-----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, N3SpQXHqbGu2dJ4m8uRhaZwqvtYkni7Mz2FrCWTY04mcwN6cHQ3XbJR27rDZ6Mjb DcBWbPs+I336Qzz1Pxoppw== 0000950115-98-001863.txt : 19981215 0000950115-98-001863.hdr.sgml : 19981215 ACCESSION NUMBER: 0000950115-98-001863 CONFORMED SUBMISSION TYPE: 10-12G PUBLIC DOCUMENT COUNT: 17 FILED AS OF DATE: 19981214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENEREX BIOTECHNOLOGY CORP CENTRAL INDEX KEY: 0001059784 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: 10-12G SEC ACT: SEC FILE NUMBER: 000-25169 FILM NUMBER: 98768941 BUSINESS ADDRESS: STREET 1: 33 HARBOUR SQ STREET 2: STE 202 CITY: TORONTO ONTARIO CANA STATE: A1 10-12G 1 GENERAL FORM FOR REGISTRATION OF SECURITIES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10 GENERAL FORM FOR REGISTRATION OF SECURITIES Pursuant to Section 12(b) or (g) of The Securities Exchange Act of 1934 GENEREX BIOTECHNOLOGY CORPORATION (Exact name of registrant as specified in its charter) Idaho 82-0490211 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 33 Harbor Square, Suite 202, Toronto, Canada M5J2G2 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 416/364-2551 ----------------------------- Securities to be registered under Section 12(b) of the Act: None -------------------- (Title of Class) Securities to be registered under Section 12(g) of the Act: Common Stock, $.001 par value - ----------------------------- (Title of Class) GENEREX BIOTECHNOLOGY CORPORATION FORM 10 TABLE OF CONTENTS Item 1. BUSINESS...................................................................... 1 (a) General Development of Business......................................... 1 (b) Industry Segment Financial Information.................................. 3 (c) Description of Business................................................. 3 (i) Principal products and services............................... 3 (ii) Status of new products announced.............................. 14 (iii) Sources and availability of raw materials..................... 15 (iv) Patents, trademarks, licenses, etc............................ 15 (v) Seasonality................................................... 16 (vi) Industry practices relative to working capital items.......... 16 (vii) Major customers............................................... 17 (viii) Backlog....................................................... 17 (ix) Government contracts.......................................... 17 (x) Competition................................................... 17 (xi) Research and development expenditures......................... 19 (xii) Environmental compliance...................................... 19 (xiii) Employees..................................................... 19 (d) Revenues, etc. by Geographic Region..................................... 19 Item 2. FINANCIAL INFORMATION......................................................... 20 (a) Selected Financial Data.................................................. 20 (b) Management's Discussion and Analysis of Financial Condition Condition and Results of Operations...................................... 21 (c) Quantitative and Qualitative Disclosure About Financial Market Risks.................................................. 23 Item 3. PROPERTIES.................................................................... 24 Item 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT....................................................... 24
ii Item 5. DIRECTORS AND EXECUTIVE OFFICERS............................................ 27 Item 6. EXECUTIVE COMPENSATION...................................................... 31 Item 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................................................ 32 Item 8. LEGAL PROCEEDINGS........................................................... 34 Item 9. MARKET PRICE, DIVIDENDS AND RELATED STOCK- HOLDER MATTERS.......................................................... 34 (a) Market Information.................................................... 34 (b) Holders of Common Stock............................................... 35 (c) Dividends............................................................. 35 Item 10. RECENT SALES OF UNREGISTERED SECURITIES..................................... 35 Item 11. DESCRIPTION OF SECURITIES TO BE REGISTERED.................................. 39 Item 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS................................... 43 Item 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................................. 44 Item 14. CHANGES IN, AND DISAGREEMENTS WITH ACCOUNTANTS............................................................. 45 Item 15. FINANCIAL STATEMENTS AND EXHIBITS........................................... 45 (a) Financial Statements.................................................. 45 (b) Exhibits.............................................................. 46
iii Item 1. BUSINESS Item 1(a) General Development of Business Generex Biotechnology Corporation (the "Company") was incorporated in 1983 as Green MT. P.S., Inc. The Company had been inactive for more than ten years prior to January 1998 when it acquired Generex Pharmaceuticals, Inc. ("GPI"), a Canadian corporation, and changed its corporate name to "Generex Biotechnology Corporation". The acquisition of GPI was a "reverse acquisition" in that, immediately following the acquisition, the former shareholders of GPI owned approximately 90% of the Company's outstanding Common Stock. See Item 2(b), "Management's Discussion and Analysis of Financial Condition and Results of Operations -- General" below. The Company is engaged in the development of drug delivery systems. Its principal business focus has been to develop a platform technology for the oral administration of large molecule drugs which, historically, have been administered by injection. The principal application to date of the Company's large molecule drug delivery technology is an oral insulin formulation. The Company intends to market this formulation in the United States under the name Oralgen(TM), and in Canada and elsewhere under the name Oralin(TM). Oral Insulin Formulation: The Company's oral insulin formulation is administered with a metered dose applicator developed by the Company. The formulation, which includes insulin and various excipients to facilitate the absorption of insulin molecules through the mucous membranes in the buccal cavity and upper gastro-intestinal tract, is sprayed into the mouth and back of the throat, where absorption occurs. The Company completed pre-clinical studies and proof of concept trials of its oral insulin formulation in early 1998. An Investigational New Drug submission ("IND") to Canada's regulatory equivalent of the United States Food and Drug Administration was made in July 1998, and approved in September 1998. The Company commenced Phase II clinical trials of the product in Canada in November 1998. The Company submitted an IND to the United States Food and Drug Administration in October of this year. In November, the FDA approved the Company's request to proceed with human clinical trials under this IND. The Company now expects to commence Phase II clinical trials in the United States in December 1998 or early January 1999. Also in September of this year, the Company received regulatory approval in Ecuador for limited, non-commercial distribution of its oral insulin formulation to diabetic patients. This clinical program, which is scheduled to begin in the first calendar quarter of 1999, is expected to run through approximately October 1999, and ultimately is expected to involve approximately 200 patients. The Company expects to receive clearance to begin commercial sales of its oral insulin formulation in Ecuador in the first calendar quarter of 1999. It does not expect to receive regulatory clearance to market the product in the United States or Canada until 2000 at the earliest, and there are numerous risks and uncertainties, including technical, financial, regulatory and other risks and uncertainties, that the Company must overcome before such clearances are obtained. See "Risk Factors" in Item 1(c)(i) below. 1 The Company plans to market its oral insulin formulation through agreements with major pharmaceutical companies. While the Company is engaged in discussions with several companies concerning licensing and distribution agreements, it has not yet entered into any such agreements. The Company intends to produce the quantities of its oral insulin formulation required for clinical trials, and for commercial sales in South America, from Company-owned facilities which it established this year in the Toronto area. Longer term, the Company intends to expand its manufacturing capabilities in Canada, and to establish regional manufacturing facilities to service commercial markets as the Company obtains clearances to market. Other Large Molecule Drugs: The Company believes that its large molecule drug oral delivery technology is a "platform" technology that can be used successfully with a significant number of large molecule pharmaceuticals besides insulin. In each case, oral administration of the drug would be expected to improve the quality of life of patients and patient compliance by reducing or eliminating the need for injections or intravenous administration. Due to its limited resources, to date the Company has not aggressively pursued collaborative projects to evaluate the efficacy of its drug delivery technology with other proprietary products. The Company is discussing with prospective collaborative partners a number of research projects involving human growth hormones, monoclonal antibodies, fertility hormones, animal growth hormones and others. Other Drug Delivery Technology: The Company owns intellectual property which relates to other drug delivery technologies, including biodegradable polymer microspheres drug delivery, liposome drug delivery and controlled release of drugs in tablet, capsule and liquid forms. The Company has not made a substantial effort to develop commercial applications for these other technologies, but, rather, has focused its efforts on developing its oral insulin formulation and identifying other potential commercial applications of its large molecule drug oral delivery technology. Plan of Operation: The Company's plan of operation for the remainder of its 1998-1999 fiscal year is to focus on the following programs and objectives: o to continue its program of clinical trials for its oral insulin product, as described above; o to initiate research on additional applications of its large molecule drug delivery technology; o to expand the capacity of a pilot manufacturing facility in Toronto at an estimated cost of $250,000; o to the extent that adequate resources are available after funding its clinical programs and the expansion of its pilot manufacturing facility, to complete the development of and to equip additional testing, administrative and manufacturing facilities in the Toronto area; o to recruit additional scientific, manufacturing and administrative personnel to staff its expanded operations; and o to enter into one or more marketing agreements for its oral insulin product. 2 Item 1(b) Industry Segment Financial Information The Company is in the development stage and has not yet generated any revenues from operations. At this time, the Company believes that its future business operations will be within a single industry segment and, for the foreseeable future, involve a single class of products. Item 1(c) Description of Business Item 1(c)(i) Principal products and services The Company is engaged in the development and commercialization of proprietary drug delivery technologies. The Company's prior research and development efforts to date have focused on the oral administration of large molecule drugs. Within this category, the first product for which the Company has sought regulatory approvals to market is a liquid formulation of insulin for the treatment of diabetes. The product is designed to be administered by the patient orally hand-held metered dosage applicator which the Company has developed for this purpose. As described below, the Company believes that its large molecule drug delivery technology can be used to administer a significant number of other active pharmaceutical agents in addition to insulin. The Company also has intellectual property which relates to other drug delivery technologies. See "Other Delivery Technologies" below. Oral Insulin Product Background - Insulin Therapy for Diabetes: The term diabetes refers to a disease that is characterized by abnormally high levels of glucose in the blood as a result of defects in the complex relationship between glucose metabolism and insulin secretion. When glucose is abundant, it is converted into fat (triglycerides) and stored in the adipose tissue for use when food is not available. When glucose is not available from food, triglycerides in the adipose tissue are broken down into free fatty acids that stimulate glucose production by the liver. Insulin, which is secreted by the pancreas, plays an important role in regulating the level of glucose in the blood stream. In a healthy metabolic state, a balance is maintained between insulin secretion and glucose metabolism. Type 1 diabetes (juvenile onset diabetes or insulin dependent diabetes) is believed to result from the impaired function of the pancreas. In Type 1 diabetes, the pancreas produces no insulin and patients typically inject insulin three to five times per day to regulate blood glucose levels. Type 1 diabetic patients represent approximately 10% of the total diabetic population and about 30% of the total insulin that is used. Type 2 diabetes (adult onset or noninsulin dependent diabetes mellitus) is believed to involve a defect referred to as "insulin resistance" in which the body cannot utilize insulin effectively. This condition leads to excessive blood levels of glucose (hyperglycemia). Many researchers believe that Type 2 diabetics develop insulin resistance first, then impaired glucose tolerance, and finally insulin dependent diabetes. In a portion of the population the ability to control blood glucose is lost over time, despite increased insulin production, as insulin resistance increases. At this stage, such persons are considered impaired glucose tolerant, a condition characterized by normal blood glucose levels before eating and hyperglycemia after eating. A person who loses the ability to regulate blood glucose levels and exhibits persistent hyperglycemia is considered to suffer from Type 2 diabetes. 3 When blood glucose levels are not controlled within a normal range, severe complications can result. Hyperglycemia over an extended period of time is believed to damage the walls of blood vessels, causing complications such as blindness from microvascular deterioration in the retina, loss of circulation in the extremities leading to amputation, coronary artery disease, and kidney failure. In addition, associated high blood levels of triglycerides, free fatty acids, and total cholesterol pose serious health risks to the diabetic and are believed to lead to cardiovascular disease, including coronary heart disease. After diagnosis, the first course of therapy for Type 2 diabetics generally is to try to control hyperglycemia through diet and exercise. If this fails to achieve glycemic control, the patient typically begins medication. The two leading medications for Type 2 diabetes traditionally have been insulin and a class of oral drugs called sulfonylureas. Each of these drugs reduces glucose levels by increasing serum insulin levels. Most patients initially take sulfonylureas, which work by stimulating the production of insulin in the pancreas. Many diabetics who take sulfonylureas still experience elevated blood glucose and lipid levels. Over time, many Type 2 diabetics taking sulfonylureas lose their ability to produce more insulin and control glucose levels. There is no known cure for diabetes, which the World Health Organization recently identified as the second largest cause of death by disease in North America. In North America, total diabetes treatment costs in 1998 are expected to exceed $100 billion, of which an estimated 50% will be direct costs such as medication, supplies and medical care, with the balance being indirect costs such as lost wages. Oral Insulin Research & Development. Insulin is a peptide hormone with a high molecular weight and, when administered orally, virtually no absorption occurs in the buccal cavity and gastrointestinal tract. As a result, substantially all insulin presently used in the treatment of diabetes is injected, usually using a disposable needle. The Company's development efforts have focused on finding a means to orally administer insulin. In the course of its research, the Company identified and evaluated numerous potential absorption enhancers in different combinations and concentrations. Initially, the Company conducted pre-clinical studies in rats and dogs to evaluate the clinical end point (glucose lowering) and efficacy of oral insulin formulations in comparison with injected insulin under fasting conditions. In the study with rats, the Company's oral insulin formulation showed glucose lowering (>96%) comparable to injected insulin. Plasma insulin levels exceeded 50% of levels found using injected insulin. The same formulation administered to dogs under fasting conditions showed glucose lowering (>96%) comparable to injected insulin, while insulin absorption exceeded 60% of the injected insulin benchmark. Beginning in January 1998, the Company conducted a number of studies in Ecuador with Type 1 diabetic patients, each of which involved a selection of between 8 and 10 patients, to evaluate the efficacy of its oral insulin formulation in humans in comparison with the injected insulin and placebos. The studies were conducted over periods of four or five days. In these studies, oral formulations containing 30, 40 and 50 units of insulin were shown to provide glucose lowering results similar to 10 units of injected insulin. With respect to bioavailability, the oral insulin formulations provided mean insulin absorption equivalent to the injected insulin. Concurrently with these studies of its oral insulin formulation, the Company also experimented with a number of delivery devices and techniques to orally deliver the formulation. In the earliest tests of the formulations, the test subjects administered the formulation directly to the mouth using a calibrated dropper, and then simply "swished" the formulation in their mouths for approximately three minutes before swallowing. Eventually, the Company settled on the use of an aerosol applicator which patients insert in the mouth and activate by depressing an actuator to deliver a precisely measured dose to the buccal cavity. The administration is virtually instantaneous. The spray is not intended to be inhaled, and patients are instructed 4 not to breathe in when applying a "puff" of the product. Even if inhaled accidentally, no absorption of the formulation occurs in the lungs because of