the indemnifying party in
connection with any negotiation or defense of any such action or claim by the
indemnifying party and shall furnish to the indemnifying party all
information reasonably available to the Indemnified Party or Indemnified
Person which relates to such action or claim. The indemnifying party shall
keep the Indemnified Party or Indemnified Person fully apprized at all times
as to the status of the defense or any settlement negotiations with respect
thereto. No indemnifying party shall be liable for any settlement of any
action, claim or proceeding effected without its written consent, provided,
however, that the indemnifying party shall not unreasonably withhold, delay
or condition its consent. No indemnifying party shall, without the consent of
the Indemnified Party or Indemnified Person, consent to entry of any judgment
or enter into any settlement or other compromise which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party or Indemnified Person of a release from all liability in
respect to such claim or litigation. Following indemnification as provided
for hereunder, the indemnifying party shall be subrogated to all rights of
the Indemnified Party or Indemnified Person with respect to all third
parties, firms or corporations relating to the matter for which
indemnification has been made. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 6, except to the
extent that the indemnifying party is prejudiced in its ability to defend
such action.
e. The indemnification required by this Section 6 shall be made by
periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or Indemnified
Damages are incurred.
f. The indemnity agreements contained herein shall be in addition to (i)
any cause of action or similar right of the Indemnified Party or Indemnified
Person against the indemnifying party or others, and (ii) any liabilities the
indemnifying party may be subject to pursuant to the law.
7. CONTRIBUTION.
12
<PAGE>
To the extent any indemnification by an indemnifying party is prohibited
or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be
liable under Section 6 to the fullest extent permitted by law; provided,
however, that: (i) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall
be entitled to contribution from any seller of Registrable Securities who was
not guilty of fraudulent misrepresentation; and (ii) contribution by any
seller of Registrable Securities shall be limited in amount to the net amount
of proceeds received by such seller from the sale of such Registrable
Securities.
8. LIQUIDATED DAMAGES.
a. The Company agrees that an Investor will suffer damages if the
Company violates any provision of or fails to fulfill its obligations
pursuant to Sections 2(a), 2(b), 2(Guarantor), 3(a), 3(b), 3(e), 3(h), 3(l)
and 3(v) of this Agreement (a "Registration Default") and that it would not
be possible to ascertain the extent of such damages. Accordingly, in the
event of such Registration Default, the Company hereby agrees to pay
liquidated damages ("Liquidated Damages") to such Investor following the
occurrence of such Registration Default in an amount determined by
multiplying (i) $.085] per Common Share then held by such Investor by (ii)
the percentage derived by dividing (A) the actual number of days elapsed from
the first day of the date that an uncured Registration Default occurred or
the end of the prior 30-day period, as applicable, to the day all
Registration Defaults have been completely cured, by (B) 30. Liquidated
Damages shall be paid in cash, or at the Investor's option, in the number of
shares of Company common stock equal to the quotient of (v) the dollar amount
of the Liquidated Damages due on the Payment Date (as defined below) divided
by (w) the closing bid price of the Company's common stock (as quoted in the
Principal Market (as defined in the Securities Purchase Agreement) or the
market or exchange where the Company's common stock is then traded) as of the
first day that an uncured Registration Default occurred; provided, however,
that if the Company timely files a Registration Statement covering the resale
of the Registrable Securities pursuant to Sections 2(a) and 3(a) of this
Agreement and the Company utilizes its best efforts to cause such
Registration Statement to become effective but such Registration Statement
has not become effective as required by Sections 2(a) and 3(a) of this
Agreement, then during the first 30-day period immediately following the
occurrence of such Registration Default caused by such failure of the
Registration Statement to become effective as required pursuant to Sections
2(a) and 3(a) of this Agreement, the Company shall pay Liquidated Damages to
such Investor in an amount determined by multiplying (i) $ .0425 per Common
Share then held by such Investor by (ii) the percentage derived by dividing
(A) the actual number of days elapsed from the first day of the date such
Registration Default occurred to the day such Registration Default has been
completely cured, by (B) 30. Liquidated Damages shall be paid, in cash, or at
the Investor's option, in the number of shares of Company common stock as
determined by this Section 8. The Liquidated Damages payable pursuant hereto
shall be payable within five (5) business days from the end of the 30-day
period commencing on the first 30-day period in which the Registration
Default occurs (each, a "Payment Date"). In the event the Investor elects to
receive the Liquidated Damages amount in shares of Company common stock, such
shares shall also be
13
<PAGE>
considered Registrable Securities and shall have the registration rights
set forth in this Agreement.
b. Notwithstanding anything to the contrary in Section 8(a) above:
(i) the Company shall have the right to pay Liquidated Damages in
cash irrespective of any Investor's election to receive shares of
Company Common Stock in settlement thereof if the closing bid price of the
Company's Common Stock as determined under clause (w) above is less than
$4.25 per share.
(ii) in the event of a Registration Default under Section
2(Guarantor), Liquidated Damages shall be payable in an amount
determined by multiplying (A) the amount of Liquidated Damages as calculated
by Section 8(a) above, by (B) a fraction, the numerator of which fraction
shall be the total number of Common Shares held by the Investor or which the
Investor is entitled to receive and which have not been registered under the
Registration Statement, and the denominator of which fraction shall be the
total number of Common Shares held by the Investor and which the Investor is
entitled to receive.
(iii) no Registration Default shall be deemed to have occurred
hereunder:
(A) (1) under Section 2(Guarantor) if the Deficit Failure is the
result of a merger or other reorganization requiring the amendment of
the Registration Statement involving the restatement or filing of additional
or restated financial statements, provided, however, that the Company
diligently proceeds and utilizes its best efforts to satisfy its obligations
under Section 3(b) and Section 2(Guarantor) of this Agreement, or (2) in the
event that, pursuant to Section 2(Guarantor) of this Agreement, the Company
has reserved and registered for resale the initial 470,590 Common Shares
purchased by the Buyers pursuant to the Securities Purchase Agreement, under
Section 2 (Guarantor) if the Deficit Failure is the result of a failure to
register a number of Common Shares which represent 5% or less of the
additional number of Common Shares issued to such Investor pursuant to this
Agreement or the Securities Purchase Agreement in excess of such initial
470,590 Common Shares purchased by the Buyers, provided, however, that the
Company diligently proceeds and utilizes its best efforts to satisfy its
obligations under Section 2(Guarantor) of this Agreement.
(B) under Section 3(a) or Section 3(b) for failing to keep the
Registration Statement "effective at all times" if such failure is due to a
merger or other acquisition or reorganization, a recapitalization involving
the filing of new or restating of previously filed financial statements, or
other material corporate developments involving any entity or business
engaged in the same industry or business of the Company, provided, however,
that the Company proceeds diligently and utilizes its best efforts to satisfy
its obligations under Section 3(a) or Section 3(b) of this Agreement.
(C) under Section 3(h) in respect of any suspension of
effectiveness or withdrawal of the Registration Statement, or stop order
relating thereto, or suspension of sales under the Registration Statement
pending the filing and effectiveness of a post-effective amendment to the
Registration Statement that is made necessary by a merger or other
acquisition
14
<PAGE>
or reorganization, a recapitalization involving the filing of new
or restating of previously filed financial statements, or other material
corporate developments involving any entity or business engaged in the same
industry or business of the Company, provided, however, that the Company
proceeds diligently and utilizes its best efforts to satisfy its obligations
under Section 3(h) of this Agreement.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights under this Agreement shall be automatically assignable by the
Investors to any transferee of all or any portion of Registrable Securities
if: (i) the Investor agrees in writing with the transferee or assignee to
assign such rights, and a copy of such agreement is furnished to the Company
within a reasonable time after such assignment; (ii) the Company is, within a
reasonable time after such transfer or assignment, furnished with written
notice of (a) the name and address of such transferee or assignee, and (b)
the securities with respect to which such registration rights are being
transferred or assigned; (iii) immediately following such transfer or
assignment the further disposition of such securities by the transferee or
assignee is restricted under the 1933 Act and applicable state securities
laws; provided, however, that the transferee or assignee may subsequently
transfer or assign all or any portion of the Registrable Securities if an
exemption from registration under the 1933 Act is applicable to such transfer
or assignment; (iv) at or before the time the Company receives the written
notice contemplated by clause (ii) of this sentence the transferee or
assignee agrees in writing with the Company to be bound by all of the
provisions contained herein; and (v) such transfer shall have been made in
accordance with the applicable requirements of the Securities Purchase
Agreement.
