-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VHMhTwG07N5Ic54pJjoSah3YZdMmhIAoOy3leL68uFJK7j1YQ2Cgu/Hc0iFE2bPk WTrFAp3YPXkMGgKhNFU4XQ== 0000950115-00-000318.txt : 20000315 0000950115-00-000318.hdr.sgml : 20000315 ACCESSION NUMBER: 0000950115-00-000318 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20000131 FILED AS OF DATE: 20000314 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENEREX BIOTECHNOLOGY CORP CENTRAL INDEX KEY: 0001059784 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 820490211 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-25169 FILM NUMBER: 569002 BUSINESS ADDRESS: STREET 1: 33 HARBOUR SQ STREET 2: STE 202 CITY: TORONTO ONTARIO CANA STATE: A1 BUSINESS PHONE: 4163642551 MAIL ADDRESS: STREET 1: 33 HARBOUR SQ STREET 2: STE 202 CITY: TORONTO ONTARIO M5J STATE: A1 10-Q 1 QUARTERLY REPORT 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 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 Item I. Consolidated financial statements GENEREX BIOTECHNOLOGY CORPORATION (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED BALANCE SHEETS (UNAUDITED)
January 31, July 31, 2000 1999 ------------ ------------ 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 ============ ============
The Notes to Consolidated Financial Statements are an integral part of these statements. -3- GENEREX BIOTECHNOLOGY CORPORATION (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
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 ------------ ------------ ------------ ------------ ------------- 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 ============ ============ ============ ============
The Notes to Consolidated Financial Statements are an integral part of these statements. -4- GENEREX BIOTECHNOLOGY CORPORATION (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Cumulative From November 2, For the Six Months Ended 1995 (Date of January 31, Inception) ------------------------------- to January 31, 2000 1999 2000 ------------ ------------ ------------ 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 ============ ============ ============
The Notes to Consolidated Financial Statements are an integral part of these statements. -5- 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- 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- 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
For the Six Months Ended January 31, ------------------------ 2000 1999 ----------- -------- 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
-8- 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- 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 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 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 $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 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 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 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 $4,25 per Unit. Each Unit consisted of one share of Common Stock and 0.75 Series CU Warrants ("CU Warrants"). The Units were purchased by six investors, as follows:
- ------------------------------------------------------------------------------------------------------ Securities Purchased - ------------------------------------------------------------------------------------------------------ Common Purchaser Stock Warrants Consideration - --------- ----- -------- ------------- ($) - ------------------------------------------------------------------------------------------------------ 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 - ------------------------------------------------------------------------------------------------------
Page 16 of 19
- ------------------------------------------------------------------------------------------------------ Securities Purchased - ------------------------------------------------------------------------------------------------------ Common Purchaser Stock Warrants Consideration - --------- ----- -------- ------------- ($) - ------------------------------------------------------------------------------------------------------ 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 - ------------------------------------------------------------------------------------------------------
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:
- --------------------------------------------------------------------------------------------------- Expiration Exercise Securities Issuable Date Price per Issuable Upon Exercise Warrant per Warrant - --------------------------------------------------------------------------------------------------- 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 - ---------------------------------------------------------------------------------------------------
(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 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 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 EX-4.1 2 REGISTRATION RIGHTS AGREEMENT 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 (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 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 SCHEDULE 1. LIST OF BUYERS
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 - ------------------------- ---------------------------- -------- ------------- -------------- --------------------- 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 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 - ------------------------- ---------------------------- -------- ------------- -------------- --------------------- 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
20 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 EX-4.2 3 WARRANT 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"). (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- (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- 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- (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- 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- (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- 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- 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- 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- 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- "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- 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- 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- This Warrant has been duly executed by the Company as of the date first set forth above. GENEREX BIOTECHNOLOGY CORP. By: ---------------------------- Name: -------------------------- Title: ------------------------- -15- 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: ------------------------- 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: ------------------------- EX-4.3 4 WARRANT FOR PURCHASE OF SECURITIES 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"). 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- 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- 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- 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- 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- 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- 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- EX-4.4 5 PURCHASE OF SHARES OF COMMON STOCK 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"). 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- 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- 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- 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- 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- 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- 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- EX-4.5 6 OPTION AGREEMENT 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 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- 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- (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- (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- (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 EX-27 7 FDS
5 6-MOS JUL-31-2000 JAN-31-2000 4,730,735 0 254,014 69,897 0 5,142,303 2,361,370 171,909 8,182,992 1,448,861 0 0 1 23,637,633 0 8,182,992 0 0 0 0 4,096,338 0 28,781 0 0 0 0 0 0 (3,997,645) (0.27) (0.27)
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