the droplet size delivered by the applicator. The aerosol applicator which the Company has developed to administer its oral insulin formulation is approximately 3.25 inches long, has a diameter of approximately one inch, and, when filled with the formulation, weighs approximately 4.5 ounces. Thus, it is easily and conveniently carried and stored. Based on test results to date, the formulation within the applicator is stable and remains effective at room temperature for over 150 days, well in excess of the 5-day supply which typically would be contained in the applicator. The Company believes that the convenient size of the applicator, the stability of the oral insulin formulation at room temperature, and the ease and pain-free nature of administration of the product by patients will make its oral insulin formulation the product of choice for diabetics. On the basis of its test results in Ecuador and other pre-clinical data, the Company made an Investigational New Drug submission (an "IND") to the Health Protection Branch (the "HPB") in Canada (Canada's equivalent to the FDA) in July 1998, and received permission from the HPB to proceed with Phase II clinical trials in September 1998. The Company started these trials in November 1998, and they are now in progress. The Company filed an IND with the FDA in October 1998, and in November 1998 received FDA approval to proceed with human trials. The Company expects to begin Phase II trials in the United States in December 1998. The Company also is conducting additional clinical trials in Ecuador. These trials are scheduled to begin in February or March 1999, will involve approximately 36 to 40 patients initially, and approximately 200 patients eventually, and are expected to extend over a period of three months. These tests are not necessary for the Company to obtain final regulatory approval to market its oral insulation formulation in Ecuador, which approvals are expected in the first calendar quarter of 1999. Rather, these tests will provide additional data relating to extended term use of the product that will be useful in seeking regulatory approvals in the United States, Canada and other countries. Other Large Molecule Drug Projects. As noted previously, the Company believes that its large molecule drug delivery system is appropriate for a variety of other drugs. The Company has numerous extensive discussions of possible research collaborations with pharmaceutical companies concerning the use of the Company's large molecule drug delivery technology with the prospective research partner's proprietary products, including monoclonal antibodies, human growth hormone, fertility hormone, and others. The Company has not aggressively pursued these relationships, however, since it preferred to focus its limited financial and other resources on the development of its oral insulin formulation. An earlier project with Centocor, Inc., conducted in late 1997, in which mice were dosed orally with a monoclonal antibody provided by Centocor, produced results which were positive, from the Company's standpoint, but neither the Company nor Centocor has made any move to continue the research. The Company expects to enter into one or more collaborative research agreements in the first calendar quarter of 1999. At this time, the Company is unable to predict the progress or outcome of any collaborative research project. At least initially, the Company will continue to be constrained in pursuing these additional research projects by limited financial and other resources. 5 Manufacturing. The Company plans to retain the manufacture of its oral insulin formulation, while relying on industry partners for marketing and distribution. The Company produced the formulation needed for its clinical studies in a Good Laboratory Practice environment consistent with applicable regulatory guidelines. The Company has now equipped a Company-owned pilot facility in Toronto which is capable of preparing formulation for, filling and shipping approximately 500 applicators per daily, eight-hour shift. The Company estimates that its cost to equip, test and start up this initial production facility, including facility design and personnel training, was approximately $465,000. The Company believes that its pilot facility, with the addition of a second production line, will be able to produce sufficient product for its clinical program in the United States, Canada and Ecuador, and to initiate commercial distribution on a limited scale in South America. The cost to duplicate the initial "production line" will be less than the cost for the initial line since substantially all design costs would be eliminated and the same testing and quality assurance equipment will be used by both lines. The Company also plans to equip and start up full scale manufacturing facilities in Brampton, Ontario, and Mississauga, Ontario, both of which are within 25 miles from downtown Toronto. These facilities also are Company-owned. The Company believes that the Brampton facility can be placed into production in mid-1999, and that the Mississauga facility can be placed into production in mid-2000. At the present time, however, the Company does not foresee a need to place these facilities into production before 2000. Based on its experience with its in Canadian facilities, the Company's present business plan is to establish a manufacturing capability in South America, to serve that market, and eventually to add manufacturing capacity as and where required. The Company has acquired a building site in a "duty free" zone in Ecuador for a South American manufacturing facility, but has taken no other steps at this time to establish any manufacturing capability outside Canada. As indicated under the caption "Government Regulation" below, the Company's manufacturing facilities must comply with regulatory requirements of the host country and of countries to which product produced at the facility is exported. The Company believes that its pilot facility will be in compliance with Good Manufacturing Practices in January 1999, and expects to seek approval of the facility from Canada's Health Protection Branch at that time. Marketing The Company's marketing options include selling its drug delivery technology outright (for all applications or certain applications only), licensing one or more companies to market products based upon the technology, or to market products directly through a sales force comprised of Company staff and independent distributors. At the present time, the Company plans to establish joint ventures or licensing agreements for marketing its products. With respect to its oral insulin product, the Company expects to enter into one or more marketing agreements before commencing Phase III trials in the United States and Canada, which the Company now expects to begin in the second half of calendar 1999. The Company believes that marketing requirements for its oral insulin product will be significantly less than those generally associated with marketing opportunities of comparable magnitude since there is no requirement for missionary advertising (typically a long process used to introduce a new product or therapy) or to create a brand image in the face of strong competition from similar brands or 6 technologies. As a consequence, the number of potential marketing or distribution partners for the Company increases substantially, as such prospective partners need not have an existing position in the diabetes treatment market. What is required, however, is a supply of insulin. At the present time, the world market for insulin is shared primarily by Eli Lilly & Company (US) and Novo Nordisk A/S (Denmark) which, together, produce approximately 90% to 95% of the world supply. The rest of the market is shared by a handful of other producers/sellers. See Item (c)(iii), "Sources and Availability of Raw Materials" below. Government Regulation The Company's research and development activities, preclinical studies and clinical trials, and ultimately the manufacturing, marketing and labeling of its products, are subject to extensive regulation, primarily by FDA, in the United States. These activities also are regulated in other countries where the Company intends to test, manufacture and/or market its products. The steps required before a pharmaceutical agent may be marketed in the United States for use by humans include (a) preclinical laboratory, in vivo, and formulation studies; (b) the submission to FDA of an Investigational New Drug application ("IND"), which must become effective before human clinical trials may commence; (c) adequate and well-controlled human clinical trials to establish the safety and efficacy of the drug; (d) the submission of a New Drug Application ("NDA") to FDA; and (e) FDA approval of the NDA, including approval of all product labeling and advertising. Preclinical tests include laboratory evaluation of product chemistry, formulation and stability, as well as animal studies to asses the potential safety and efficacy of each product. The results of the preclinical tests are submitted to FDA as part of an IND and are reviewed by FDA before the commencement of human clinical trials. Unless FDA objects to an IND, the IND becomes effective 30 days following its receipt by FDA. Clinical trials involve the administration of the investigational drug to humans under supervision of a qualified investigator. Clinical trials must be conducted in accordance with Good Clinical Practices under protocols that detail the objectives of the study, the parameters to be used to monitor safety, and efficacy criteria to be evaluated. Each protocol must be submitted to FDA as part of the IND. Also, each clinical trial must be approved and conducted under the auspices of an Institutional Review Board, which will consider, among other things, ethical factors, the safety of human subjects, and the possible liability of the institution conducting the clinical trials. Clinical trials typically are conducted in three sequential phases (Phase I, II and III), but the phases may overlap. In Phase I clinical trials, the drug is tested in healthy human subjects for safety (adverse effects), dosage tolerance, metabolism, distribution, excretion and pharmacodynamics (clinical pharmacology). Phase II clinical trials are conducted in a limited patient population to gather evidence about the efficacy of the drug for specific, targeted indications; to determine dosage tolerance and optimal dosage; and to identify possible adverse effects and safety risks. When a compound has shown evidence of efficacy and an acceptable safety profile in Phase II trials, Phase III clinical trials are undertaken to evaluate clinical efficacy and to test for safety in an expanded patient population at geographically dispersed clinical trial sites. FDA and other regulatory authorities require the safety and efficacy of the Company's therapeutic product candidates must be supported through at least two adequate and well-controlled Phase III clinical trials. The conduct of clinical trials in general, and the performance of the Phase III clinical trial protocols in particular, are complex and difficult. In the United States, the results of preclinical studies and clinical trials, if successful, are submitted to FDA in an NDA to seek approval to market and commercialize the drug product for a 7 specified use. FDA may deny an NDA if it believes that applicable regulatory criteria are not satisfied. FDA also may require additional testing for safety and efficacy of the drug. There is no assurance that any of the Company's product candidates will receive regulatory approvals for commercialization. Even if regulatory approvals for the Company's product candidates are obtained, however, the Company, its products, and the facilities manufacturing the Company's products are subject to continual review and periodic inspection. FDA will require post-marketing reporting to monitor the safety of the Company's products. To supply drug products for use in the United States, foreign and domestic manufacturing establishments must comply with FDA's Good Manufacturing Practices and are subject to periodic inspection by FDA or, in the case of products manufactured outside the United States, by regulatory authorities in the country in which the products manufactured under reciprocal agreements between the regulatory authorities in such countries and FDA. In complying with Good Manufacturing Standards, manufacturers must expend funds, time and effort in the area of production and quality control to ensure full technical compliance. FDA stringently applies regulatory standards for manufacturing, each United States drug manufacturing establishment must be registered with FDA. Failure to comply with regulations applicable to a pharmaceutical manufacturer or manufacturing facility may result in restrictions or sanctions such as warning letters, suspensions of regulatory approvals, operating restrictions, delays in obtaining new product approvals, withdrawals of the product from the market, product recalls, fines, injunctions and criminal prosecution. Before the Company is permitted to market any of its products outside of the United States, those products will be subject to regulatory approval similar to FDA requirements in the United States. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary widely from country to country, however, and FDA approval does not assure approval by regulatory authorities in other countries. In some countries the sale price of a drug product also must be approved. The pricing review period often begins after market approval is granted. Even if a foreign regulatory authority approves any of the Company's product candidates, there is no assurance that it will approve satisfactory prices for the products. Risk Factors The Company's plans to develop and commercialize its technology and products are subject to numerous risks and uncertainties. As a result, there is no assurance that the Company will be able to obtain required regulatory clearances and approvals for its products, or that it will be able to develop and commercialize successfully any existing or potential product. Certain risks relating to the Company are described below: Forward Looking Statements. This Registration Statement contains "forward-looking statements" which can be identified by the use of forward-looking terminology such as "believes", "expects", "may", "should", "anticipates" or comparable terminology . The future events or results referred to in forward-looking statements may not be achieved, and it is extremely unlikely that all of the Company's projects and products will develop as now planned. Numerous factors, including the risks and uncertainties described below, are likely to cause actual results to vary from the future results referred to in the Company's forward-looking statements, and the variations could be material and adverse to the Company's shareholders. Failure of Product Development and Commercialization Efforts. The Company is a development stage company and has not yet generated any revenues from operations. At the present time, the Company has no products approved for commercial sale by drug regulatory authorities, and only one 8 product, its oral insulin formulation, for which it has begun the regulatory approval process. See "-- Government Regulation" above. Even if the Company obtains regulatory approvals for its oral insulin product and/or successfully develops and obtains regulatory approvals for other products, that does not necessarily mean that it will be successful in commercializing the products. Success in commercializing any such products would depend upon many factors beyond the Company's control, including acceptance by health care professionals and patients, and the availability, effectiveness and relative cost of alternative therapies. The difficulty and uncertainty associated with bringing any new drug product to market is further complicated in the Company's case since its proprietary technology concerns the delivery of other drugs. Thus, when the drug to be delivered is a proprietary product (e.g., fully synthetic human recombinant insulin in the case of the Company's oral insulin formulation), the Company requires the cooperation of the pharmaceutical companies which own the proprietary rights to the active pharmaceutical agent. In the case of insulin, Eli Lilly & Company ("Lilly") and Novo Nordisk A/S ("Novo Nordisk") dominate the manufacture and supply of insulin, with an estimated 90%-95% (together) of the world's supply of synthetic insulin. At the present time, the Company has no agreement or other understanding with Lilly, Novo Nordisk or any other major pharmaceutical company concerning insulin supply or other related matters. See Item 1(c)(iii), "Sources and availability of raw materials" below. In order to achieve long term success, the Company must satisfactorily resolve the risks and uncertain to product development, regulation, commercialization and insulin supply referred to above. Inability to do so would substantially and adversely affect its shareholders. Future Capital Needs; Uncertainty Of Additional Funding. The Company has incurred substantial losses from operations through July 31, 1998, and expects to continue to incur substantial and increasing losses for at least another 12 to 18 months as its research and development efforts and pre-clinical and clinical testing programs expand, and as the Company equips, starts-up and, subsequently, scales up its manufacturing facilities. See Item 1(c)(i) - "Manufacturing" above, and Item 3, "Properties" below. These operations and losses have consumed substantial and increasing amounts of cash. The Company's negative cash flow from operations is expected to continue and to accelerate at least over the next 12 to 18 months as the Company requires funds: o to pursue regulatory approvals for its oral insulin product; o to begin development of new applications of its large molecule drug oral delivery technology, and to conduct the clinical tests necessary to develop and refine the technologies and proposed products, if any; o to conduct clinical trials; o to establish and expand manufacturing facilities; and o to market its products. The level of the Company's future capital requirements will depend on many factors, including: the rate and extent of progress in its clinical program and research and development activities; its ability to establish and maintain favorable collaborative arrangements with others as required; the time and costs involved in obtaining regulatory approvals; the cost of developing production capability; and filing, prosecuting, maintaining and enforcing patent claims. Whatever level of funding is required, it is certain 9 that the Company will need to raise substantial additional capital to fund its operations over the next 12 to 18 months. There is no assurance that the Company will be able to obtain additional financing as and when required, on acceptable terms or at all. If additional funds are raised by issuing equity securities, substantial dilution to shareholders may result. If adequate