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance thereof
may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and Investors who then hold two-thirds [ ] of the Registrable Securities. Any
amendment or waiver effected in accordance with this Section 10 shall be
binding upon each Investor and the Company. No such amendment shall be
effective to the extent that it applies to less than all of the holders of
the Registrable Securities. No consideration shall be offered or paid to any
Person to amend or consent to a waiver or modification of any provision of
any of this Agreement unless the same consideration also is offered to all of
the parties to this Agreement.
11. MISCELLANEOUS.
a. A Person is deemed to be a holder of Registrable Securities whenever
such Person owns or is deemed to own of record such Registrable Securities.
If the Company receives conflicting instructions, notices or elections from
two or more Persons with respect to the same Registrable Securities, the
Company shall act upon the basis of instructions, notice or election received
from the registered owner of such Registrable Securities.
b. Any notices, consents, waivers or other communications required or
permitted to be given under the terms of this Agreement must be in writing
and will be deemed
15
<PAGE>
to have been delivered: (i) upon receipt, when delivered personally; (ii) upon
receipt, when sent by facsimile (provided confirmation of transmission
is mechanically or electronically generated and kept on file by the sending
party); or (iii) one business day after deposit with a nationally recognized
overnight delivery service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications
shall be:
If to the Company:
Generex Biotechnology Corp.
33 Harbour Square, Suite 202
Toronto, Canada M5J 2G2
Telephone: (416) 364-2551
Facsimile: (416) 364-9363
Attention: E. Mark Perri
With a copy to:
Eckert Seamans Cherin & Mellott
1515 Market Street, 9th Floor
Philadelphia, Pennsylvania 19102-1909
Telephone: (215)851-8400
Facsimile: (215) 851-8383
Attention: Joseph Chicco, Esq.
If to Legal Counsel:
Katten Muchin Zavis
525 West Monroe Street, Suite 1600
Chicago, Illinois 60661-3693
Telephone: (312) 902-5521
Facsimile: (312) 577-8763
Attention: Anthony J. Ribaudo
If to a Buyer, to it at the address and facsimile number set forth on the
Schedule of Buyers attached hereto, with copies to such Buyer's
representatives as set forth on the Schedule of Buyers, or at such other
address and/or facsimile number and/or to the attention of such other person
as the recipient party has specified by written notice given to each other
party five days prior to the effectiveness of such change.
c. Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
d. This Agreement shall be governed by and construed in all respects by
the internal laws of the State of Illinois (except for the proper application
of the United States federal securities laws), without giving effect to any
choice of law or conflict of law provision or rule
16
<PAGE>
(whether of the State of Illinois or any other jurisdictions) that would
cause the application of the laws of any jurisdictions other than the State
of Illinois. Each party hereby irrevocably submits to the non-exclusive
jurisdiction of the state and federal courts sitting the City of Chicago, for
the adjudication of any dispute hereunder. If any provision of this Agreement
shall be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
e. This Agreement, the Securities Purchase Agreement and the Warrants
constitute the entire agreement among the parties hereto with respect to the
subject matter hereof and thereof. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
and therein. This Agreement, the Securities Purchase Agreement and the
Warrants supersede all prior agreements and understandings among the parties
hereto with respect to the subject matter hereof and thereof.
f. Subject to the requirements of Section 9, this Agreement shall inure
to the benefit of and be binding upon the permitted successors and assigns of
each of the parties hereto.
g. The headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in identical counterparts, each of
which shall be deemed an original but all of which shall constitute one and
the same agreement. This Agreement, once executed by a party, may be
delivered to the other party hereto by facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this
Agreement.
i. Each party shall do and perform, or cause to be done and performed,
all such further acts and things, and shall execute and deliver all such
other agreements, certificates, instruments and documents, as the other party
may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions
contemplated hereby.
j. All consents and other determinations to be made by the Investors
pursuant to this Agreement shall be made, unless otherwise specified in this
Agreement, by Investors holding a majority of the Registrable Securities.
k. The language used in this Agreement will be deemed to be the language
chosen by the parties to express their mutual intent and no rules of strict
construction will be applied against any party.
l. This Agreement is intended for the benefit of the parties hereto and
their respective permitted successors and assigns, and is not for the benefit
of, nor may any provision hereof be enforced by, any other Person.
[Signature Page Follows]
17
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of day and year first above written.
COMPANY: BUYERS:
GENEREX BIOTECHNOLOGY CORP. CRANSHIRE CAPITAL, L.P.
By: /s/ Anna E. Gluskin By: Downsview Capital, Incorporated,
---------------------------- the General Partner
Name: Anna E. Gluskin
-------------------------
Title: President By: /s/ Mitchell P. Kopin
---------------------------------
Name: Mitchell Kopin
Title: President
KEYWAY INVESTMENTS LTD.
By: /s/ Paul Moore
---------------------------------
Name: Paul Moore
Title: Director
HOWARD TODD HORBERG
/s/ Howard Todd Horberg
------------------------------------
STEVE LEVY
/s/ Steve Levy
------------------------------------
THE DOTCOM FUND, LLC
By: /s/ Mark Rice
---------------------------------
Name: Mark Rice
Title: Manager
LIONHART INVESTMENTS LTD.
By: /s/ Terrence Duffy
---------------------------------
Name: Terrence Duffy
Title: Director
18
<PAGE>
SCHEDULE 1. LIST OF BUYERS
<TABLE>
<CAPTION>
Investor's
Representatives'
Investor's Address Purchase Number of Number of Address and Facsimile
Investor Name and Facsimile Number Price Common Shares Warrant Shares Number
- ------------------------- ---------------------------- -------- ------------- -------------- ---------------------
<S> <C> <C> <C> <C> <C>
Cranshire Capital, L.P. 666 Dundee Road, Suite 1801 $450,000 105,883 79,413 Katten Muchin Zavis
Northbrook, Illinois 60062 525 W. Monroe Street
Attn: Mitchell Kopin Chicago, Illinois
(p) 847/562-9030 60661-3693
(f) 847/562-9031 Attention: Anthony J.
Ribaudo, Esq.
(p) 312/ 902-5521
(f) 312/ 577-8763
Keyway Investments Ltd. 19 Mount Havelock $450,000 105,883 79,413
Douglas, Isle of Man
United Kingdom
1M1 2QG
Attn: Martin Peters
(p) 011-44-171-323-2131
(f) 011-44-171-323-0773
Howard Todd Horberg 100 Sheridan Road $250,000 58,824 44,118
Highland Park, IL 60035
(p) 847-433-3800
Steve Levy 1776 Clendenin Lane $250,000 58,824 44,118
Riverwoods, IL 60015
(p) 847-562-1776
(f) 847-562-1415
The dotCom Fund, LLC 666 Dundee Road $200,000 47,059 35,294
Northbrook, IL 60062
Attn: Mark Rice
(p) 847-509-2290
(f) 847-509-2295
19
<PAGE>
<CAPTION>
Investor's
Representatives'
Investor's Address Purchase Number of Number of Address and Facsimile
Investor Name and Facsimile Number Price Common Shares Warrant Shares Number
- ------------------------- ---------------------------- -------- ------------- -------------- ---------------------
<S> <C> <C> <C> <C> <C>
Lionhart Investments Ltd. 19 Camp Road $400,000 94,117 70,587
Heston Court
Wimbledon, London
SW194UW
United Kingdom
Attn: Terry Duffy
(p) 011-44-181-947-6934
(f) 011-44-181-971-0212
</TABLE>
20
<PAGE>
EXHIBIT A
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
[TRANSFER AGENT]
Attn:
Re: GENEREX BIOTECHNOLOGY CORP.
Ladies and Gentlemen:
We are counsel to Generex Biotechnology Corp., a Delaware corporation
(the "Company"), and have represented the Company in connection with that
certain Securities Purchase Agreement (the "Purchase Agreement") entered into
by and among the Company and the buyers named therein (collectively, the
"Holders") pursuant to which the Company issued to the Holders shares of its
Common Stock, par value $.001 per share, (the "Common Shares") and the
Warrants (the "Warrants"). Pursuant to the Purchase Agreement, the Company
also has entered into a Registration Rights Agreement with the Holders (the
"Registration Rights Agreement") pursuant to which the Company agreed, among
other things, to register the Registrable Securities (as defined in the
Registration Rights Agreement), including the Common Shares, under the
Securities Act of 1933, as amended (the "1933 Act"). In connection with the
Company's obligations under the Registration Rights Agreement, on
__________________, the Company filed a Registration Statement on Form S-3
(File No. _____________) (the "Registration Statement") with the Securities
and Exchange Commission (the "SEC") relating to the Registrable Securities
which names each of the Holders as a selling stockholder thereunder.