funds are not available, the Company may be required to delay, reduce the scope of, or eliminate one or more of its research, development or other programs or obtain funds through arrangements with collaborative partners or others that may require the Company to relinquish rights to technologies, product candidates or products that the Company would not otherwise relinquish. See Item 2(b), "Management's Discussion and Analysis of Financial Condition and Results of Operations below. The Company Will Require Marketing and Other Assistance from Industry Partners. As indicated above, the Company is dependent to a certain extent on the cooperation of pharmaceutical companies which own proprietary drug products that are a candidate for use with the Company's drug delivery technology. Also, since the Company currently lacks the marketing and sales experience, personnel, distribution channels and other infrastructure needed to successfully commercialize products on its own, it plans to rely on one or more corporate partners possessing strong marketing and distribution resources to market its products. The Company does not have any arrangements for marketing its products at the present time. Failure to make satisfactory marketing arrangements would adversely affect the Company. Limited Manufacturing Experience. To date, the Company has produced its oral insulin formulation under laboratory conditions on the small scale needed for pre-clinical studies and early stage trials. To achieve the levels of production necessary to support late stage human clinical trials and for initial commercial sales of this product, the Company has established a pilot manufacturing capability in a Company-owned facility in Toronto. The Company intends to produce oral insulin product at this facility in sufficient quantities to satisfy its requirements for clinical testing, as well as for initial commercial sales in South America if and at such time as it receives regulatory approval to market the product in South America. To move beyond this level of manufacturing, however, to a level that would support a successful product launch in the United States, Canada and elsewhere, would require a very large (relatively speaking) "scale up" and expansion of the Company's manufacturing capabilities. Significant additional work and substantial additional funding will be required before the Company is in a position to produce its oral insulin product in large quantities. Staffing, manufacturing, regulatory and quality control problems are likely to arise in connection with any "scale up", and there is no assurance that the Company will be able to resolve those problems in a timely manner or at a commercially reasonable cost. A failure to surmount such problems could delay or prevent commercialization of the Company's oral insulin product. The Company intends to use one or more contract manufacturers to produce the metered dose applicator that is used to administer its oral insulin formulation. No contracts are in place, however, and there is no assurance that the Company will be able to enter into or maintain satisfactory contract manufacturing arrangements for the applicator. Dependence Upon Proprietary Technology. If it is successful in establishing the efficacy and competitiveness of its technology, the Company's long term success will depend in substantial part upon protecting the technology from infringement, misappropriation, duplication and discovery. The Company presently owns two US patent applications that cover its core large molecule drug delivery technology, one of which has been allowed, although the patent has not been formally issued by the patent office, and one of which is pending. The Company has five other patent applications pending, two of which are 10 pending only in Canada. The Company expects to file additional patent applications which relate to its large molecule drug delivery technology and metered dosage applicator within the next several months. In addition to the patent and patent applications described above, the Company owns an indirect 50% interest in three patents held by Centrum Biotechnologies, Inc., an Ontario corporation which is 50% owned by Dr. Modi and to which these three patents (the "Centrum Patents") were assigned by Dr. Modi prior to his association with the Company. Two of the Centrum Patents (one covering oral and intranasal delivery of proteinic drugs in liquid formulations, and the other covering biodegradable polymer microspheres) represent the results of earlier phases of Dr. Modi's research into large molecule oral drug delivery technologies. See Item 1(c)(iv), "Patents, trademarks, licenses, etc." below. There is no assurance that any of the Company's pending patent applications will result in a patent being issued, or that any patent of the Company that now is or later may be issued is or will be valid, enforceable, or offer meaningful protection from or advantage over competitors using similar or competitive technology. Although issued patents are presumed valid under federal law, none of the Company's patents has been challenged in litigation, and there is no assurance that any of such patents would be found valid if challenged. The Company is not aware of any patent or other intellectual property claims by others that would materially affect its ability to use, and license others to use, any of its drug delivery technologies. Since pending United States patent applications are maintained in secret until they are issued as patents, however, they cannot be searched as such by the Company. Accordingly, there may be pending applications filed by others which might later issue as patents and create infringement issues for the Company. With specific reference to the Centrum Patents, the Company does not believe that its other patents infringe, or that patents it has applied for if issued will infringe, upon the Centrum Patents. There is no assurance, however, that the manufacture, use or sale of the Company's oral insulin formulation or future product candidates will not infringe existing patent rights of Centrum or others. The Company may be unable to avoid infringement of those patents and may have to seek a license, defend an infringement actions, or challenge the validity of the patents in court. There is no assurance that the Company would be able to obtain a license on acceptable terms if required, or prevail in any patent litigation, or that the Company would have sufficient resources to aggressively pursue such litigation that became necessary. If the Company were found liable for infringement, it could be responsible for significant money damages, encounter significant delays in bringing products to market, or be precluded from participating in the manufacture, use or sale of products or methods of treatment covered by such patents. The Company pursues a policy of requiring its officers, employees, consultants, advisors and potential research partners to agree that confidential information developed or disclosed during the course of the relationship will be kept confidential, except in specified circumstances, and to protect the Company's interest in inventions, etc. developed in the course of the relationship. Such agreements are difficult to police and enforce, however, and there is no assurance that these agreements will provide meaningful protection for the Company's inventions, trade secrets or other proprietary information in the event of unauthorized use or disclosure of such information, or in the case of competing claims to inventions. Dependence Upon Existing Management; Need for Additional Technical And Management Personnel. The Company is highly dependent upon a very limited scientific and management staff. At the present time, the Company does not have fixed term agreements with any of its principal officers, other than Pankaj Modi. While the Company does have a fixed contract with Dr. Modi that extends until December 31, 2004, this agreement cannot guarantee Dr. Modi's continued availability. The Company 11 carries a $10 million "key man" life insurance policy on Dr. Modi. It does not own life insurance on any other officer. The Company also uses non-employee consultants to a significant extent to assist it in formulating research and development strategy, in preparing regulatory submissions, in developing protocols for clinical trials, and in designing, equipping and staffing its manufacturing facilities. These consultants and advisors usually have the right to terminate their relationships with the Company on short notice. Loss of key personnel and/or termination of key consulting arrangements could jeopardize the Company's business plans. To continue and accelerate its product development and commercialization plans, the Company will be required to hire additional qualified scientific personnel to perform research and development, as well as personnel with expertise in clinical testing, government regulation and manufacturing. The Company also expects to require additional executive and administrative personnel. Retaining and attracting qualified personnel, consultants and advisors will be critical to the Company's success. The Company will face particularly stiff competition for qualified scientific and technical personnel from pharmaceutical, biotechnology and drug delivery companies, as well as universities and other research institutions. There is no assurance that the Company will be able to retain and attract the additional personnel that it will require, and its failure to do so would have a material adverse effect on its ability to develop and commercialize its products, and to properly manage and lead a growing publicly-owned company. Government Regulation. All medical devices and new drugs, including the Company's oral insulin formulation and other products that the Company may develop in the future, are subject to extensive and rigorous regulation by the federal government, principally the FDA, and by state and local governments. Such regulations govern the development, testing, manufacture, labeling, storage, premarket clearance or approval, advertising, promotion, sale and distribution of such products. The regulatory process for obtaining FDA premarket clearances or approvals for medical devices and drug products is generally lengthy, expensive and uncertain. Securing FDA marketing clearances and approvals usually requires the submission of extensive clinical data and supporting information to the FDA. Product clearances and approvals, if granted, can be withdrawn for failure to comply with regulatory requirements or upon the occurrence of unforeseen problems following initial marketing. Medical devices or drug products that are marketed abroad also are subject to regulation by foreign governments. In Canada, the regulatory approval process is administered by the Health Protection Branch and is comparable to the procedure in the United States. The manufacture of drug products also is closely regulated by FDA in the United States, and by comparable regulatory agencies in other countries. There is no assurance that the Company will be able to obtain necessary regulatory clearances or approvals on a timely basis, if at all, for its products. Delays in receipt or failure to receive such clearances or approvals or failure to comply with existing or future regulatory requirements with respect to products or product manufacture would have a material adverse effect on the Company. Highly Competitive Markets; Risk Of Alternative Therapies. The pharmaceutical, biotechnology and medical device industries are highly competitive and rapidly evolving. The Company's success will depend on its ability to successfully develop products and technologies for drug delivery and especially, for the foreseeable future, products for oral delivery of insulin and other large molecule drugs. 12 The Company will be in competition with pharmaceutical, biotechnology and drug delivery companies and other entities engaged in the development of alternative drug delivery systems or new drug research and testing, as well as with entities producing and developing injectable drugs that provide alternative therapies. The Company is aware of a number of companies currently seeking to develop new products and non-invasive alternatives to injectable drug delivery, including oral, intranasal, transdermal and inhalation delivery systems. Most of these competitors are themselves better financed than the Company is at the present time, and many have commitments from or arrangements with major pharmaceutical companies for financial, technical and marketing assistance. Without proper financial, technical and marketing support, the Company could fail to compete successfully with these companies, irrespective of the relative merits of its products. For additional information, see Item 1(c)(x), "Competition" below. Pending Litigation. Sands Brothers & Co. Ltd., a New York City-based investment banking and brokerage firm, initiated an arbitration against the Company under New York Stock Exchange rules on October 2, 1998, based upon a claim that it (Sands) has the right to purchase, for nominal consideration, approximately 1.5 million shares of the Company's Common Stock. This claim is based upon an October 1997 letter purportedly confirming the terms of an agreement appointing Sands as the exclusive financial advisor to Generex Pharmaceuticals, Inc. ("GPI"), a wholly owned subsidiary of the Company, and granting Sands the right to receive shares then representing 17% of the outstanding capital stock of GPI which, following the acquisition of GPI by the Company, would represent the Company's Common Stock as an inducement to act in that capacity under the purported agreement. Sands also claims that it is entitled to approximately 460,000 additional shares of the Company as a result of the Company's acquisition of GPI, and $144,000 in fees under the terms of the purported agreement. If Sands were to prevail on its claims, it would acquire shares representing approximately 13% of the Company's outstanding Common Stock, and existing shareholders' interests would be proportionately diluted by that amount. The arbitration process is at an early stage and the Company is unable to predict the outcome at this time. If and to the extent that Sands were to succeed in its claim, the interests of the Company's present shareholders would be diluted. See Item 8, "Legal Proceedings" below. Exposure To Product Liability. The research, development and commercialization of therapeutic products and medical devices entails significant product liability risks. The use of its products in clinical trials and the commercial sale of such products may expose the Company to liability claims. These claims might be made directly by consumers or by pharmaceutical companies or others selling such products. Companies often address the exposure of such risk by obtaining product liability insurance. The Company has obtained limited product liability insurance ($2 million per occurrence, $2 million total coverage), but there can be no assurance that the Company will be able to continue to obtain such insurance on acceptable terms or that the product liability insurance which the Company does obtain will be sufficient to protect it from material loss if significant product liability claims are made against the Company. Possible Stock Price Volatility. The trading price of the Company's Common Stock and the price at which the Company may sell securities in the future could be subject to large fluctuations in response to announcements of research activities, technological innovations or new products by the Company or its competitors, changes in government regulations, developments concerning proprietary rights, formation or termination of corporate alliances, variations in operating results, litigation, results of clinical trials of the Company's or its competitors' products, FDA approval or denial of Investigational New Drug applications, other FDA action or inaction or similar actions or inaction by FDA counterparts in other countries, general market and economic conditions and other events. The possibility of price volatility in price may make the Company's Common Stock an unsuitable investment for persons who, for 13 personal reasons, could be required to sell, at a time when the market price for the Common Stock was depressed for reasons not related to the long term value of the Common Stock. Anti-Takeover Provisions. Until December 31, 2000, after which such shares can be redeemed by the Company, holders of the Company's Special Voting Rights Preferred Stock can prevent any change of control of the Company that does have their support. See Item 11, "Description of Securities, etc. - Special Voting Rights Preferred Stock". In addition, certain provisions of the Company's Articles of Incorporation and the Idaho Business Corporation Act may be deemed to have "anti-take-over" effects in that they could delay, defer or prevent a takeover attempt that a shareholder might consider to be in the Company's or the shareholders' best interests. For example, the ability of the Company's Board of Directors to designate series of Preferred Stock without any vote or action by the Company's stockholders could be considered an "anti-takeover" device, since the terms of Preferred Stock which might be issued could contain terms which could contain special voting rights or increase the costs of acquiring the Company. See Item 11, "Description of Securities, etc. - 'Anti-Takeover' Provisions" below. Market Overhang. As of December 9, 1998, the Company had 13,305,109 shares of Common Stock which were outstanding, or sold and pending issuance, of which approximately 12,300,109 shares, or approximately 92% of the total, were, or when issued will be, "restricted securities" which had not been registered with the Securities and Exchange Commission or any state securities agency and as to which future sales in the United States were restricted. The remaining shares of the Company's outstanding Common Stock are not restricted and are immediately saleable in the United States, without restriction, by their owners. Approximately 9,334,118 shares of the Company's restricted Common Stock will become saleable between the date of this Registration Statement and January 17, 1999, under Rule 144 under the Securities Act of 1933, provided the seller complies with the manner of sale and other conditions and limitations of that Rule. A majority of those shares (5,021,317 shares) is owned by executive officers and directors of the Company. Rule 144 also requires that specified information concerning the Company must be available to the public at the time any such sale is made. A substantial increase in the number of shares that can be publicly sold by the holders of such shares could negatively impact the market price for the Company's Common Stock as such shares are sold, or as they become readily saleable because of the perception that they may be sold in large numbers. Impact of Future Issuance of Capital Stock. The Company has 50,000,000 shares of Common Stock authorized, of which 13,305,109 shares were outstanding or sold and in the process of being issued at December 9, 1998, and 1,711,362 shares of Common Stock have been reserved for issuance upon the exercise of outstanding warrants and options. The Company also has authorized 1,000,000 shares of Preferred Stock, none of which are presently outstanding. Although the Board of Directors of the Company has no present intention to do so, it has the authority, without action by the shareholders, to issue authorized and unissued shares of Common Stock or Preferred Stock. Issuance of additional shares of Common Stock or shares of Preferred Stock could dilute the equity interests, and adversely affect the voting rights, of existing holders of Common Stock. Item 1(c)(ii) Status of new products announced The Company's oral insulin formulation is the only product as to which it has made any public announcement. Information concerning the status of this product is set forth above in Item 1(c)(i), "Principal Products and Services - Oral Insulin Research and Development". 