In connection with the foregoing, we advise you that a member of the
SEC's staff has advised us by telephone that the SEC has entered an order
declaring the Registration Statement effective under the 1933 Act at [ENTER
TIME OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no
knowledge, after telephonic inquiry of a member of the SEC's staff, that any
stop order suspending its effectiveness has been issued or that any
proceedings for that purpose are pending before, or threatened by, the SEC
and the Registrable Securities are available for resale under the 1933 Act
pursuant to the Registration Statement.
Very truly yours,
[ISSUER'S COUNSEL]
By:
cc: [LIST NAMES OF HOLDERS]
21
WARRANT
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE
OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE 1933 ACT, OR APPLICABLE
STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL IN FORM, REASONABLY ACCEPTABLE
TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED UNDER THE 1933 ACT OR UNLESS
SOLD PURSUANT TO RULE 144 UNDER SAID ACT. ANY SUCH OFFER, SALE, ASSIGNMENT OR
TRANSFER MUST ALSO COMPLY WITH THE APPLICABLE STATE SECURITIES LAWS.
Generex Biotechnology Corp.
WARRANT TO PURCHASE COMMON STOCK
Warrant No.: ___ Number of Shares: ______
Date of Issuance: January 7, 2000
Generex Biotechnology Corp., a Delaware corporation (the "Company"), hereby
certifies that, for Ten United States Dollars ($10.00) and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, ____________________, the registered holder hereof or its
permitted assigns, is entitled, subject to the terms set forth below, to
purchase from the Company upon surrender of this Warrant, at any time or times
on or after the date hereof, but not after 11:59 P.M. Central Time on the
Expiration Date (as defined herein) ______________________________________
(______) fully paid nonassessable shares of Common Stock (as defined herein) of
the Company (the "Warrant Shares") at the purchase price per share provided in
Section 1(b) below.
Section 1.
(a) Securities Purchase Agreement. This Warrant is one of the
Warrants (the "Warrants") issued pursuant to the terms of that certain
Securities Purchase Agreement dated as of January 7, 2000 (the "Closing
Date"), among the Company and the Buyers referred to therein (the "Securities
Purchase Agreement").
<PAGE>
(b) Definitions. The following words and terms as used in this
Warrant shall have the following meanings:
(i) "Approved Stock Plan" shall mean any employee benefit plan which
has been approved by the Board of Directors of the Company, pursuant to which
the Company's securities may be issued to any employee, officer, director,
consultant or other service provider for services provided to the Company.
(ii) "Common Stock" means (i) the Company's common stock, $.001 par
value per share, and (ii) any capital stock into which such Common Stock
shall have been changed or any capital stock resulting from a reclassification
of such Common Stock.
(iii) "Common Stock Deemed Outstanding" means, at any given time, the
number of shares of Common Stock actually outstanding at such time, plus the
number of shares of Common Stock deemed to be outstanding pursuant to
Sections 8(b)(i) and 8(b)(ii) hereof regardless of whether the Options (as
defined below) or Convertible Securities (as defined below) are actually
exercisable or convertible at such time, but excluding any shares of Common
Stock owned or held by or for the account of the Company or issuable upon
exercise of the Warrants.
(iv) "Convertible Securities" means any stock or securities (other
than Options) directly or indirectly convertible into or exchangeable for
Common Stock.
(v) "Expiration Date" means the date three (3) years from the date of
this Warrant or, if such date falls on a Saturday, Sunday or other day on
which banks are required or authorized to be closed in the City of Chicago or
the State of Illinois or on which trading does not take place on the
principal exchange or automated quotation system on which the Common Stock is
traded (a "Holiday"), the next date that is not a Holiday.
(vi) "Options" means any rights, warrants or options to subscribe for
or purchase Common Stock or Convertible Securities.
(vii) "Other Securities" means (i) the other Warrants and (ii) the
shares of Common Stock issued pursuant to the Securities Purchase Agreement.
(viii) "Person" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof.
(ix) "Principal Market" means the Nasdaq Bulletin Board System,
Nasdaq National Market or Nasdaq Small-Cap Market.
(x) "Securities Act" means the Securities Act of 1933, as amended.
(xi) "Warrant" means this Warrant and all Warrants issued in
exchange, transfer or replacement of any thereof.
-2-
<PAGE>
(xii) "Warrant Exercise Price" shall be $7.00 per common share,
subject to adjustment as hereinafter provided.
Section 2. Exercise of Warrant.
(a) Subject to the terms and conditions hereof, this Warrant may be
exercised by the holder hereof then registered on the books of the Company,
in whole or in part, at any time on any business day on or after the opening
of business on the date hereof and prior to 11:59 P.M. Central Time on the
Expiration Date by (i) delivery of a written notice, in the form of the
subscription notice attached as Exhibit A hereto (the "Exercise Notice"), of
such holder's election to exercise this Warrant, which notice shall specify
the number of Warrant Shares to be purchased, (ii) (A) payment to the Company
of an amount equal to the Warrant Exercise Price multiplied by the number of
Warrant Shares as to which this Warrant is being exercised (plus any
applicable issue or transfer taxes) (the "Aggregate Exercise Price") in cash
or by check or wire transfer or (B) by notifying the Company that it should
subtract from the number of Warrant Shares issuable to the holder upon such
exercise an amount of Warrant Shares having a last reported sale price (as
reported by Bloomberg) on the date immediately preceding the date of the
subscription notice equal to the Aggregate Exercise Price of the Warrant
Shares for which this Warrant is being exercised (a "Cashless Exercise"), and
(iii) the surrender to a common carrier for delivery to the Company as soon
as practicable following such date, this Warrant (or an indemnification
undertaking with respect to this Warrant in the case of its loss, theft or
destruction); provided, that if such Warrant Shares are to be issued in any
name other than that of the registered holder of this Warrant, such issuance
shall be deemed a transfer and the provisions of Section 7 shall be
applicable. In the event of any exercise of the rights represented by this
Warrant in compliance with this Section 2(a), a certificate or certificates
for the Warrant Shares so purchased, in such denominations as may be
requested by the holder hereof and registered in the name of, or as directed
by, the holder, shall be delivered at the Company's expense to, or as
directed by, such holder as soon as practicable, and in no event later than
five (5) business days, after the Company's receipt of the Exercise Notice,
the Aggregate Exercise Price and this Warrant (or an indemnification
undertaking with respect to this Warrant in the case of its loss, theft or
destruction). Upon delivery of the Exercise Notice and Aggregate Exercise
Price referred to in clause (ii) (A) above or notification to the Company of
a Cashless Exercise referred to in clause (ii) (B) above, the holder of this
Warrant shall be deemed for all corporate purposes to have become the holder
of record of the Warrant Shares with respect to which this Warrant has been
exercised, irrespective of the date of delivery of this Warrant as required
by clause (iii) above or the certificates evidencing such Warrant Shares. In
the case of a dispute as to the determination of the Warrant Exercise Price,
the Company shall promptly issue to the holder the number of shares of Common
Stock that is not disputed and shall submit the disputed determinations or
arithmetic calculations to the holder via facsimile within five (5) business
days of receipt of the holder's subscription notice. If the holder and the
Company are unable to agree upon the determination of the Warrant Exercise
Price or arithmetic calculation of the Warrant Shares within five (5)
business days of such disputed determination or arithmetic calculation being
submitted to the holder, then the Company shall immediately submit via
facsimile (i) the disputed determination of the Warrant Exercise Price to an
independent, reputable investment banking firm or (ii) the disputed
arithmetic calculation of the Warrant Shares to its independent, outside
accountant. The
-3-
<PAGE>
Company shall cause the investment banking firm or the accountant, as
the case may be, to perform the determinations or calculations and notify the
Company and the holder of the results no later than forty-eight (48) hours
from the time it receives the disputed determinations or calculations. Such
investment banking firm's or accountant's determination or calculation, as
the case may be, shall be deemed conclusive absent manifest error and the
Company shall be liable for the costs and expenses related to such
determination or calculation.
(b) Unless the rights represented by this Warrant shall have expired
or shall have been fully exercised, the Company shall, as soon as practicable
and in no event later than five (5) business days after any exercise and at
its own expense, issue a new Warrant identical in all respects to this
Warrant exercised except it shall represent rights to purchase the number of
Warrant Shares purchasable immediately prior to such exercise under this
Warrant exercised, less the number of Warrant Shares with respect to which
such Warrant is exercised.
(c) If the Company shall fail for any reason or for no reason to
issue to the holder on a timely basis as described in this Section 2, a
certificate for the number of shares of Common Stock to which the holder is
entitled upon the holder's exercise of this Warrant or a new Warrant for the
number of shares of Common Stock to which such holder is entitled pursuant to
Section 2(b) hereof, the Company shall, in addition to any other remedies
under this Warrant or the Securities Purchase Agreement or otherwise
available to such holder, including any indemnification under the Securities
Purchase Agreement, pay as additional damages in cash to such holder on each
day the issuance of such Common Stock certificate or new Warrant, as the case
may be, is not timely effected an amount equal to .25% of the product of (A)
the sum of the number of shares of Common Stock not issued to the holder on a
timely basis and to which the holder is entitled and/or, the number of shares
represented by the portion of this Warrant which is not being converted, as
the case may be, and (B) the average of the closing bid price of the Common
Stock for the three consecutive trading days immediately preceding the last
possible date which the Company could have issued such Common Stock or
Warrant, as the case may be, to the holder without violating this Section 2.
Section 3. Covenants as to Common Stock. The Company hereby covenants
and agrees as follows:
(a) This Warrant is, and any Warrant issued in substitution for or
replacement of this Warrant will upon issuance be, duly authorized and
validly issued.
(b) All Warrant Shares which may be issued upon the exercise of the
rights represented by this Warrant will, upon issuance, be validly issued,
fully paid and nonassessable and free from all taxes, liens and charges with
respect to the issue thereof.
(c) During the period within which the rights represented by this
Warrant may be exercised, the Company will at all times have authorized and
reserved at least 100% of the number of shares of Common Stock needed to
provide for the exercise of the rights then represented by this Warrant and
the par value of said shares will at all times be less than or equal to the
applicable Warrant Exercise Price.
-4-
<PAGE>
(d) The Company shall promptly secure the listing of the shares of
Common Stock issuable upon exercise of this Warrant upon each national
securities exchange or automated quotation system, if any, upon which shares
of Common Stock are then listed (subject to official notice of issuance upon
exercise of this Warrant) and shall maintain, so long as any other shares of
Common Stock shall be so listed, such listing of all shares of Common Stock
from time to time issuable upon the exercise of this Warrant; and the Company
shall so list on each national securities exchange or automated quotation
system, as the case may be, and shall maintain such listing of, any other
shares of capital stock of the Company issuable upon the exercise of this
Warrant if and so long as any shares of the same class shall be listed on
such national securities exchange or automated quotation system.
(e) The Company will not, by amendment of its Certificate of
Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities, or any other
voluntary action, avoid or seek to avoid the observance or performance of any
of the terms to be observed or performed by it hereunder, but will at all
times in good faith assist in the carrying out of all the provisions of this
Warrant and in the taking of all such action as may reasonably be requested
by the holder of this Warrant in order to protect the exercise privilege of
the holder of this Warrant against dilution or other impairment, consistent
with the tenor and purpose of this Warrant will take all such actions as may
be necessary or appropriate in order that the Company may validly and legally
issue fully paid and nonassessable shares of Common Stock upon the exercise
of this Warrant.
(f) This Warrant will be binding upon any entity succeeding to the
Company by merger, consolidation or acquisition of all or substantially all
of the Company's assets.
Section 4. Taxes. The Company shall pay any and all taxes which may
be payable with respect to the issuance and delivery of Warrant Shares upon
exercise of this Warrant.
Section 5. Warrant Holder Not Deemed a Stockholder. Except as
otherwise specifically provided herein, no holder, as such, of this Warrant
shall be entitled to vote or receive dividends or be deemed the holder of
shares of the Company for any purpose, nor shall anything contained in this
Warrant be construed to confer upon the holder hereof, as such, any of the
rights of a stockholder of the Company or any right to vote, give or withhold
consent to any corporate action (whether any reorganization, issue of stock,
reclassification of stock, consolidation, merger, conveyance or otherwise),
receive notice of meetings, receive dividends or subscription rights, or
otherwise, prior to the issuance to the holder of this Warrant of the Warrant
Shares which he or she is then entitled to receive upon the due exercise of
this Warrant. In addition, nothing contained in this Warrant shall be
construed as imposing any liabilities on such holder to purchase any
securities (upon exercise of this Warrant or otherwise) or as a stockholder
of the Company, whether such liabilities are asserted by the Company or by
creditors of the Company. Notwithstanding this Section 5, the Company will
provide the holder of this Warrant with copies of the same notices and other
information given to the stockholders of the Company generally,
contemporaneously with the giving thereof to the stockholders.
-5-
<PAGE>
Section 6. Representations of Holder. The holder of this Warrant, by
the acceptance hereof, represents that it is acquiring this Warrant and the
Warrant Shares for its own account for investment only and not with a view
towards, or for resale in connection with, the public sale or distribution of
this Warrant or the Warrant Shares, except pursuant to sales registered or
exempted under the Securities Act; provided, however, that by making the
representations herein, the holder does not agree to hold this Warrant or any
of the Warrant Shares for any minimum or other specific term and reserves the
right to dispose of this Warrant and the Warrant Shares at any time in
accordance with or pursuant to a registration statement or an exemption under
the Securities Act. The holder of this Warrant further represents, by
acceptance hereof, that, as of this date, such holder is an "accredited
investor" as such term is defined in Rule 501(a)(1) of Regulation D
promulgated by the Securities and Exchange Commission under the Securities
Act (an "Accredited Investor").
Section 7. Ownership and Transfer.
(a) The Company shall maintain at its principal executive offices (or
such other office or agency of the Company as it may designate by notice to
the holder hereof), a register for this Warrant, in which the Company shall
record the name and address of the person in whose name this Warrant has been
issued, as well as the name and address of each transferee. The Company may
treat the person in whose name any Warrant is registered on the register as
the owner and holder thereof for all purposes, notwithstanding any notice to
the contrary, but in all events recognizing any transfers made in accordance
with the terms of this Warrant.
(b) This Warrant and the rights granted to the holder hereof are
transferable, in whole or in part, upon surrender of this Warrant, together
with a properly executed warrant power in the form of Exhibit B attached
hereto; provided, however, that any transfer or assignment shall be subject
to the conditions set forth in Section 7(c) below.
(c) The holder of this Warrant understands that this Warrant has not
been and is not expected to be, registered under the Securities Act or any
state securities laws, and may not be offered for sale, sold, assigned or
transferred unless (a) subsequently registered thereunder, or (b) such holder
shall have delivered to the Company an opinion of counsel, in generally
acceptable form, to the effect that the securities to be sold, assigned or
transferred may be sold, assigned or transferred pursuant to an exemption
from such registration; provided that (i) any sale of such securities made in
reliance on Rule 144 promulgated under the Securities Act may be made only in
accordance with the terms of said Rule and further, if said Rule is not
applicable, any resale of such securities under circumstances in which the
seller (or the person through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the Securities Act) may require
compliance with some other exemption under the Securities Act or the rules
and regulations of the Securities and Exchange Commission thereunder; and
(ii) neither the Company nor any other person is under any obligation to
register the Warrants under the Securities Act or any state securities laws
or to comply with the terms and conditions of any exemption thereunder.
-6-
<PAGE>
(d) The Company is obligated to register the Warrant Shares for
resale under the Securities Act pursuant to the Registration Rights Agreement
dated January 7, 2000 by and between the Company and the Buyers listed on the
signature page thereto (the "Registration Rights Agreement") and the initial
holder of this Warrant (and certain assignees thereof) is entitled to the
registration rights in respect of the Warrant Shares as set forth in the
Registration Rights Agreement.
Section 8. Adjustment of Warrant Exercise Price and Number of Shares.