14 Item 1(c)(iii) Sources and availability of raw materials With the exception of insulin, all of the products required to make the Company's oral insulin formulation are non-proprietary and in plentiful supply. The propellant used in the Company's metered dose applicator is a proprietary product, but is available from several suppliers and, in the quantities which the Company requires, the Company does not anticipate any supply difficulties. With respect to insulin, there are limited sources of supply. Eli Lilly & Company and Novo Nordisk A/S together produce approximately 90% to 95% of the world insulin supply, and are the only sources of a fully synthetic human recombinant insulin that is approved for sale in the United States. The only other Company which has a significant share of the world insulin market is Hoescht Marion Roussel ("HMR"), which has approximately 40% of the German market, and limited sales elsewhere, but presently does not have an insulin product that is approved for sale in the United States. At the present time, the Company is using insulin obtained from retail supply sources. The Company also has received limited quantities of insulin from certain insulin producers for use in clinical studies and for other non-commercial purposes. In order to obtain wide distribution of its oral insulin product, however, the Company will be required to secure a direct supply of insulin in commercial quantities. The Company has discussed insulin supply with Lilly and Novo Nordisk, as well as HMR and other pharmaceutical companies which do not now have a significant share of the world insulin market or an insulin product that is approved for sale in the United States. The Company does not now have a supply agreement for commercial quantities of insulin, however, and inability to obtain an adequate supply of insulin would severely and adversely affect the Company's prospects. Item 1(c)(iv) Patents, trademarks, licenses, etc. At present, the Company holds two US patent applications which cover its core large molecule drug delivery technology, one of which has been allowed and the other of which is pending. The Company has five other patent applications pending, two of which are pending only in Canada. The Company expects to file additional patent applications in the next several months which will relate to its core technology and the metered dose applicator used to administer its oral insulin formulation. All of the Company's patents are the result of original research and discoveries by Pankaj Modi, the Company's Vice President, Research and Development. See Item 5, "Directors and Executive Officers" below. In October 1996, the Company entered into a Consulting Agreement with Dr. Modi pursuant to which, among other things, Dr. Modi assigned to the Company his entire right, title and interest in and to all inventions, ideas, designs and discoveries made by him during the term of such Agreements which relate in any manner to the development, manufacturing, marketing, distribution and sale of generic drug products, including, without limitation, controlled release drugs, topical insulin, intra-nasal insulin and liposome creams. Concurrently with execution of this Consulting Agreement, Dr. Modi and the Company entered into an Assignment and Assumption Agreement pursuant to which Dr. Modi assigned to the Company his interests in and to specific drug delivery systems, controlled release drug delivery systems and technology patents invented/discovered/conceived by Dr. Modi prior to the execution of the Agreement, including all of his interests in three patents (the "Centrum Patents") covering oral and intranasal delivery of proteinic drugs in liquid formulations, biodegradable polymer microspheres and controlled release of drugs or hormones from biodegradable polymer microspheres which previously had been assigned to Centrum Biotechnologies, Inc., a Canadian company which at that time was 50% owned by Dr. Modi. Pursuant to the Assignment and Assumption Agreement, the Company has since acquired Dr. Modi's interest in Centrum Biotechnologies for no additional consideration. 15 Dr. Modi's research activities since October 1996, with the Company's financial support, have developed formulations and procedures including the Company's oral insulin formulation, which, the Company believes, are outside the scope of the patents, etc., assigned to it by Dr. Modi and which, in particular, are not covered by and would not infringe any of the Centrum Patents. At this time, however, the Company has not obtained any formal legal opinions that Dr. Modi's subsequent inventions and discoveries do not infringe any of the Centrum Patents which, as indicated above, are only 50% owned by the Company. At this time, there can be no assurance that the Company's present oral drug delivery technology for insulin and other drug delivery technology does not infringe one or more of the Centrum Patents. The patent positions of biotechnology and pharmaceutical companies, including the Company, are highly uncertain and involve complex legal and factual questions. There is no assurance that patents will issue from the patent applications filed by the Company or that the scope of any claims granted in any patent will provide proprietary protection or a competitive advantage to the Company. Nor can there be any assurance that the validity or enforceability of patents issued or licensed to the Company will not be challenged by others or that, if challenged, a court will find the patents to be valid and enforceable. In addition, there is no assurance that competitors will not be able to circumvent any patents issued or licensed to the Company. In the United States, patent applications are maintained in secrecy until patents issue, and publications in the scientific and patent literature lag behind actual discoveries. As a result, the Company cannot be certain that its scientists were the first to make inventions covered by its patents and patent applications. If a third party has also filed a patent application for the Company's inventions, the Company may have to participate in interference proceedings declared by the United States Patent and Trademark Office to determine priority of invention. Moreover, patent interference proceedings would be lengthy and expensive, even if the outcome is favorable to the Company. While no patent that could be potentially infringed by manufacture, use or sale of the Company's product candidates in the fields of Type 1 and Type 2 diabetes has come to the attention of the Company, the Company's product candidates are still in the development stage, and neither its formulations nor its method of manufacture have been finalized. The Company also relies on trade secrets and other unpatented proprietary information in its product development activities. The Company seeks to protect trade secrets and proprietary knowledge, in part through confidentiality agreements with its employees, consultants, advisors and collaborators. Nevertheless, these agreements may not effectively prevent disclosure of the Company's confidential information and may not provide the Company with an adequate remedy in the event of unauthorized disclosure of such information. If the Company's employees, scientific consultants, or independent individuals or entities develop inventions or processes independently that may be applicable to unpatented proprietary information, disputes may arise about ownership of proprietary rights to those inventions and processes which would require protracted and costly litigation to resolve. Failure by the Company to obtain or maintain patent and trade secret protection, for any reason, would have a material adverse effect on the Company. See Item 1(c)(i), "Risk Factors - Dependence Upon Proprietary Technology". The Company has applied to register the trade names Oralgen(TM) in the United States, Canada, and other jurisdictions, and the name Oralin(TM) in Canada and other jurisdictions. Item 1(c)(v) Seasonality There is not now, and the Company does not expect there to be in the future, a material seasonal aspect to its business. Item 1(c)(vi) Industry practices relative to working capital items 16 At this point in its development, there are no industry specific working capital practices relevant to the Company. Item 1(c)(vii) Major customers The Company has not yet commenced commercial operation. It anticipates that, in the future, its customers will consist principally of a limited number of companies which it licenses to use its technology and/or distribute its products. Item 1(c)(viii) Backlog The Company has no backlog of sales. Item 1(c)(ix) Government Contracts The Company is not now a party to any government contracts, nor has it sold any product in the past pursuant to any government contracts. Item 1(c)(x) Competition Biotechnology and pharmaceutical companies, academic institutions, governmental agencies, and other public and private research organizations also conduct research, seek patent protection, and establish collaborative arrangements with commercial entities for product development and marketing. Products resulting from these activities may compete directly with any that the Company develops. These companies and institutions also compete with the Company in recruiting and retaining highly qualified scientific personnel. Many competitors and potential competitors have substantially greater scientific research and product development capabilities, as well as greater financial, marketing and human resources, than the Company. With respect to the Company's oral insulin formulation, numerous pharmaceutical and biotechnology companies are engaged in various stages of research, development and testing of alternatives to insulin therapy, as well as new means of administering insulin, including the following: Inhale Therapeutics has developed a technology utilizing a fine powder form of insulin that is administered using a proprietary inhalation device and absorbed in the deep lungs. Inhale has announced successful results using its inhalation techniques in Phase II clinical trials with Type 1 and Type 2 diabetics, and in November of this year announced that it had "kicked off" Phase III trials with an investigators meeting, which is to be followed with recruitment, enrollment and dosing of patients. The announcement did not disclose when actual dosing of patients was expected to begin. In November 1998, Pfizer, Inc., which has a collaboration agreement with Inhale, announced that it had entered into worldwide agreements to co-develop and co-promote the use of inhaled insulin with Hoechst Marion Roussel, a leading pharmaceutical-based health care company which has been making insulin for approximately 75 years, and is estimated to have a 40% share of the German insulin market. Cortecs International announced in late 1997 the results of two insulin studies with its proprietary product, "Macrulin", in an oral insulin capsule form and with a liquid version administered with a tube into the stomach. Cortecs claimed that these studies showed a significant lowering of glucose levels in Type 2 diabetic patients, and announced its intention to conduct multiple dose studies during 1998. 17 Aradigm Corporation has announced a joint development agreement with Novo Nordisk A/S to jointly develop a pulmonary delivery system to administer insulin by inhalation, with the expectation that Phase II testing would begin in the second half of 1998. The delivery system is expected to be based on proprietary technologies to create aerosols from disposable unit-dose drug formulations and an "electronic inhaler" to deliver locally to the lung or systemically through the lung. Novo Nordisk is one of the two leading manufacturers of insulin in the world, the other being Eli Lilly & Company. Dura Pharmaceuticals and Eli Lilly & Company announced in September 1998 that they are collaborating to develop pulmonary delivery technology for insulin products based upon proprietary technology of Dura for the pulmonary delivery of peptides and proteins. Endorex Corporation has announced receipt of a patent for a technology for the oral administration of vaccines which it licenses from the Massachusetts Institute of Technology. The company said that the patent covered a vaccine delivery system that utilizes polymerized liposomes which it is developing through a joint venture with Elan Pharmaceutical Technologies, a company which specializes in drug delivery technologies and systems. In addition to competitive delivery systems for insulin, there are numerous products which have been approved for use in the treatment of Type 2 diabetics in place of or in addition to insulin therapy. These products include the following: Glucophage(R) is a proprietary product of Bristol-Myers Squibb Company that is used to improve glycemic control in diabetic subjects without increasing serum insulin levels. It is believed to work, at least in part, by reducing glucose output from the liver. Arcabose(R) is a proprietary product sold in the United States by Bayer Corporation. The product is sold in Europe under the tradename Glucobay(TM). Acarbose(R) reduces blood glucose levels primarily after meals by slowing down the digestion of carbohydrates and lengthening the time it takes for carbohydrates to convert to glucose. Rezulin(R) is a proprietary product sold by Warner Lambert for use as monotherapy or combination therapy for Type 2 diabetes. The product is believed to work in part by increasing the body's sensitivity to insulin. Prandin(TM) is a proprietary product sold by Novo Nordisk and Schering-Plough Corporation which has been approved by the FDA for monotherapy and adjunctive therapy for certain diabetic patients. The product is believed to act via calcium channels to stimulate insulin secretion. Virtually all of the Company's competitors have greater research and development capabilities, experience, manufacturing, marketing, sales, financial and managerial resources than the Company now has. The Company's competitors may succeed in developing competing technologies, in obtaining regulatory approval for products more rapidly than the Company and in gaining greater market acceptance of their products than the Company's products. There can be no assurance that developments by others will not render some or all of the Company's proposed products or technologies uncompetitive or obsolete, which could have a material adverse effect on the Company. The Company expects that competition among products approved for sale to treat diabetes will be based, among other things, on product safety, efficacy, ease of use, effect on co-morbid conditions, availability, price, marketing and distribution. The Company believes that the principal advantage of its 18 oral insulin formulation will be ease of use, resulting in greater patient compliance. Possible negatives at this time are cost and availability. Item 1(c)(xi) Research and development expenditures In the period from inception (November 2, 1995) through the fiscal year ended July 31, 1998, the Company's expenditures on research and development (all of which were Company sponsored) were as follows: Years ended July 31, 1998 -- $876,404; and 1997 -- $727,479; period from inception (November 2, 1995 through July 31, 1996 -- $67,142. Item 1(c)(xii) Environmental compliance The Company's manufacturing, research and development activities involve, or may involve, the controlled use of hazardous materials and chemicals. The Company believes that its procedures for handling and disposing of such materials comply with applicable governmental regulations. Risk of accidental contamination or injury from these materials cannot be eliminated. If such an accident occurs, the Company could be held liable for resulting damages, which could be material to the Company's financial condition and business. The Company will include an environmental assessment in the NDA in accordance with FDA regulations. The Company is also subject to numerous environmental, health and workplace safety laws and regulations, including those governing laboratory procedures, exposure to blood-borne pathogens, and the handling of biohazardous materials. Additional laws and regulations affecting the Company may be adopted in the future. Any violation of, and the cost of compliance with, these laws and regulations could materially and adversely affect the Company. The Company does not believe that compliance with United States, Canadian and/or other environmental laws will have a material effect on the Company or the Company's capital or other expenditures in the current fiscal year or in the foreseeable future. Item 1(c)(xiii) Employees As of December 11, 1998, the Company had 18 full-time employees, of which nine employees are executive and administrative, three are engaged in research and development activities, and six are employed in manufacturing and/or manufacturing supervision. None of the Company's employees is covered by a collective bargaining agreement, and the Company believes its employee relations are good. Item 1(d) Revenues, etc. by Geographic Region Through the end of its last fiscal year, the Company had not received any revenues from operations. Substantially all of its assets were located and deployed in Canada, where the Company's principal operating subsidiary is located. 19 Item 2. FINANCIAL INFORMATION Item 2(a) Selected Financial Data SELECTED FINANCIAL DATA (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) The selected financial data set forth below as of and for the fiscal years ended July 31, 1996 and 1997, for the period from inception (November 2, 1995) to July 31, 1996, and cumulative from inception (November 2, 1995) to July 31, 1998, has been derived from the audited consolidated financial statements of the Company. The results of operations set forth below are not necessarily indicative of results to be expected for any future period. The information below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements of the Company, including the notes thereto, included elsewhere in this Registration Statement.