The Warrant Exercise Price and the number of shares of Common Stock issuable
upon exercise of this Warrant shall be adjusted from time to time as follows:
(a) Adjustment of Warrant Exercise Price and Number of Shares upon
Issuance of Common Stock. Except for Company Common Stock issued upon
exercise or conversion of securities issued prior to the Closing Date, if and
whenever on or after the date of issuance of this Warrant, the Company issues
or sells, or in accordance with Section 8(b) is deemed to have issued or
sold, any shares of Common Stock (including the issuance or sale of shares of
Common Stock owned or held by or for the account of the Company, but
excluding shares of Common Stock deemed to have been issued by the Company in
connection with an Approved Stock Plan or upon exercise or conversion of the
Other Securities) for a consideration per share less than the Warrant
Exercise Price in effect immediately prior to such time (the "Applicable
Price"), then immediately after such issue or sale the Warrant Exercise Price
then in effect shall be reduced to an amount equal to the product of (x) the
Warrant Exercise Price in effect immediately prior to such issue or sale and
(y) the quotient determined by dividing (1) the sum of (I) the product
derived by multiplying the Applicable Price by the number of shares of Common
Stock Deemed Outstanding immediately prior to such issue or sale, plus (II)
the consideration, if any, received by the Company upon such issue or sale,
by (2) the product derived by multiplying the (I) Applicable Price by (II)
the number of shares of Common Stock Deemed Outstanding immediately after
such issue or sale. Upon each such adjustment of the Warrant Exercise Price
hereunder, the number of shares of Common Stock acquirable upon exercise of
this Warrant shall be adjusted to the number of shares determined by
multiplying the Warrant Exercise Price in effect immediately prior to such
adjustment by the number of shares of Common Stock acquirable upon exercise
of this Warrant immediately prior to such adjustment and dividing the product
thereof by the Warrant Exercise Price resulting from such adjustment.
(b) Effect on Warrant Exercise Price of Certain Events. For purposes
of determining the adjusted Warrant Exercise Price under Section 8(a) above,
the following shall be applicable:
(i) Issuance of Options. If the Company in any manner grants any
Options and the lowest price per share for which one share of Common Stock is
issuable upon the exercise of any such Option or upon conversion or exchange
of any Convertible Securities issuable upon exercise of any such Option is
less than the Applicable Price, then such share of Common Stock shall be
deemed to be outstanding and to have been issued and sold by the Company at
the time of the granting or sale of such Option for such price per share. For
purposes of this Section 8(b)(i), the "lowest price per share for which one
share of Common Stock is issuable upon exercise
-7-
<PAGE>
of such Options or upon conversion or exchange of such Convertible Securities"
shall be equal to the sum of the lowest amounts of consideration (if
any) received or receivable by the Company with respect to any one share of
Common Stock upon the granting or sale of the Option, upon exercise of the
Option and upon conversion or exchange of any Convertible Security issuable
upon exercise of such Option. No further adjustment of the Warrant Exercise
Price shall be made upon the actual issuance of such Common Stock or of such
Convertible Securities upon the exercise of such Options or upon the actual
issuance of such Common Stock upon conversion or exchange of such Convertible
Securities. Notwithstanding the foregoing, no adjustment shall be made
pursuant to this Section 8(b)(i) to the extent that such adjustment is based
solely on the fact that the Convertible Securities issuable upon exercise of
such Option are convertible into or exchangeable for Common Stock at a price
which varies with the market price of the Common Stock.
(ii) Issuance of Convertible Securities. If the Company in any manner
issues or sells any Convertible Securities and the lowest price per share for
which one share of Common Stock is issuable upon such conversion or exchange
thereof is less than the Applicable Price, then such share of Common Stock
shall be deemed to be outstanding and to have been issued and sold by the
Company at the time of the issuance or sale of such Convertible Securities
for such price per share. For the purposes of this Section 8(b)(ii), the
"lowest price per share for which one share of Common Stock is issuable upon
such conversion or exchange" shall be equal to the sum of the lowest amounts
of consideration (if any) received or receivable by the Company with respect
to one share of Common Stock upon the issuance or sale of the Convertible
Security and upon conversion or exchange of such Convertible Security. No
further adjustment of the Warrant Exercise Price shall be made upon the
actual issuance of such Common Stock upon conversion or exchange of such
Convertible Securities, and if any such issue or sale of such Convertible
Securities is made upon exercise of any Options for which adjustment of the
Warrant Exercise Price had been or are to be made pursuant to other
provisions of this Section 8(b), no further adjustment of the Warrant
Exercise Price shall be made by reason of such issue or sale. Notwithstanding
the foregoing, no adjustment shall be made pursuant to this Section 8(b)(ii)
to the extent that such adjustment is based solely on the fact that such
Convertible Securities are convertible into or exchangeable for Common Stock
at a price which varies with the market price of the Common Stock.
(iii) Change in Option Price or Rate of Conversion. If the purchase
price provided for in any Options, the additional consideration, if any,
payable upon the issue, conversion or exchange of any Convertible Securities,
or the rate at which any Convertible Securities are convertible into or
exchangeable for Common Stock changes at any time, the Warrant Exercise Price
in effect at the time of such change shall be adjusted to the Warrant
Exercise Price which would have been in effect at such time had such Options
or Convertible Securities provided for such changed purchase price,
additional consideration or changed conversion rate, as the case may be, at
the time initially granted, issued or sold and the number of shares of Common
Stock acquirable hereunder shall be correspondingly readjusted. For purposes
of this Section 8(b)(iii), if the terms of any Option or Convertible Security
that was outstanding as of the date of issuance of this Warrant are changed
in the manner described in the immediately preceding sentence, then such
Option or Convertible Security and the Common Stock deemed issuable upon
exercise, conversion or exchange thereof
-8-
<PAGE>
shall be deemed to have been issued as of the date of such change. No
adjustment shall be made if such adjustment would result in an increase of
the Warrant Exercise Price then in effect.
(c) Effect on Warrant Exercise Price of Certain Events. For purposes
of determining the adjusted Warrant Exercise Price under Sections 8(a) and
8(b), the following shall be applicable:
(i) Calculation of Consideration Received. In case any Option is
issued in connection with the issue or sale of other securities of the
Company, together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, the
Options will be deemed to have been issued for a consideration of $.01. If
any Common Stock, Options or Convertible Securities are issued or sold or
deemed to have been issued or sold for cash, the consideration received
therefor will be deemed to be the net amount received by the Company
therefor. If any Common Stock, Options or Convertible Securities are issued
or sold for a consideration other than cash, the amount of such consideration
received by the Company will be the fair value of such consideration, except
where such consideration consists of publicly-traded securities, in which
case the amount of consideration received by the Company will be the market
price of such securities for the twenty (20) consecutive trading days
immediately preceding the date of receipt. If any Common Stock, Options or
Convertible Securities are issued to the owners of the non-surviving entity
in connection with any merger in which the Company is the surviving entity,
the amount of consideration therefor will be deemed to be the fair value of
such portion of the net assets and business of the non-surviving entity as is
attributable to such Common Stock, Options or Convertible Securities, as the
case may be. The fair value of any consideration other than cash or
publicly-held securities will be determined jointly by the Company and the
holders of Warrants representing a majority of the shares of Common Stock
obtainable upon exercise of the Warrants then outstanding. If such parties
are unable to reach agreement within ten (10) days after the occurrence of an
event requiring valuation (the "Valuation Event"), the fair value of such
consideration will be determined within five business days after the tenth
(10th) day following the Valuation Event by an independent, reputable
appraiser jointly selected by the Company and the holders of Warrants
representing a majority of the shares of Common Stock obtainable upon
exercise of the Warrants then outstanding. The determination of such
appraiser shall be final and binding upon all parties and the fees and
expenses of such appraiser shall be borne by the Company.
(ii) Record Date. If the Company takes a record of the holders of
Common Stock for the purpose of entitling them (1) to receive a dividend or
other distribution payable in Common Stock, Options or in Convertible
Securities or (2) to subscribe for or purchase Common Stock, Options or
Convertible Securities, then such record date will be deemed to be the date
of the issue or sale of the shares of Common Stock deemed to have been issued
or sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
(d) Adjustment of Warrant Exercise Price upon Subdivision or
Combination of Common Stock. If the Company at any time after the date of
issuance of this Warrant subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its
-9-
<PAGE>
outstanding shares of Common Stock into a greater number of shares,
the Warrant Exercise Price in effect immediately prior to such subdivision
will be proportionately reduced and the number of shares of Common Stock
obtainable upon exercise of this Warrant will be proportionately increased.
If the Company at any time after the date of issuance of this Warrant
combines (by combination, reverse stock split or otherwise) one or more
classes of its outstanding shares of Common Stock into a smaller number of
shares, the Warrant Exercise Price in effect immediately prior to such
combination will be proportionately increased and the number of shares of
Common Stock obtainable upon exercise of this Warrant will be proportionately
decreased.