For the Cumulative Period From November 2, November 2, For the Years Ended 1995 (Date 1995 (Date July 31, of Inception) of Inception) --------------------------- to July 31, to July 31, 1998 1997 1996 1998 ----------- ----------- ------------- ------------- STATEMENT OF OPERATIONS DATA: Revenues ............................................. $ -- $ -- $ -- $ -- Research and development expense ..................... 876,406 727,479 67,142 1,671,026 General and administration expense ................... 3,673,909 628,064 296,281 4,598,254 ----------- ----------- --------- ----------- Total operating expenses ............................. 4,550,313 1,355,543 363,423 6,269,279 ----------- ----------- --------- ----------- Other expense - interest ............................. 63,291 -- -- 63,291 ----------- ----------- --------- ----------- Net loss ............................................. (4,613,604) (1,355,543) (363,423) (6,332,570) Basic and diluted net loss per common share .......... (.46) (.25) (.40) N/A Weighted average number of common shares outstanding .......................................... 10,078,875 5,512,840 903,972 N/A
For the Year Ended July 31, ------------------------- 1998 1997 --------- --------- BALANCE SHEET DATA: Working capital ...................................... $ 488,904 $ 289,839 Total assets ......................................... 5,219,684 3,672,775 Total long-term debt (less current maturities) ....... 528,506 -- Total stockholders' equity ........................... 2,642,298 3,448,836
20 Item 2(b) Management's Discussion and Analysis of Financial Condition and Results of Operations When used in this discussion, the words "expect(s)", "feels", "believe(s)", "will", "may", "anticipate(s)" and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, which could cause actual results to differ materially from the possible results described in such statements. Readers are cautioned not to place undue reliance on these forward-looking statements, and are urged to carefully review and consider the various disclosures elsewhere in this Prospectus which discuss factors which affect the Company's business, including the discussion under the caption "Risk Factors". General The Company was incorporated in 1983 as Green Mt. P.S., Inc. In January 1998, the Company acquired all of the outstanding capital stock of Generex Pharmaceuticals, Inc. ("Generex Pharmaceuticals"), a Canadian corporation formed in November 1995 to engage in pharmaceutical and biotechnological research and other activities, and changed its corporate name to Generex Biotechnology Corporation. The acquisition was effected by the merger of GBT Delaware, Inc. a recently formed Delaware corporation which in October 1997 had acquired all of the outstanding capital stock of Generex Pharmaceuticals, with a wholly-owned subsidiary of the Company which had been formed for this transaction (the "Reverse Acquisition"). As a result of the Reverse Acquisition, the former shareholders of Generex Pharmaceuticals acquired a majority of the Company's outstanding capital stock and, for accounting purposes, GBT Delaware, Inc. was treated as the acquiring corporation. Thus, the historical financial statements of GBT Delaware, Inc., which, in essence, represented the historical financial statements of Generex Pharmaceuticals prior to the Reverse Acquisition date, are deemed to be the historical financial statements of the Company. Results of Operations Years ended July 31, 1998, 1997 and 1996 The sole business of the Company is research, evaluation, development and commercialization of proprietary drug delivery technologies. The Company has been in the development stage since its inception and has not generated any operating revenues to date. Through July 31, 1998, it has accumulated substantial operating deficit as a result of research, development and general and administrative expenses incurred. These expenses have increased year to year, and increased substantially in the fiscal year ended July 31, 1998, primarily because of large increases in general and administrative expenses ($3,673,909 in the year ended July 31, 1998, versus $628,064 in the prior year). The increase in general and administrative expenses in the fiscal year ended July 31, 1998, was attributable primarily to increases in salaries ($570,230 in the year ended July 31, 1998, versus $77,806 in the prior fiscal year), professional fees ($527,941 versus $98,078) and consulting and other services paid for through the issuance of securities valued at $839,000, versus zero in the prior year. Certain of these expenses for professional services and consulting services were nonrecurring expenses related to the Company becoming a public company and to subsequent financing transactions. The potential decrease in general and administrative expenses in the current fiscal year, however, is expected to be offset by an increase in personnel expense and in research and development expenses, primarily in connection with clinical trials of the Company's oral insulin formulation in the United States and Canada. The Company anticipates research, development and administrative expenses approximately in the range of $1.5 to $2 million in the remainder of its current fiscal year. The Company also expects to receive its first revenues from product sales in the current fiscal year, from commercial sales of its oral insulin formulation in Ecuador. The Company has not yet received regulatory approvals to begin commercial distribution of this product in Ecuador, but expects to receive such approval in the first calendar quarter (the Company's third fiscal quarter) of 1999. The revenues derived from commercial operations in South America during the next fiscal year are not expected to be sufficient to defray all marketing, manufacturing and other expenses which the Company will incur in commencing those operations, and under no foreseeable 21 circumstances will they significantly contribute to the funds necessary to conduct the Company's clinical programs in North America or contribute significantly to general and administrative expenses. The Company also may receive licensing income, or income in the nature of licensing income (e.g., "signing bonuses" or "advance royalties"), in connection with its entering into marketing and distribution agreements. Income from such sources, if received, would, in all likelihood, be material relative to the Company's total cash needs in the current fiscal year. The Company does not, however, have any commitments for such payments at the present time. Liquidity and Capital Resources The Company has financed its operations primarily through private placements of equity securities. Prior to its acquisition by the Company in January 1998, Generex Pharmaceuticals raised approximately $5.2 million (net of financing costs and foreign currency translation adjustments) through the sale of shares of its common stock which, in connection with the Reverse Acquisition, were converted into 9,234,118 shares of the Company's Common Stock. Between the Reverse Acquisition date and July 31, 1998, the Company raised approximately $2.7 million of additional equity capital (after foreign currency translation adjustment and excluding the value of Common Stock and Warrants issued in payment for services) through the sale for cash of 1,407,253 shares of Common Stock and warrants to purchase 993,253 shares. An additional 224,901 shares of Common Stock and warrants to purchase 660,172 shares of Common Stock were issued for services. The Company's projected capital and operating costs in the current fiscal year (August 1, 1998 through July 31, 1999) exceeded its working capital at the beginning of the year by approximately $2.8 million. That difference was satisfied through additional equity capital received in the current fiscal year. Since July 31, 1998, through December 9, 1998, the Company received approximately $4 million in additional equity capital, net of cash expenses incurred in connection with such financing transactions, for which it has issued, or is committed to issue, a total of 1,107,353 shares of Common Stock. These totals do not include 61,801 shares issued in payment for services valued at $217,897, or 180,000 shares issued in settlement of an outstanding claim and valued at $738,000. The Company's cash on hand is sufficient to fund operations contemplated in the remainder of the current fiscal year. The Company expects to receive an additional $1 million in December 1998 under an existing subscription for Common Stock, although the subscriber is not committed to make the purchase. The bulk of the Company's cash needs beyond the current fiscal year are expected to be met from licensing income, contributions of marketing partners to clinical program costs and/or equity investment. The Company is in discussions with numerous potential financing sources, including investment banking firms and individual and institutional investors relative to additional equity capital, and major pharmaceutical companies concerning equity investments, marketing and other collaboration agreements that would, if entered into by the Company, result in the receipt of license fees, advance royalties or other "up front" payments, and/or contribution to the costs of conducting clinical trials. However, the Company has no commitments for financing of any kind at this time. Implementation of the Company's business plan beyond the current fiscal year will require the availability of sufficient funds from the sources described above. If funds are not available from these sources, or from alternative sources, the Company will be required to "scale back" or otherwise revise its business plan. Any significant scale back of operations or modification of the Company's business plan required due to a lack of funding could be expected to materially and adversely affect the Company's prospects. Year 2000 Many computer systems experience problems handling dates beyond the year 1999. Therefore, some computer hardware and software will need to be modified prior to the year 2000 in order to remain functional. Management has determined that the consequences of Year 2000 problems/issues will not have a material effect on the Company's business, results of operations or financial condition, without taking into account any efforts by the Company to avoid those consequences, except to the extent that the Company may be materially and adversely affected as a part of the general population by extreme 22 consequences beyond its ability to influence, control or avoid, e.g. severe disruption of business and financial markets and institutions. New Accounting Pronouncements In June 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 establishes standards for the reporting and display of comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general purpose financial statements. SFAS No. 1300 is effective for fiscal years beginning after December 15, 1997. The adoption of SFAS No. 130 did not have a material impact on the Company's financial reporting. In June 1997, the FASB issued Statement of Financial Accounting Standards No. 131, "Disclosure about Segments of an Enterprise and Related Information" ("SFAS No. 131"). SFAS No. 131 establishes standards for public business enterprises to report information about operating segments in annual financial statements and selected information in the notes thereto. SFAS No. 131 is effective for financial statements for periods beginning after December 15, 1997. In the initial year of application, comparative information for earlier years is to be restated. SFAS No. 131 need not be applied to interim financial statements in the year of adoption, but comparative information is required in the second year of application. The Company believes that the adoption of SFAS No. 131 will not have a material impact on the Company's financial reporting. In 1998, the FASB issued Statement of Financial Accounting Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 modifies the accounting for derivative and hedging activities and is effective for fiscal years beginning after December 15, 1999. The Company believes that the adoption of SFAS No. 133 will not have a material impact on the Company's financial reporting. In 1998, the AICPA issued Statement of Position (SOP) 98-1, "Accounting for Costs of Computer Software Developed or Obtained for Internal Use". The Company believes that the adoption of SOP 98-1 will not have a material impact on the Company's financial reporting. Item 2(c) Quantitative and Qualitative Disclosures About Financial Derivative and Other Market Risks The Company employs no "hedging" strategies at the present time, and all of its cash deposits are denominated in US dollars. The only current risk that the Company faces is appreciation in the Canadian dollar relative to the US dollar, since most of its operations are now conducted in Canada. 23 Item 3. PROPERTIES The Company's executive and principal administrative offices occupy approximately 6,100 square feet of office space in the Business Centre at 33 Harbour Square in downtown Toronto, Ontario, Canada. The Business Centre, which comprises approximately 9,100 square feet of usable space, is owned by the Company. The space in the Centre that is not used by the Company is leased to third parties, although, under the terms upon which it acquired this space in December 1997, the former owner of the property retained the rental income from third party leases through 1998. The Company also has equipped and commenced production at a pilot manufacturing facility for its oral insulin formulation. This facility, which is owned by the Company, is located in Toronto, and consists of approximately 3,600 square feet of laboratory, manufacturing and storage place. At the present time, the Company has equipped and outfitted only approximately one-third of the usable space. As equipped, on a single shift, the facility has the capacity to prepare the oral insulin formulation for, and to fill and deliver, approximately 500 of the Company's metered dosage applicators per day. The Company believes that it can increase its single shift production capacity at this facility at modest cost (approximately $300,000) to approximately 1,000 applicators per day by installing a second production line. The Company also owns a 11,625 square foot building in Brampton, Ontario, approximately 25 miles outside Toronto, a second 13,500 square foot building in Mississauga, Ontario, about 20 miles from downtown Toronto, and a commercial building site in Manta, Ecuador. The Company has begun the preliminary work necessary to equip and start up the Brampton and Mississauga facilities to produce its oral insulin formulation and other products as they are developed. The building site in Ecuador is located in a "free trade" zone and the Company intends to establish an 18,000 square foot manufacturing facility at this location to serve the South American market. That project too is in the preliminary stage. The Company believes that, if required to do so, it will be able to place the Brampton facility "on line" by mid-1999, and the Mississauga and Manta, Ecuador facilities on line by mid-2000. At this time, the Company does not expect a need for manufacturing capabilities beyond its pilot facility until the year 2000. The Company's executive and administrative offices are encumbered by a purchase money mortgage in the original amount of $800,000 CAD, which is payable in March 2000, with interest only payable until then. The Company's pilot manufacturing facility is encumbered by a purchase money mortgage in the amount of $125,000 CAD, due on September 11, 1999, and payable interest only until then. Item 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The Company had 13,305,109 shares of Common Stock outstanding, or sold and pending issuance, at December 9, 1998. The following table sets forth certain information regarding the ownership of the Company's Common Stock as of such date, by (i) each of the Company's executive officers and directors, (ii) each other person known to the Company to be the beneficial owner of more than 5% of such shares of Common Stock, and (iii) all executive officers and directors as a group. 