(e) Adjustment of Warrant Exercise Price Due to Fluctuation in
Closing Bid Price. In the event of either (i) during the five (5) trading day
period ending on the trading day immediately preceding the effective date of
the Registration Statement (as that term is defined in the Registration
Rights Agreement) covering for resale the Warrant Shares, the average of the
closing bid prices of the Company's common stock for such period is less than
$4.00 (Four Dollars) per common share (such amount to be adjusted in the same
manner as any adjustment in the Warrant Exercise Price effected since the
date of this Warrant pursuant to Section 8(d)) or (ii) during any five (5)
trading day period ending on any January 7 or July 7 (or if such date is not
a trading day, the immediately following trading day) during the term of this
Warrant or the Expiration Date, the average of the closing bid prices of the
Company's common stock for such applicable period is less than $4.00 (Four
Dollars) per common share (such amount to be adjusted in the same manner as
any adjustment in the Warrant Exercise Price effected since the date of this
Warrant pursuant to Section 8(d)), then, in either case, the Warrant Exercise
Price shall be automatically reset to the lower of (x) $2.00 (Two Dollars)
per common share (such amount to be adjusted in the same manner as any
adjustment to the Warrant Exercise Price effected since the date of this
Warrant pursuant to Section 8(d)) or (y) the Warrant Exercise Price then in
effect.
(f) Distribution of Assets. If the Company shall declare or make any
dividend or other distribution of its assets (or rights to acquire its
assets) to holders of Common Stock, by way of return of capital or otherwise
(including, without limitation, any distribution of cash, stock or other
securities, property or options by way of a dividend, spin off,
reclassification, corporate rearrangement or other transaction) (a
"Distribution"), at any time after the issuance of this Warrant, then, in
each such case:
(i) the Warrant Exercise Price in effect immediately prior to the
close of business on the record date fixed for the determination of holders
of Common Stock entitled to receive the Distribution shall be reduced,
effective as of the close of business on such record date, to a price
determined by multiplying such Warrant Exercise Price by a fraction of which
(A) the numerator shall be the Closing bid price on the trading day
immediately preceding such record date minus the value of the Distribution
(as determined in good faith by the Company's Board of Directors) applicable
to one share of Common Stock, and (B) the denominator shall be the Closing
bid price on the trading day immediately preceding such record date; and
(ii) either (A) the number of Warrant Shares obtainable upon exercise
of this Warrant shall be increased to a number of shares equal to the number
of shares of Common
-10-
<PAGE>
Stock obtainable immediately prior to the close of business on the
record date fixed for the determination of holders of Common Stock entitled
to receive the Distribution multiplied by the reciprocal of the fraction set
forth in the immediately preceding clause (i), or (B) in the event that the
Distribution is of common stock of a company whose common stock is traded on
a national securities exchange or a national automated quotation system, then
the holder of this Warrant shall receive an additional warrant to purchase
Common Stock, the terms of which shall be identical to those of this Warrant,
except that such warrant shall be exercisable into the amount of the assets
that would have been payable to the holder of this Warrant pursuant to the
Distribution had the holder exercised this Warrant immediately prior to such
record date and with an exercise price equal to the amount by which the
exercise price of this Warrant was decreased with respect to the Distribution
pursuant to the terms of the immediately preceding clause (i).
(g) Certain Events. If any event occurs of the type contemplated by
the provisions of this Section 8 but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features), then the
Company's Board of Directors will make an appropriate adjustment in the
Warrant Exercise Price and the number of shares of Common Stock obtainable
upon exercise of this Warrant so as to protect the rights of the holders of
the Warrants; provided that no such adjustment will increase the Warrant
Exercise Price or decrease the number of shares of Common Stock obtainable as
otherwise determined pursuant to this Section 8.
(h) Notices.
(i) Immediately upon any adjustment of the Warrant Exercise Price,
the Company will give written notice thereof to the holder of this Warrant,
setting forth in reasonable detail, and certifying, the calculation of such
adjustment.
(ii) The Company will give written notice to the holder of this
Warrant at least twenty (20) days prior to the date on which the Company
closes its books or takes a record (A) with respect to any dividend or
distribution upon the Common Stock, (B) with respect to any pro rata
subscription offer to holders of Common Stock or (C) for determining rights
to vote with respect to any Organic Change (as defined below), dissolution or
liquidation, provided that such information shall be made known to the public
prior to or in conjunction with such notice being provided to such holder.
(iii) The Company will also give written notice to the holder of this
Warrant at least twenty (20) days prior to the date on which any Organic
Change, dissolution or liquidation will take place, provided that such
information shall be made known to the public prior to or in conjunction with
such notice being provided to such holder.
Section 9. Purchase Rights; Reorganization, Reclassification,
Consolidation, Merger or Sale. (a) In addition to any adjustments pursuant to
Section 8 above, if at any time the Company grants, issues or sells any
Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of
Common Stock (the
-11-
<PAGE>
"Purchase Rights"), then the holder of this Warrant will be entitled to
acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which such holder could have acquired if such holder had held
the number of shares of Common Stock acquirable upon complete exercise of
this Warrant immediately before the date on which a record is taken for the
grant, issuance or sale of such Purchase Rights, or, if no such record is
taken, the date as of which the record holders of Common Stock are to be
determined for the grant, issue or sale of such Purchase Rights.
(b) Any recapitalization, reorganization, reclassification,
consolidation, merger, sale of all or substantially all of the Company's
assets to another Person or other transaction which is effected in such a way
that holders of Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock is referred to herein as "Organic Change." Prior to
the consummation of any (i) sale of all or substantially all of the Company's
assets to an acquiring Person or (ii) other Organic Change following which
the Company is not a surviving entity, the Company will secure from the
Person purchasing such assets or the successor resulting from such Organic
Change (in each case, the "Acquiring Entity") written agreement (in form and
substance satisfactory to the holders of Warrants representing a majority of
the shares of Common Stock obtainable upon exercise of the Warrants then
outstanding) to deliver to each holder of Warrants in exchange for such
Warrants, a security of the Acquiring Entity evidenced by a written
instrument substantially similar in form and substance to this Warrant and
satisfactory to the holders of the Warrants (including, an adjusted warrant
exercise price equal to the value for the Common Stock reflected by the terms
of such consolidation, merger or sale, and exercisable for a corresponding
number of shares of Common Stock acquirable and receivable upon exercise of
the Warrants, if the value so reflected is less than the Warrant Exercise
Price in effect immediately prior to such consolidation, merger or sale).
Prior to the consummation of any other Organic Change, the Company shall make
appropriate provision (in form and substance satisfactory to the holders of
Warrants representing a majority of the shares of Common Stock obtainable
upon exercise of the Warrants then outstanding) to insure that each of the
holders of the Warrants will thereafter have the right to acquire and receive
in lieu of or in addition to (as the case may be) the shares of Common Stock
immediately theretofore acquirable and receivable upon the exercise of such
holder's Warrants, such shares of stock, securities or assets that would have
been issued or payable in such Organic Change with respect to or in exchange
for the number of shares of Common Stock which would have been acquirable and
receivable upon the exercise of such holder's Warrant as of the date of such
Organic Change (without taking into account any limitations or restrictions
on the exercisability of this Warrant).
Section 10. Lost, Stolen, Mutilated or Destroyed Warrant. If this
Warrant is lost, stolen, mutilated or destroyed, the Company shall, on
receipt of an indemnification undertaking, issue a new Warrant of like
denomination and tenor as this Warrant so lost, stolen, mutilated or
destroyed.
Section 11. Notice. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Warrant must be in writing and will be deemed to have been delivered: (i)
upon receipt, when delivered personally; (ii) upon receipt, when sent by
facsimile (provided confirmation of transmission is mechanically or
electronically generated and kept on file
-12-
<PAGE>
by the sending party); or (iii) one business day after deposit with a
nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile
numbers for such communications shall be:
If to the Company:
Generex Biotechnology Corp.
33 Harbour Square, Suite 202
Toronto, Canada M5J 2G2
Telephone: (416) 364-2551
Facsimile: (416) 364-9363
Attention: E. Mark Perri
With copy to:
Eckert Seamans Cherin & Mellott
1515 Market Street, 9th Floor
Philadelphia, Pennsylvania 19102-1909
Telephone: (215) 851-8410
Facsimile: (215) 851-8383
Attention: Joseph Chicco, Esq.
If to a holder of this Warrant, to it at the address and facsimile number set
forth on the Schedule of Buyers to the Securities Purchase Agreement, with
copies to such holder's representatives as set forth on such Schedule of Buyers,
or at such other address and facsimile as shall be delivered to the Company upon
the issuance or transfer of this Warrant. Each party shall provide five days'
prior written notice to the other party of any change in address or facsimile
number. Written confirmation of receipt (A) given by the recipient of such
notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (C) provided by a nationally recognized overnight delivery
service shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.
Section 12. Amendments. This Warrant and any term hereof may be
changed, waived, discharged, or terminated only by an instrument in writing
signed by the party or holder hereof against which enforcement of such
change, waiver, discharge or termination is sought.
Section 13. Date. The date of this Warrant is January 7, 2000. This
Warrant, in all events, shall be wholly void and of no effect after the close
of business on the Expiration Date, except that notwithstanding any other
provisions hereof, the provisions of Section 7 shall continue in full force
and effect after such date as to any Warrant Shares or other securities
issued upon the exercise of this Warrant.
-13-
<PAGE>
Section 14. Amendment and Waiver. Except as otherwise provided
herein, the provisions of the Warrants may be amended and the Company may
take any action herein prohibited, or omit to perform any act herein required
to be performed by it, only if the Company has obtained the written consent
of the holders of Warrants representing a majority of the shares of Common
Stock obtainable upon exercise of the Warrants then outstanding; provided
that no such action may increase the Warrant Exercise Price of the Warrants
or decrease the number of shares or class of stock obtainable upon exercise
of any Warrants without the written consent of the holder of such Warrant.
Section 15. Descriptive Headings; Governing Law. The descriptive
headings of the several Sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. This Warrant
shall be governed by the internal laws of the State of Illinois, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of Illinois or any other jurisdictions) that would cause the application
of the laws of any jurisdictions other than the State of Illinois.
[Signature Page Follows]
-14-
<PAGE>
This Warrant has been duly executed by the Company as of the date
first set forth above.
GENEREX BIOTECHNOLOGY CORP.
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
-15-
<PAGE>
EXHIBIT A TO WARRANT
SUBSCRIPTION FORM
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT
GENEREX BIOTECHNOLOGY CORP.
The undersigned holder hereby exercises the right to purchase
_________________ of the shares of Common Stock ("Warrant Shares") of Generex
Biotechnology Corp., a Delaware corporation (the "Company"), evidenced by the
attached Warrant (the "Warrant"). Capitalized terms used herein and not
otherwise defined shall have the respective meanings set forth in the
Warrant.
1. Form of Warrant Exercise Price. The Holder intends that payment of
the Warrant Exercise Price shall be made as:
a "Cash Exercise" with respect to _______________________
Warrant Shares which shall result in the holder owning ___% of
the Company's common stock on a fully diluted basis; and/or
a "Cashless Exercise" with respect to ___________________
Warrant Shares which shall result in the holder owning ___% of
the Company's common stock on a fully diluted basis.
2. Payment of Warrant Exercise Price. In the event that the holder has
elected a Cash Exercise with respect to some or all of the Warrant Shares to be
issued pursuant hereto, the holder shall pay the sum of $___________________ to
the Company in accordance with the terms of the Warrant.
3. Delivery of Warrant Shares. The Company shall deliver to the holder
__________ Warrant Shares in accordance with the terms of the Warrant.
Date: ______________ ___, _____
Name of Registered Holder
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
<PAGE>
EXHIBIT B TO WARRANT
FORM OF WARRANT POWER
FOR VALUE RECEIVED, the undersigned does hereby assign and transfer to
________________, Federal Identification No. __________, a warrant to purchase
____________ shares of the capital stock of Generex Biotechnology Corporation, a
Delaware corporation, represented by warrant certificate no. _____, standing in
the name of the undersigned on the books of said corporation. The undersigned
does hereby irrevocably constitute and appoint ______________, attorney to
transfer the warrants of said corporation, with full power of substitution in
the premises.
Dated: _________, 199_
--------------------------------
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
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 Units of Securities
No. CCSI-E ___________ ____________ Units
THIS CERTIFIES THAT, for value received, ____________________ ("Holder"),
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"), ____ Units of securities ("Units'), each Unit consisting of one (1)
fully paid and nonassessable share (a "Share") of the Company's Common Stock,
$.001 par value per share (the "Common Stock"), and three quarters of one (0.75)
of the Company's Series CU in form and substance identical to Series CU Warrants
sold by the Company in a $2,000,000 private placement of Common Stock and Series
CU Warrants effected in January 2000; provided, however, that on and after
January 7, 2003, the Holder shall be entitled to receive Shares only upon the
exercise of this Warrant as a result of the expiration of the CU Warrants and
the term "Units" as used herein shall be interpreted to mean Shares only or
after such date.
The initial exercise price of this Warrant is FOUR AND 25/100 ($4.25)
DOLLARS per Unit (the "Exercise Price"), subject to the limitations, terms
and conditions set forth herein.
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 at 11:59 P.M. Eastern Standard Time on
January 7, 2005.
2. This Warrant may be exercised during the Exercise Period as to the
whole or any lesser number of whole Units then issuable upon exercise 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 Units covered by such exercise (the "Units 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 Units 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 Units 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 Units 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 Units 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 of shares of Common Stock
-2-
<PAGE>
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 Units purchasable
upon exercise of this Warrant shall simultaneously be adjusted by multiplying
the number of Units 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 Unit.
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 Units 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
Certificate 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 securities 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 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 two or more
classes or series), 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 Units 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 Common Stock and to successive
consolidations, mergers, sales or conveyances.
8. The issue of Units upon the exercise of this Warrant shall be made
without charge to the Holder for any tax in respect of the issue of
certificate for such securities. 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
-3-
<PAGE>
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 securities issued upon exercise of this Warrant shall not be
transferable unless, in the opinion of counsel reasonably satisfactory to the
Company, an exemption from registration under applicable securities laws is
available. The securities issued upon the exercise of this Warrant shall be
subject to a stop-transfer order and the certificate or certificates
evidencing any such securities shall bear the following legend and any other
legend which counsel for the Company may deem necessary or advisable:
THE SECURITIES 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 resales outside
the United States. Such further limitations and restrictions shall be
evidenced by legends placed on the certificates evidencing securities issued
upon the exercise of this Warrant.
(c) Notwithstanding any other term of this Warrant, the Company may
require, as a condition of issuing securities upon the exercise of this
Warrant or permitting the transfer of this Warrant or 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) If 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 or an
acquisition of another entity, or in connection with a dividend reinvestment
plan) with respect to shares of Common Stock (a "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
-4-
<PAGE>
required to be provided to the Company by Holder pursuant to paragraph 13(c)
below and shall offer to Holder the opportunity to include in the Piggy
Back Registration Statement such number of Units as Holder may request. The
Company shall not be required to honor any such request if, in the opinion of
counsel to the Company reasonably acceptable to Holder, registration under
the Act is not required for the transfer of Units in the manner proposed by
Holder. 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 Underwritten Offering to permit, such Units to be
included in the proposed Underwritten 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.
(b) 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 Units requested by
Holder to be included in the Registration Statement concurrently with the
shares of Common Stock being registered by the Company would materially
adversely affect the distribution of Common Stock 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 Units shall not be included in the
Registration Statement. If the managing underwriter elects to include less
than all Units, then the number of Units shall be pro rata with other
securities properly requested to be included in the Registration Statement by
other holders pursuant to "piggy back" registration rights under any other
agreement. The Company shall not be required to maintain the Registration
Statement in effect as it relates to Units 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 Units included therein.
(c) In connection with any registration of Units pursuant to paragraphs
13 (a) above, and as a condition to the Company's obligation to register the
Units, Holder shall promptly furnish to the Company such information
regarding Holder, the proposed distribution of the Units by Holder and such
other matters as the Company may reasonably request in writing.
(d) 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 Units, 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 Units to the public, and will take
appropriate action to enable the Units to be sold in the State of New York
and such other states as the Company may elect.
-5-
<PAGE>
14. Without limiting any indemnification rights of the Company or Holder
arising under any other agreement or law, in any registration of Units
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 Units on or before June 30,
2001, 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 June 30, 2001, to convert this Warrant into that number
of Units (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 Units equals "CU", 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 Units at
any time issuable upon conversion of this Warrant to Common Stock pursuant to
this paragraph 15(a):
CU = 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
-6-
<PAGE>
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 the lesser of (x) 20,000 shares per
trading day, or (y) 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 Units Purchase
Price shall not be tendered.
16. The Company warrants the due authorization, execution and delivery
of this Warrant this 13th day of January 2000.