24 - -------------------------------------------------------------------------------- Name and Address Beneficial Ownership(1)(2) - -------------------------------------------------------------------------------- Number of Percent Shares (1) of Total - ------------------------------------------ ---------------------- ---------- (i) Directors and Executive Officers - ------------------------------------------ ---------------------- ---------- E. Mark Perri 1,545,317(3) 11.6% 33 Harbour Square, Ste. 3502 Toronto, Ontario Canada M5J 2G2 - ------------------------------------------ ---------------------- ---------- Anna E. Gluskin 1,188,000(4) 8.9% 33 Harbour Square, Ste. 2409 Toronto, Ontario Canada M5J 2G2 - ------------------------------------------ ---------------------- ---------- Rose C. Perri 1,188,000(4) 8.9% 33 Harbour Square, Ste. 2409 Toronto, Ontario Canada M5J 2G2 - ------------------------------------------ ---------------------- ---------- Pankaj Modi, Ph.D.(3) 1,100,000(6) 8.3% 1928 Main Street West, Ste. 608 Hamilton, Ontario - ------------------------------------------ ---------------------- ---------- Officers and directors as a group 5,021,317 37.7% (4 persons) - ------------------------------------------ ---------------------- ---------- (ii) Other Beneficial Owners - ------------------------------------------ ---------------------- ---------- EBI, Inc. In Trust 1,550,093(6) 11.7% c/o Miller & Simons First Floor, Butterfield Square P.O. Box 260 Providencials Turks and Calcos Islands, BWI - ------------------------------------------ ---------------------- ---------- GHI, Inc. In Trust 2,500,000(7) 18.8% c/o Miller & Simons First Floor, Butterfield Square P.O. Box 260 Providencials Turks and Calcos Islands, BWI - ------------------------------------------ ---------------------- ---------- Thompson Kernaghan 1,240,000(8) 8.9% & Co., Ltd. 365 Bay Street, 10th Floor Toronto, Ontario Canada M5H 2V2 - ------------------------------------------ ---------------------- ---------- 25 - ------------------------- (1) Unless otherwise indicated, this column reflects shares (a) owned beneficially and of record, and/or (b) as to which the named party has sole voting power and investment power. This column also includes shares issuable upon the exercise of options, warrants or similar rights which are exercisable within 60 days from December 9, 1998. (2) In computing the percentage of shares beneficially owned by any person, shares which the person has the right to acquire within 60 days from December 9, 1998, upon the exercise of options or other rights held by such person are deemed outstanding. Such shares are not deemed to be outstanding in computing the percentage ownership of any other person. (3) Includes 25,993 shares owned beneficially and of record by Mr. Perri, and a total of 1,519,324 shares beneficially owned by Mr. Perri but owned of record by Golden Bull Estates, Ltd. (61,225 shares), EBI, Inc. (1,089,993 shares), GHI, Inc. (124,000 shares), Time Release Corp. (22,678 shares) and Goldenway Dynasty Inc. (221,428 shares). Does not include shares which Mr. Perri may be deemed to own beneficially based on his power to vote shares which are owned of record by GHI, Inc. and EBI, Inc., and owned beneficially by other shareholders. See Notes 7 and 8 below. (4) These shares are owned of record by GHI, Inc. See Note 7 below. (5) Dr. Modi also owns all of the outstanding shares of the Company's SVR Preferred Stock. See "Description of Securities - SVR Preferred Stock". (6) These shares are beneficially owned by Mark Perri (1,089,993 shares) and certain non-affiliates of the Company. Mr. Perri has the sole power to vote the shares, but not investment power over shares that he does not beneficially own. (7) These shares are beneficially owned by Mark Perri (124,000 shares), Anna Gluskin (1,188,000 shares) and Rose C. Perri (1,188,000 shares). Mr. Perri has the sole power to vote the shares, but not investment power over shares beneficially owned by Ms. Gluskin and Ms. Perri. (8) Thompson Kernaghan & Co., Ltd., is a Canadian broker dealer and holds these shares for the benefit of certain partners, officers and clients of the firm. Such persons and entities may own additional shares of the Company's Common Stock in their own names or in other accounts. Includes 620,000 shares issuable upon exercise of the Company's Series A Redeemable Common Stock Purchase Warrants owned of record by Thompson Kernaghan & Co., Ltd. 26 Item 5. DIRECTORS AND EXECUTIVE OFFICERS The current executive officers and directors of the Company are as follows: Name Age Position - ---- --- -------- E. Mark Perri 37 Chairman, Chief Financial Officer and a Director Anna E. Gluskin 47 President, Chief Executive Officer and a Director Pankaj Modi, Ph.D. 45 Vice President of Research & Development and a Director Rose C. Perri 31 Chief Operating Officer, Secretary, Treasurer and a Director Mark Perri and Rose Perri are siblings. There are no other family relationships among the Company's officers and directors. Certain biographical information concerning the Company's executive officers follows: E. Mark Perri - Mr. Perri has served as the Company's Chairman and Chief Financial Officer since its acquisition of Generex Pharmaceuticals, Inc. ("GPI") in January 1998, and has held comparable positions with GPI since its inception in November 1995. Mr. Perri devotes approximately 90% of his time to his duties as Chairman. The remainder of his time is devoted to private business interests that are majority owned by Mr. Perri, his sister Rose, who also is an officer and director of the Company, other members of the Perri family and, in some cases, Anna Gluskin, who is President, Chief Executive Officer and director of the Company. These interests include Golden Bull Estates, Ltd. and Perri Rentals which own, lease and/or operate commercial and residential real estate in the Toronto area, Angara Group Ltd., which is engaged in the manufacture and sale of chemicals, generic drugs and other products in Central America and republics of the former Soviet Union, and Perri International Inc. which holds interests in biotechnology companies in Europe. Mr. Perri also has minority interests in a number of private companies which do not require a significant investment of his time. Mr. Perri holds a Bachelor of Arts degree from the University of Waterloo and a University of Toronto Masters (MLS) designation. Anna E. Gluskin - Ms. Guskin has served as the Company's President and Chief Executive Officer since its acquisition of GPI, and prior to that time held comparable positions with GPI. Prior to her association with the Company, Ms. Gluskin was primarily engaged in the real estate business in the Toronto area. Since August 1997, Ms. Gluskin has served as Chairman of Interlock Consolidated, Inc., an inactive, non-trading Canadian public company that previously had engaged in the sale of prefabricated housing. Ms. Gluskin is also a minority shareholder of Golden Bull Estates, Ltd., and Angara Group, Ltd., private companies that are majority-owned by Mark and Rose Perri. Ms. Gluskin holds a Masters degree in Microbiology and Genetics from Moscow State University. Pankaj Modi, Ph.D. - Dr. Modi has served as a consultant to GPI and as its Director - Insulin Research, since October 1996, and as Vice President of Research and a director of the Company since its acquisition of GPI in January 1998. Prior to joining GPI, Dr. Modi was a Senior Research Scientist with Ross Laboratories for approximately 13 years. 27 Dr. Modi was educated at the University of Bombay in India, where he received his Bachelor of Science degree in Biology, Physics and Chemistry in 1975. His post-graduate education is extensive and includes a Master of Science degree in Chemical Engineering (Brooklyn Polytechnic University, 1976); a Master of Science degree in Polymeric Materials/Biomedical Sciences (Brooklyn Polytechnic University, 1976); a Master of Business Administration degree (University of Dallas, 1978) and a Doctorate in Biomedical Sciences/Biopolymeric Materials (University of Toronto, 1992). Rose C. Perri - Ms. Perri has served as the Company's Secretary and Treasurer since January 1998, and as its Chief Operating Officer since August 1998. She has served as Secretary of GPI from its inception. Ms. Perri devotes a portion of her time (less than 10%) to business interests controlled by the Perri family, principally Perri Rentals, Inc. Ms. Perri graduated from the University of Toronto in 1990 with a Bachelor of Arts degree and completed the Business Administration Studies program at York University in 1993. Scientific Advisory Board and Consultants The Company has established a Scientific Advisory Board to provide it with ongoing advise and counsel regarding research direction, product development, analysis of data and general counseling. The Company consults with individual members of this Board on a non-scheduled basis. Brief descriptions of the backgrounds of the Advisory Board members are set forth below. Jaime Guevara-Aguirre, M.D., Institute of Endocrinology, Metabolism and Reproduction, Quito, Ecuador. Dr. Jaime Guevara-Aguirre founded the Institute of Endocrinology, Metabolism and reproduction IEMIR in Quito, Ecuador in 1987 and continues to be a director. He has been involved extensively in medical research in such areas as growth hormone insensitivity, body and bone composition and insulin-like growth factor therapy. Dr. Guevara was a professor of Endocrinology for the Department of Internal Medicine, Central University, Quito, Ecuador between 1980-1994. He also serves as a director of Centro Medico de Neuro-Endocrinologia. Edward C. Keystone, M.D., F.R.C.P.(C), Chief, Rheumatic Disease Unit, Wellesley Hospital & Director, Division of Advanced Therapeutic Studies, The Toronto Wellesley Arthritis & Immune Disorder Research Centre, Toronto Hospital. Dr. Keystone is a certified specialist in both Internal Medicine and Rheumatology. Since 1992, he has served as the Director, Division of Rheumatology at the Wellesley Central Hospital in Toronto, Canada, In 1991, he became the Director of Research, Department of Medicine and was named the Assistant Chief of Medicine, positions he continues to hold at the hospital. He is a full professor in the Department of Medicine at the University of Toronto. Dr. Keystone is actively involved in conducting clinical research trials in rheumatoid arthritis with an emphasis on biological therapies. His research laboratory interest is in the immunopathologic processes contributing to the perpetuation of rheumatoid arthritis. Bhushan M. Kapur, Ph.D., C.Chem., F.R.S.C., F.A.C.B., F.C.A.C.B., Assistant Professor, Department of Laboratory Medicine and Pathology, University of Toronto. Dr. Kapur received his doctorate in organic chemistry from Basel University, Switzerland. He has been on the Faculty of Medicine at the University of Toronto since 1978. 28 Dr. Kapur specializes in clinical biochemistry with particular emphasis on toxicology. He serves as a consulting toxicologist to the Hospital for Sick Children, Division of Pharmacology and Toxicology, in Toronto, and is the President of CliniTox, Inc., a company which provides consulting services in clinical biochemistry and toxicology. Sigmund Krajden, M.D., C.M., F.R.C.P.(C), Department of Medicine & Laboratory Medicine, St. Joseph's Health Centre, Toronto, Canada. Dr. Krajden received his medical degree in 1971 from McGill University, Montreal, Quebec and has trained in Quebec, Ontario and California. He specializes in the field of microbiology and infectious diseases and is currently the Director of the Medical Microbiology Department and Chief of Infectious Diseases at St. Joseph's Health Centre in Toronto, Canada. In addition, Dr. Krajden is an Assistant Professor at the University of Toronto. Arthur Krosnick, M.D., F.A.C.P., C.D.A., received his medical degree from Temple University School of Medicine, following which he served a rotating internship at Mercer Hospital, Trenton, New Jersey, and a three year residency in Internal Medicine, with emphasis on diabetes, at the Graduate and Presbyterian Hospitals of the University of Pennsylvania. Among his current appointments, Dr. Krosnick serves as Research Director, Joslin Center for Diabetes at St. Barnabas Hospital, Chairman of the New Jersey State Diabetes Advisory Counsel and the Advisory Committee on Diabetes, New Jersey State Department of Health, and Clinical Associate Professor, Department of Occupational and Environmental Medicine, Robert Wood Johnson Medical School. Dr. Krosnick is acting as the principal investigator for the Company's initial Phase II clinical trials in the United States. Pankaj Modi, Ph.D., Vice President, Research and Development and a Director of the Company. See "Management - Executive Officers and Directors". Kusiel Perlman, M.D., F.R.C.P.(C), Division of Endocrinology, Hospital for Sick Children, Toronto, Canada. Dr. Perlman received his medical degree from the University of Manitoba in 1972 and pursued post-graduate studies in the Department of Pediatrics at the University of Manitoba, Case Western Reserve University and the University of Toronto from 1973 to 1979. Presently, he is a Project Director in the Research Institute at the Hospital for Sick Children in Toronto. Concurrently, he is an Assistant Professor in the Division of Endocrinology at both The Hospital for Sick Children and the Toronto Hospital Corporation. Dr. Perlman's association with The Hospital for Sick Children in Toronto started in July 1978, where he received his training as a Clinical Fellow in Endocrinology (Pediatrics) and as a Research Fellow (Pediatrics). In 1980, Dr. Perlman was appointed as a Senior Research Associate and in 1988 became the director of the hospital's Clinical Investigation Unit. William Steinbrink, M.D., received his medical degree in 1974 from the Pittsburgh School of Medicine, and received his graduate training at Harvard Medical School, at Beth Israel Hospital in Boston, and at Western Pennsylvania Hospital in Pittsburgh. Dr. Steinbrink currently is on staff at the Department of Obstetrics and Gynecology at Harmot Medical Center and Saint Vincent Health Center in Erie, Pennsylvania and with Bayside Inc., a private clinic in Erie, Pennsylvania, specializing in obstetrics, gynecology and infertility. He is a Fellow of the American College of Obstetrics and Gynecology. Bernard Zinman, M.D.C.M., F.R.C.P.(C), F.A.C.P., Director of the Banting & Best Diabetes Centre, University of Toronto, Toronto, Canada. Dr. Zinman is a certified specialist in endocrinology and metabolism and is a Professor in the Department of Medicine at the University of Toronto. Since 1991, he has served as Head of the Division of Endocrinology and Metabolism at the Mount Sinai Hospital and The 29 Toronto Hospital in Toronto, Canada. Since 1993, Dr. Zinman has been the Director of the Banting and Best Diabetes Centre and is a Senior Scientist at The Samuel Lunefeld Research Institute. Dr. Zinman is acting as the principal investigator for the Canadian clinical trials of the Company's oral insulin formulation. Previously, he has acted as the principal investigator of the University of Toronto Diabetes Control and Complications Control Trial ("DCCT") Centre and headed the follow up of EDIC (Epidemiology) of Diabetes Intervention and Complication Toronto Centre. Between 1985 and 1994, he was Chair of the Treatment Committee (DCCT) for the National Institute of Health, a member of the Professional Practice Committee and Vice-Chair of the Exercise Council for the American Diabetes Association. Other Key Employees and Consultants Slava Jarnitskii is the Financial Controller of the Company. He has been employed by the Company since January 1998, and by Generex Pharmaceuticals, Inc., since September 1996. Mr. Jarnitskii completed graduate studies at York University and received an MBA degree in September 1996. MQS, Inc., a Jamesburg, New Jersey-based consulting firm, has provided extensive services to the Company since May 1998, primarily in connection with establishing the Company's pilot manufacturing facility; designing the facilities to be located in Brampton and Mississauga, Ontario; designing and sourcing the components for the Company's metered dosage applicator; and the preparation of regulatory submissions in the United States and Canada. Corporate Governance Standards The Company intends to apply to have its Common Stock approved for quotation on The Nasdaq Stock Market, Inc. National Market System ("Nasdaq NMS"). Issuers whose securities are quoted on the Nasdaq NMS are required to comply with certain corporate governance standards, including a requirement that at least two directors of the issuer be "independent" directors, and that the issuer have an audit committee, a majority of the members of which are "independent" directors. The Company does not have any independent directors at the present time, but expects to add a minimum of two independent directors to its Board of Directors within the next 60 days. Limitation of Directors' Liability The Company's Articles of Incorporation provide that no director of the Company will be personally liable to the Company or any of its stockholders for monetary damages arising from the director's breach of fiduciary duty as a director. This limitation does not apply with respect to any action in which the director would be liable under the Idaho Business Corporation Act for authorizing illegal dividends, stock repurchase or redemptions. This limitation also does not apply with respect to any liability in which the director (i) intentionally harms the Company or its shareholders; (ii) violates the criminal laws; or (iii) derives an improper personal benefit. The Company also maintains directors and officers liability insurance which provides coverage of $1 million per loss, and $1 million per policy year. The Company believes that these provisions will assist the Company in attracting and retaining qualified individuals to serve as directors and officers. 30 Item 6. EXECUTIVE COMPENSATION Compensation of Executive Officers Mark Perri, Rose Perri and Anna Gluskin are compensated indirectly by the Company through a management services agreement of indefinite term between the Company and a management firm of which they are equal owners. At the present time, their combined compensation through this arrangement is $420,000 CAD per annum (approximately $277,500 US). The following table sets forth information concerning compensation paid to Anna Gluskin as President and Chief Executive Officer of the Company in the fiscal year ended July 31, 1998. No officer received compensation in excess of $100,000 in the fiscal year ended July 31, 1998. Mark Perri, Rose Perri and Anna Gluskin have all received substantial economic and other benefits, however, through non-interest bearing loans from the Company. See Item 7, "Certain Relationships and Related Transactions" below. Summary Compensation Table
Annual Compensation Long-Term Compensation ------------------------------------ -------------------------------------- Awards Payouts -------------------------------------- Securities Other Under- Annual Restricted lying All Other Name and Compen- Stock Options/ LTIP Compen- Principal Salary Bonus sation Award(s) SARs Payouts sation Position Year ($) ($) ($) ($) (#) ($) ($) (a) (b) (c) (d) (e) (f) (g) (h) (i) - ------------------- -------- -------------- -------- ------------ ------------ ------------ ------------ ------------ Anna E. Gluskin, 1997 92,488(1) -0- (2) -0- -0- -0- -0- Chief Executive Officer - ------------------- -------- -------------- -------- ------------ ------------ ------------ ------------ ------------
(1) Based on the Canadian/US dollar exchange rate on July 31, 1998. Ms. Gluskin was compensated for her services to the Company in the fiscal year ended July 31, 1998, through a management company of which she is a one-third owner. (2) Less than $50,000. Other Compensation, Directors' Compensation None of the Company's officers and directors received any options or stock appreciation rights ("SARs") during the fiscal year ended July 31, 1998, exercised any options or SARs during the year, or owned any options or SARs at year end. The Company has no long term incentive plans or defined benefit or actuarial pension plans or the like in force. 31 None of the Company's directors received compensation in the past fiscal year for their services as directors. Item 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Company was incorporated in 1983 as Green MT. P.S., Inc., and had been inactive for a number of years prior to January 1998 when it acquired Generex Pharmaceuticals, Inc. ("GPI") and changed its corporate name to "Generex Biotechnology Corporation". In connection with that transaction, GPI's historical shareholders acquired control of the Company, and the historical shareholders of the Company retained approximately 11% of the Company's outstanding capital stock. Prior to the Company's acquisition of GPI in January 1998, GPI, which was incorporated in November 1995, was a private company. Unless otherwise indicated, the transactions described below occurred prior to the Company's acquisition of GPI or pursuant to contractual arrangements entered into prior to that time. Real Estate Financing Transactions: In May 1997, EBI, Inc., a company controlled by Mark Perri, acquired shares of Common Stock of Generex Pharmaceuticals for $3 million (CAD) which, based on the exchange rate then in effect, represented approximately $2.1 million (US). These funds were restricted for use by GPI, initially to acquire an insulin research facility and subsequently amended to permit use to acquire properties used for manufacturing the Company's oral insulin product and other proprietary drug delivery products, and related testing, laboratory and administrative services. Under the terms of the investment, GPI was required to lend these funds back to EBI, Inc. pending use for such permitted purposes by GPI, and the entire amount was loaned back to EBI and was outstanding at July 31, 1997. During the fiscal year ended July 31, 1998, a total of $2,491,835 CAD was repaid by EBI and applied to real estate purchases by GPI and the Company, resulting in a balance due from EBI of $508,165 CAD at July 31, 1998 (approximately $335,710 US based on the exchange rate then in effect). These funds are due on demand by GPI, provided they are used for the purchase and/or construction or equipping of oral insulin manufacturing and testing facilities. Real Estate Purchases: Two of the properties purchased by GPI with funds repaid by EBI were purchased from Antonio Perri, Mark Perri's father. Mr. Perri had owned these properties for more than two years prior to their sale to the Company. The Company believes that the terms of these purchases (the Brampton facility for $680,000 CAD and the Mississauga facility for $810,000 CAD) were at least as favorable to the Company as could have been obtained from an unrelated party through arms-length negotiations. Occupancy of Executive Offices: Prior to December 17, 1997, the Company occupied its executive offices at Harbour Square Business Center under an Occupancy Agreement between GPI, Angara Equities, Inc. and 1097346 Ontario, Inc. (the "Angara/1097346 lease") pursuant to which GPI paid Angara a monthly occupancy fee of $4,880 CAD, which represents the rental and other charges allocable to its space under Angara's lease for space, which included the Company's offices, 1097346 Ontario, Inc., the owner of the space. Angara Equities, Inc. is owned by Mark Perri, Rose Perri and Anna Gluskin, officers and director of the Company, and the arrangement between Angara and GPI was a direct "pass through" of costs from which Angara derived no direct economic benefit. At the time the Angara/1097346 lease was executed in May 1996, 1097346 Ontario, Inc. was owned by an unrelated party, and the terms of the Angara/1097346 lease were negotiated at arms length. On December 17, 1997, the Company acquired 100% of the outstanding capital stock of 1097346 Ontario, Inc. from its prior owner for $661,769 US and the Angara/1097346 lease was terminated. 32 Loans To and From Stockholders: Between November 1995 and July 31, 1997, Angara Equities, Inc. ("Angara"), a company owned and controlled by Mark Perri, Rose Perri and Anna Gluskin, incurred a net indebtedness of $1,127,218.05 (CAD) to GPI. The indebtedness arose from cash advances and the payment by GPI of expenses incurred by Angara and certain of its affiliates, net of repayments and the payment of GPI expenses by Angara. The highest amount outstanding at any time during this period was $1,654,264.48 CAD (approximately $1,092,860 US). During this period, GPI also made advances to The Great Tao, Inc. ("TGT"), a company owned by Mark Perri, Rose Perri and Anna Gluskin and through which they receive compensation for their services to the Company. At July 31, 1997, TGT was indebted to GPI in the amount of $175,000 CAD. The highest amount outstanding at any time during this period was $175,000 CAD (approximately $126,628 US). During the fiscal year ended July 31, 1998, GPI advanced a total of $1,526,250.40 (CAD) to Angara, TGT and other entities owned by Mr. Perri, Ms. Perri and Ms. Gluskin, and received repayments of advances and payments on account of past advances in the aggregate amount of $1,875,997.30 (CAD), including $420,000 CAD credited to TGT on account of compensation due to Mr. Perri, Ms. Perri and Ms. Gluskin during the year. As a result, a total of $932,470.70 CAD (approximately $616,000 US) was due to GPI from these entities at fiscal year end. The highest amount outstanding at any time during the fiscal year was $1,864,288.12 CAD (approximately $1,231,610 US). The transactions between GPI and entities owned and controlled by Mark Perri, Rose Perri and Anna Gluskin were not negotiated at arms-length, and were not on normal commercial terms. No interest was charged on any of the advances, and the transactions were of far greater financial benefit and convenience to the officer/stockholder participants than to GPI. As indicated above, these transactions and financing arrangements were primarily initiated prior to the "reverse acquisition" pursuant to which the Company acquired GPI. All advances from GPI to entities owned and controlled by Mr. Perri, Ms. Perri and Ms. Gluskin are expected to be repaid in full by the end of the current fiscal year. Consulting Agreement with Pankaj Modi, Ph.D.: In October 1996, GPI entered into a Consulting Agreement with Dr. Modi pursuant to which, among other things, Dr. Modi assigned to GPI his entire right, title and interest in and to all inventions, ideas, designs and discoveries made by him during the term of such Agreements which relate in any manner to the development, manufacturing, marketing, distribution and sale of generic drug products, including, without limitation, controlled release drugs, topical insulin, intra-nasal insulin and liposome creams. Concurrently with execution of this Consulting Agreement, Dr. Modi and GPI entered into an Assignment and Assumption Agreement pursuant to which Dr. Modi assigned to the Company his interests in and to specific drug delivery systems, controlled release drug delivery systems and technology patents invented/discovered/conceived by Dr. Modi prior to the execution of the Agreement, including three existing patents covering insulin delivery systems, applicable to peptides and proteins; drug vaccines and hormones delivery; and controlled release of drugs and hormones. In addition to these patents, Dr. Modi assigned to GPI four US and/or Canadian patent applications and certain abstracts covering, among other things, liposomes drug delivery for vaccines, drugs, hormones, peptides and cosmetic delivery; transdermal drug delivery for proteins, peptides, hormones and small molecules; controlled release drug delivery systems for capsules, caplets, and liquid suspensions; and DNA technology relating to insulin preparation. Under this Consulting Agreement, the Company pays Dr. Modi annual compensation of $132,000 CAD (approximately $87,200 US based on the exchange rate in effect on July 31, 1998), and also has agreed to reimburse Dr. Modi for $150,000 CAD (approximately $99,000 US) of expenses incurred by Dr. Modi in research activities prior to his association with the Company, all of which was outstanding at July 31, 1998. 33 Item 8. LEGAL PROCEEDINGS Sands Brothers & Co. Ltd., a New York City-based investment banking and brokerage firm, initiated an arbitration against the Company under New York Stock Exchange ("NYSE") rules on October 2, 1998. Earlier in the year, Sands commenced an action against the Company in the New York Supreme Court making the same claims. The claims were dismissed, upon the Company's motion, since the nature of the claims subjected them to mandatory arbitration under NYSE Rules at the Company's instance. Sands has alleged that it has the right to receive, for nominal consideration, approximately 2 million shares of the Company's Common Stock. This claim is based upon an October 1997 letter agreement which purportedly confirmed the terms of an agreement the exclusive financial advisor to Generex Pharmaceuticals, Inc. ("GPI"), a wholly owned subsidiary of the Company, and granted the right to receive shares representing 17% of the outstanding capital stock of GPI, on a "fully diluted" basis as an inducement to act in that capacity under the purported agreement. Following the acquisition of GPI by the Company, Sands' claimed right to receive shares of GPI common stock would, allegedly, now apply to the Company's Common Stock. Sands also claims that it is entitled to additional shares of the Company as a result of the Company's acquisition of GPI (approximately 460,000 shares), and $144,000 in fees under the terms of the purported Agreement. Sands has never performed any services for the Company, and the Company and GPI have denied that the individual who is alleged to have entered into the purported agreement between Sands and GPI, had the authority to act on GPI's behalf, and, accordingly, is defending against Sands' claim primarily on the basis that no agreement has ever existed between GPI and Sands. The arbitration process is in an early stage and the Company is unable to predict the outcome at this time. Generex Pharmaceuticals, Inc. is a defendant in two litigations now pending in Canada: (a) In February 1997, a wrongful dismissal claim seeking damages of $450,000 (CAD) was brought against GPI (Lorne Taylor v. Generex Pharmaceuticals, Inc.). Management of the Company believes that the claim is without merit, and no reserve or other provision has been made for any loss that may result from the litigation. (b) GPI is defending an action in which "Generex, Inc." was made a party defendant in June 1996 (Elbourne, et al. v. Acepharm, Inc., et al.). The claim seeks damages for the diminution of the value of the claimant's shares in Acepharm, Inc. in the amount of $1,000,000, together with punitive damages of $5,000,000. The claim is a result of a dispute over the ownership and/or control of Acepharm, Inc., from which GPI had expressed an interest in acquiring certain assets. When GPI became aware of the dispute in ownership/control of Acepharm, Inc., it abandoned the opportunity to purchase the assets. The Company believes that the claim against it is without merit, and no provision has been made for any losses that may result from litigation. The Company maintains product liability coverage for claims arising from the use of its products in clinical trials, etc., but does not have any insurance which covers its potential liability in any of the legal proceedings described above. Item 9. MARKET PRICE, DIVIDENDS AND RELATED STOCK- HOLDER MATTERS Item 9(a) Market Information "Bid" and "asked" prices for the Company's Common Stock have been quoted on the Nasdaq OTC Electronic Bulletin Board since February 1998, prior to which there was no public market for the Common Stock. The table below sets forth for the periods indicated the high and low bid quotations as furnished by the Nasdaq OTC Bulletin Board from the inception of trading through December 9, 1998. These quotations reflect inter-dealer prices, without retail mark-up, markdown, or commission and may not necessarily represent transactions. The closing bid and asked prices for the Common Stock reported on the OTC Bulletin Board on December 9, 1998, were $12.00 and $12.25, respectively. 