GENEREX BIOTECHNOLOGY CORPORATION
[SEAL]
By:
-----------------------------
E. Mark Perri, Chairman
-7-
<PAGE>
ELECTION TO PURCHASE
The undersigned Holder hereby irrevocably elects (check one): [ ] to exercise
the within Warrant to purchase _____________________________ Units issuable
upon the exercise thereof; [ ] to convert the within Warrant to Units
pursuant to paragraph 15 thereof. The undersigned requests that certificates
for such Units, 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-
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. TSGI- ______ __________ Shares
THIS CERTIFIES THAT, for value received, _____________________________
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 SEVEN and
50/100 ($7.50) DOLLARS per Share (the "Exercise Price"), subject to the
limitations, terms and conditions set forth herein.
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 at 11:59 P.M. Eastern Standard Time on
January 31, 2004.
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 of shares of Common Stock
outstanding immediately after giving effect to such action, and of which the
numerator shall be the number
-2-
<PAGE>
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 and until the person or persons requesting the issue
thereof
-3-
<PAGE>
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"), this Warrant and Shares or other securities issued upon exercise
of the Warrant shall not be transferable unless, in the opinion of counsel
reasonably satisfactory to the Company, an exemption from registration under
applicable securities laws is available. The Warrant, 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
this Warrant and Shares outside the United States. 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) If 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 or an
acquisition of another entity, or in connection with a dividend reinvestment
plan) with respect to shares of Common Stock (a "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
-4-
<PAGE>
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(c) 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 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. 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
Underwritten Offering to permit, such Shares to be included in the proposed
Underwritten 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.
(b) 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 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 Statement. If the managing underwriter elects to include less
than all Shares, then the number of Shares shall be pro rata with other
securities properly requested to be included in the Registration Statement by
other holders pursuant to "piggy back" registration rights under any other
agreement. The Company shall not be required to maintain the Registration
Statement in effect 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.
(c) In connection with any registration of Shares pursuant to paragraphs
13 (a) 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.
(d) 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.
(e) Notwithstanding anything to the contrary in paragraph (a) above, the
term Registration Statement as used herein shall not include any registration
statement filed by the Company under the Securities Act for the purpose of
registering Common Stock and Series CU Warrants which were sold by the
Company in January 2000.
-5-
<PAGE>
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, 2003, and such Registration Statement shall have 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, 2003, 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
(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
-6-
<PAGE>
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 the lesser of (x) 20,000 shares per
trading day, or (y) 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 effective this 31st day of January, 2000.
GENEREX BIOTECHNOLOGY CORPORATION
[SEAL]
By:
----------------------------
E. Mark Perri, Chairman
-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-
OPTION AGREEMENT
THIS OPTION AGREEMENT, entered into effective this 3rd of January, 2000, by
and between Generex Biotechnology Corporation (the "Company"), a Delaware
corporation, and Wolfe Axelrod Associates ("Wolfe"), a New York corporation with
a principal place of business located at 420 Lexington Avenue, New York, NY
10170.
1. In consideration of Wolfe's past services as financial communications
and investor relations counsel and as an incentive to Wolfe to perform such
services in the future to the best of its ability, the Company hereby grants to
Wolfe the option (hereinafter, the "Option") to purchase from the Company, at
any time from the date hereof through and including the Expiration Date set
forth below (the "Exercise Period"), ONE HUNDRED TWENTY FIVE THOUSAND (125,000)
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 EIGHT
($8.00) DOLLARS per Share (the "Exercise Price"), subject to the limitations,
terms and conditions set forth herein. Wolfe's rights hereunder may be assigned
only to principals and employees of Wolfe, and only in accordance with and
subject to the terms, conditions and other provisions of this Agreement. The
term "Optionee", as used herein, shall include Wolfe and only such persons to
whom rights to acquire shares of the Company's Common Stock have been assigned
by Wolfe in strict conformity with the terms and conditions set forth or
incorporated by reference herein.
2. The Option shall expire on June 15, 2004 , subject to early termination
pursuant to paragraph 15 below in the event of a Change of Control.
3. The Option be exercised during the Exercise Period as to the whole or
any lesser number of whole Shares by delivery of written notice of exercise (the
"Notice of Exercise") 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 Optionee 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").
4. Any exercise of the Option shall be deemed to have been effected as of
the close of the business day on which the Company has received the last of the
Notice of Exercise and the Shares Purchase Price. Upon each exercise of the
Option, the Optionee 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, the Company shall issue and deliver to the Optionee a certificate or
certificates for the Shares issuable upon such exercise, registered in the name
of the Optionee.
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 the Option, 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
<PAGE>
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 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. Subject to the provisions of paragraph 15 below:
(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 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 the
number of Shares of Common Stock for which the Option might have been
exercised immediately prior to such consolidation, merger, sale, lease or
conveyance, and for adjustments which shall be as nearly equivalent as
practicable to the adjustments in this Section 6.
(b) In case of any reclassification or change 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) 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 Company's 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 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 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 the
Option shall be made without charge to the Optionee 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
Optionee 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.
9. Notwithstanding any other term herein, none of the rights of Optionee
hereunder shall be assigned except (a) to a principal or employee of Wolfe
who is an "accredited investor", as that term is defined in Rule 501,
Regulation D, or (b) with the approval of the Company.
-2-
<PAGE>
10. Unless registered under the Securities Act of 1933, Shares or other
securities issued upon the exercise of the Option 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.
11. No Optionee shall 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. (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 December 31,
2001. The Company shall give prompt written notice of such filing and of the
effectiveness of such Registration Statement to Optionee, 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, 2001, 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 Optionee 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
Optionee pursuant to paragraph 12(d) below and shall offer to Optionee the
opportunity to include in the Piggy Back Registration Statement such number
of Shares as Optionee 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 Optionee, registration under the Act is not required for the
transfer of the Shares in the manner proposed by Optionee; 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.
-3-
<PAGE>
(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
Optionee 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 Optionee'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, Optionee shall promptly furnish to the Company such
information regarding Optionee, the proposed distribution of the Shares by
Optionee 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 Optionee's counsel or other persons, if any, engaged by
Optionee) will be borne by the Company. In addition, the Company shall,
without charge to Optionee, provide Optionee 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.
13. Without limiting any indemnification rights of the Company or
Optionee arising under any other agreement or law, in any registration of
Shares pursuant hereto:
(a) the Company will indemnify and hold harmless Optionee 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 Optionee may become subject under the Act, the Securities Exchange
Act of 1934 or otherwise in connection with sale of any Shares 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 (i) the Company shall
have no obligation to Optionee 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 Optionee specifically for use in the preparation
thereof; and (ii) the Company shall not be liable for any loss, liability or
damage incurred by Optionee to the extent that the aggregate net proceeds
realized by Optionee upon sale of such Shares after deduction of such loss,
liability or damage exceeds the aggregate Exercise Price paid by Optionee in
respect of such Shares.
-4-
<PAGE>
(b) Optionee 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 Optionee for use by the
Company in the preparation thereof, or (ii) actions or omissions by Optionee
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.
14 (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, 2001, 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 Optionee 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 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.
15. Notwithstanding any other term of this Option Agreement, in the
event of a Change in Control (as defined below), the Company may take
whatever action with respect to the Option it deems necessary or desirable,
including, without limitation, accelerating the vesting, expiration or
termination dates to a date no earlier than forty-five (45) days after notice
of such action is given to Wolfe. A Change of Control shall be deemed to have
occurred upon the earliest to occur of the following events:
-5-
<PAGE>
(a) 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;
(b) 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;
(c) 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 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; or
(d) 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 (i) 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 (ii) 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.
16. This Option Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
IN WITNESS WHEREOF, the parties have executed this Agreement the date first
above written.
GENEREX BIOTECHNOLOGY CORPORATION
[SEAL]
By: /s/ E. Mark Perri
-----------------------------
E. Mark Perri, Chairman
WOLFE AXELROD WEINBERGER ASSOCIATES
By: /s/ Stephen D. Axelrod
----------------------------
Stephen D. Axelrod
Managing Partner
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-2000
<PERIOD-END> JAN-31-2000
<CASH> 4,730,735
<SECURITIES> 0
<RECEIVABLES> 254,014
<ALLOWANCES> 69,897
<INVENTORY> 0
<CURRENT-ASSETS> 5,142,303
<PP&E> 2,361,370
<DEPRECIATION> 171,909
<TOTAL-ASSETS> 8,182,992
<CURRENT-LIABILITIES> 1,448,861
<BONDS> 0
0
1
<COMMON> 23,637,633
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 8,182,992
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,096,338
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28,781
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,997,645)
<EPS-DILUTED> (0.27)
<EPS-BASIC> (0.27)
</TABLE>