34 High Low ---- --- 1998 ---- First quarter $6.375 $5.75 Second quarter $9.000 $6.00 Third quarter $8.125 $5.75 Fourth quarter (through $12.875 $7.375 December 9, 1998) Item 9(b) Holders of Common Stock At December 9, 1998, the Company had 500 holders of record of its Common Stock. Item 9(c) Dividend Policy Holders of Common Stock are entitled to receive such dividends as the Board of Directors may from time to time declare out of funds legally available for the payment of dividends. Holders of the Company's Special Voting Rights Preferred Stock are entitled to receive a dividend per share equal to dividends paid on shares of Common Stock, as and when dividends on Common Stock are declared and paid. The Company has never paid and does not presently anticipate paying dividends on its Common Stock. Item 10. RECENT SALES OF UNREGISTERED SECURITIES In the three year period ended December 9, 1998, the Company has offered and sold Common Stock and other securities in reliance upon exemptions from the registration requirements of the Securities Act of 1933 (the "Securities Act") in the following transactions: (a) In April 1996, the Company issued 16,000,000 shares of Common Stock to J. Rockwell Smith for $7,500, all but 105,000 shares of which were contributed back to the Company in connection with its acquisition of Generex Pharmaceuticals, Inc. ("GPI") in January 1998. The shares were issued in reliance upon Section 4(2) of the Securities Act. (b) In January 1998, the Company issued 9,234,118 shares of Common Stock to the former shareholders of GPI (39 individuals and entities) in the Reverse Acquisition described in Items 1(a) and 2(b) above. The shares were issued in reliance upon Section 4(2) and Rule 506, Regulation D, in the case of shares issued to residents of the United States, and upon Regulation S in the case of shares issued to Canadian and other non-U.S. persons. (c) Between March 1, 1998, and June 30, 1998, the Company offered and sold 1,153,425 Units of securities at a price of $2.50 per Unit, each Unit consisting of one share of Common Stock and one Series A Redeemable Warrant to purchase one share of Common Stock at a price of $5.00 per share. Of this total, 160,172 Units were issued in payment for services (98,172 Units for legal services and 62,000 units as a commission or "finder's fee" in connection with the sale of shares to Thompson Kernaghan & Co., Ltd.), and valued for this purpose at $2.50 per Unit. All such sales were issued in reliance on Section 4(2) of the Securities Act of 1933 (the "1933 Act") and Rule 506 of Regulation D ("Rule 506") promulgated thereunder, or, in the case of certain Canadian purchasers, pursuant to Regulation S and the 1933 Act and applicable Canadian securities laws. The purchasers in this offering were as follows: 35 Investor No. of Units - -------- ------------ J.R. Consultants, Inc. 10,000 Robert Portman 20,000 Eva Langot 10,753 William M. Kimbrough, Ttee for William M. Kimbrough, 10,000 Rev Liv Tr. Under TA dtd 8/6/93 Ralph Shapiro and Bridgett Shapiro, JTWROS 10,000 James L. Morrison, Ttee, The Morrison Family Trust 10,000 Greg DeMille 10,000 Connolly Epstein Chicco 98,172 Foxman Oxholm & Ewing Lawrence J. Lesser 10,000 Barry J. Essig 10,000 Spindler Family Trust UA dtd 4/18/87 10,000 Arthur G. Kaiser 10,000 Robert J. Selsky 10,000 Neil G. Epstein and Laura JAnsen, JTWROS 10,000 Warren V. Blasland, Jr. 10,000 Melissa Ann Kaiser 5,000 Optima, Inc. 2,500 Mode, Inc. 24,000 Thomson Kernaghan & Co., Ltd. 620,000 Deana Hazel Kaiser 5,000 Arthur G. Kaiser and Loretta Ann Kaiser 10,000 Robyn Wolf 10,000 David N. Freed 10,000 Dusan Miklas 20,000 Shahid Inayai Sheikh 10,000 Riaz Ud Din Ahmed 10,000 Michael Howlett 57,000 Douglas E. Ball 10,000 Firoz B. Master 10,000 Scott E. Walker 10,000 Lawrence J. Rubinstein and Camille S. Rubinstein 10,000 Services Enterprises, Ltd. 50,000 Steve Samuel 10,000 Bernard Wilson 21,000 (d) In May 1998, the company sold 34,000 shares of Common Stock outside the United States to four individuals (Bernd Papenbrok - 4,000 shares; Ursula Degatau - 10,000 shares; and Jose and Susanna Alarcon - 20,000 shares) who were non U.S. persons in reliance upon Regulation S under the 1933 Act. (e) Between May 11, 1998, and November 30, 1998, the Company received $2,034,000 from the sale of a total of 669,779 shares of Common Stock at prices from $2.50 to $3.50 per share to Cape Properties Corp., a Turks and Cacos Islands, B.W.I. corporation with a principal place of business located at Harbor House, P.O. Box 120, Grand Turk, Turks and Cacos Islands, B.W.I. 36 (f) In May 1998, the Company entered into a billing arrangement with a consultant, MQS, Inc., pursuant to which the consultant agreed to accept shares of the Company's Common Stock in partial payment for consulting services. The Company is committed to issue 42,168 shares of Common Stock, valued at $2.50 per share for this purpose, on account of services rendered through September 4, 1998, when the arrangement was terminated. The shares were issued in reliance upon Rule 506, Regulation D. (g) In May 1998, the Company issued a warrant to purchase 500,000 shares of Common Stock at a price of $2.50 per share to a consultant, Gulfstream Capital Group, L.C., in payment for consulting services. The warrants were valued at $250,000 ($.50 per warrant) for this purpose. (h) Between September 1, 1998 and December 4, 1998, the Company offered and sold pursuant to Rule 506 a total of 587,670 shares of Common Stock at prices ranging from of $4.00 to $5.00 per share to the purchasers named below, for total sales proceeds of $2,361,453.80. Each such purchaser agreed for a period of five years from the date of his/her/its purchase (1) to vote such shares in proportion to the votes cast by all other shareholders of the Company, and (2) not to sell the shares without first offering to sell the shares to the Company at the then current market price of the shares (except for sales after the first year of ownership of a number of shares equal to 1% or less of the total number of shares outstanding in any continuous 90 day period in routine brokerage transactions). In the case of the sale of shares to William Steinbrink (250,000 shares), the price at which the Company has the right to purchase Dr. Steinbrink's shares pursuant to the right of first refusal described in the preceding paragraph is 70% of the current market price, and the Company also has agreed to repurchase from Dr. Steinbrink after December 31, 1999, at Dr. Steinbrink's option, such portion or all of his shares as he may elect to tender to the Company at a price equal to 70% of the then current market price. Dr. Steinbrink also has the right to purchase an additional 250,000 shares of the Company's Common Stock until December 23, 1998, on the same terms and conditions as the first 250,000 shares purchased. A copy of the Subscription/Voting/Put Agreement between the Company and Dr. Steinbrink is attached hereto as Exhibit 4.5.1. A form of the Subscription/Voting Agreement signed by the remaining purchasers named below is attached as Exhibit 4.5.2 hereto. No. of Investor Shares - -------- ------ Summers Family Limited Partnership, 1,000 Ardeth Summers General Partner Robert J. Lowther, Jr. 5,000 Robert J. O'Malley, Custodian for 3,050 Peter J. O'Malley, UTMA/PA Robert J. O'Malley, Custodian for 3,050 Michael J. O'Malley, UTMA/PA William H. Peiffer & Leona E. Peiffer 2,000 Dr. And Mrs. Stephen D. Pett 2,500 Charles G. Herbst/Edward E. Engel - 5,000 Co-Trustees, Arthritis Associates P/S Plan FBO Charles G. Herbst Stephen or Rebecca Stroul 15,000 William M. and Ellen Leonard 2,000 Thomas and Jill Fessler JTWROS 5,000 James M. Antoun and Jamie M. Antoun 10,000 PNC Bank, National Association, Trustee, 5,000 McDonald Illig Jones & Britton LLP Pension Plan and Trust, FBO James Antoun Dario Cipriani and Donna M. Cipriani 2,500 37 No. of Investor Shares - -------- ------ Jan R. & Linda S. VanGorder Ten. Ent. 10,000 Mark J. And Amy E. Amendola 1,500 Michael D. Dunlavey 15,000 Mark Suprock and Sherry Suprock, JTWROS 6,098 Marc A. Flitter and Alice Flitter, JTWROS 12,195 David P. Snell and Kym Snell 10,000 Richard F. Rambaldo 7,318 Michael Alan Scutella and Eileen Ritz Scutella, 10,000 JTWROS George R. Harrington 6,000 Robert C. Oglevee 5,000 Northcoast Brokerage Agency, Inc. 10,000 William M. Hilbert, Sr. and Martha Hilbert, JTWROS 12,200 John L. Hilbert 10,000 C. John Weber, III and Charles R. Weber,JT 2,439 C. John Weber 1,219 PNC Bank, National Association, Trustee, 7,318 MacDonald Illig Jones & Britton LLP Pension Plan and Trust FBO James E. Spoden Mark J. and Karen Salvia 2,200 PNC Bank, Trustee For Knox et al 20,000 Profit Sharing Plan J. Patrick Karle 2,250 David A. Ciacchini and Mary Therese Ciacchini, JTWROS 2,200 Margaret Damore 2,500 Matthew G. McCormack 1,000 Owen J. McCormick 2,000 Brett Andrew Johnson and Caryn Kadavy Johnson, JTWROS 2,500 Randy R. Nyberg 2,000 John F. Harley and Mary E. Harley, JTWROS 1,000 Industrial Sales & Mfg., Inc. 2,500 Julie M. Ottman and Robert P. Ottman, JTWROS 2,500 Douglas S. And Kathleen M. Fugate 2,000 David S. Giuzik 2,500 Arthur L. Amendola, JTWROS 3,000 RAYWEB c/o Heritage Trust Company 10,000 Jean-Mare Baier and Dafna Baier 1,219 Vincent J. Agostino 5,000 Gerald A. Ryan 5,000 Vincent P. Rogers, M.D. 20,000 Mark A. And Alice W. Flitter 2,439 William Steinbrink 250,000 Paul A. Busch 20,000 Palm & Co. FBO Quinn 401(k) 2,500 Douglas J. and Colleen Cook 1,000 Philip R. Eden 2,500 Vlastimir and Rachelle Zada Zivkov 5,000 Richard H. Penske and Patricia Penske 10,000 38 No. of Investor Shares - -------- ------ James H. Ferguson 5,000 Michael D. Grollman 975 Total 587,670 (i) The Company granted 37,747 shares as a "finder's fee", valued at $154,762.70, to a single accredited investor for services in connection with the placement of shares referred to in the preceding paragraph. (j) In June and September 1998, the Company sold a total of 42,615 shares of Common Stock, valued at $2.50 per share for this purpose, in payment for legal services rendered by Brans Lehun Baldwin, a Toronto law firm. The shares were issued in reliance upon Regulation S and Rule 506, Regulation D. (k) In October 1998 the Company issued 180,000 shares of Common Stock to Berckeley Investments Group, LP in settlement of an outstanding claim. The shares were issued in reliance upon Regulation S. (l) In November 1998, the Company issued a warrant to purchase 300,000 shares of Common Stock at a price of $10.00 per share to M. H. Meyerson & Co. Inc. pursuant to a non-exclusive investment banking agreement. Warrants for 150,000 shares are subject to forfeiture if the Company terminates Meyerson's engagement prior to May 17, 1999. This warrant was issued in reliance upon Section 4(2). For accounting purposes, the Company assigned a value of $150,000 ($.50 per warrant) to the warrants. All securities sold in the above described in Section 4(2), Rule 506 and Regulation S offerings are "restricted securities", and the Company has taken appropriate steps to assure that resale restrictions applicable to restricted securities contemplated by Rule 502(d) are complied with. No "public solicitation", as that term is defined in Rule 502(c), was employed by the Company in connection with the sale of securities in reliance upon Section 4(2), Rule 506, all purchasers were, to the Company's reasonable belief, accredited investors, all disclosures required under Rule 502(d) were made by the Company, and all other conditions to the availability of the Rule 506 exemption were, to its knowledge and belief, complied with by the Company. In the case of sales made in reliance upon Regulation S, the Company obtained documentation establishing to its satisfaction that the purchasers were not U.S. persons, and has taken appropriate precautions to assure that the shares are not sold or otherwise transferred to a U.S. person for a period of one year following the sale by the Company. Item 11. DESCRIPTION OF SECURITIES TO BE REGISTERED Common Stock The Company has authorized 50,000,000 shares of Common Stock, par value $.001, of which 13,305,109 were outstanding, or sold and pending issuance, at December 9, 1998. Holders of Common Stock are entitled to one vote for each share of Common Stock owned of record on all matters to be voted on by stockholders, including the election of directors. Holders of Common Stock do not have cumulative voting rights and, accordingly, the holders of more than 50% of the outstanding shares can elect the entire Board of Directors. The holders of Common Stock are entitled to dividends and when declared by the Board of Directors from funds legally available therefor, and, upon liquidation or dissolution of the Company, to receive pro rata all assets remaining available for distribution to stockholders after payments to creditors and holders of senior securities, if any. The Common Stock has no preemptive or other subscription rights, and there are no conversion rights or redemption provisions. All outstanding shares of Common Stock are validly issued, fully paid, and nonassessable. 39 The rights of holders of the Company's Common Stock may be affected by rights of other securities of the Company, as described below. Special Voting Rights Preferred Stock The Company has issued 1,000 shares of Special Voting Rights Preferred Stock ("SVR Preferred"). Pankaj Modi, the Company's Vice President - Research, a director, and the inventor of substantially all proprietary technology now owned by the Company, is the owner of the Company's SVR Preferred Stock. The Company's SVR Preferred has no voting rights except (a) as specifically required by Idaho law, or (b) if a "Change of Control" occurs, as that term is defined in the Company's Articles of Incorporation, to elect a number of directors of the Company equal to a majority of the entire Board of Directors of the Company, or (c) to approve any transaction that would result in a Change of Control. A "Change of Control" is deemed to occur if the Company's founders (Anna E. Gluskin, E. Mark Perri, Rose C. Perri and Pankaj Modi) should cease to constitute at least sixty (60%) of all directors of the Company, or if any person becomes either the Chairman of the Board of Directors or Chief Executive Officer of the Company without the prior approval of these "founders". If a "Change of Control" were to occur, the holders of SVR Preferred (i.e., Dr. Modi) would thereafter be able to elect a majority of the directors of the Company so long as the SVR Preferred were outstanding. Undesignated Preferred Stock The Company's Board of Directors has the authority by resolution to issue up to 1,000,000 shares of "undesignated" preferred stock in one or more series and fix the number of shares constituting any such series, the voting powers, designations, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions thereof, including the dividend rights, dividend rate, terms of redemption (including sinking fund provisions), redemption price or prices, conversion rights and liquidation preferences of the shares constituting any series, without any further vote or action by the stockholders. For example, the Board of Directors is authorized to issue a series of preferred stock that would have the right to vote, separately or with any other series of preferred stock, on any proposed amendment to the Company's Articles of Incorporation or on any other proposed corporate action, including business combinations and other transactions. 1998 Stock Option Plan On January 22, 1998, the Company's Board of Directors approved the 1998 Stock Option Plan (the "Plan"), subject to shareholder approval of the Plan, and reserved 1,000,000 shares of Common Stock for issuance upon options granted under the Plan. The purposes of the Plan are to provide incentives and rewards to those employees who are in a position to contribute to the long-term growth and profitability of the Company; to assist the Company to attract, retain and motivate personnel with experience and ability; and to make the Company's compensation program more competitive with those of other employers. The Company anticipates it will benefit from the added interest which such personnel will have in the success of the Company as a result of their proprietary interest. The Plan presently is administered by the Board of Directors, but the Board may establish a Stock Option Committee (the "Committee"), which consists of at least three directors, to administer the Plan. References to the "Committee" herein include the Board of Directors so long as it continues to administer the Plan directly. 40 The Committee is authorized to select from among eligible employees, directors, advisors and consultants those individuals to whom options are to be granted and to determine the number of shares to be subject to, and the terms and conditions of, the options. The Committee also is authorized to prescribe, amend and rescind terms relating to options granted under the Plan and the interpretation of options. Generally, the interpretation and construction of any provision of the Plan or any options granted thereunder is within the discretion of the Committee. The Plan provides that options may or may not be Incentive Stock Options within the meaning of Section 422 of the Internal Revenue Code ("ISOs"). Only employees of the Company are eligible to receive ISOs, while employees and non-employee directors, advisors and consultants are eligible to receive options which are not ISOs, i.e. "Non-Qualified Options." The options granted by the Board in connection with its adoption of the Plan are Non-Qualified Options. ISOs granted under the Plan are intended to qualify as "incentive stock options" under Section 422 of the Code. The acquisition of shares upon exercise of an ISO will not result in recognition of income at the time. However, the excess of the fair market value of the shares acquired over the exercise price will constitute an item of tax preference, to be included in the optionee's computation of his "alternative minimum tax" for federal income tax purposes. If the optionee does not dispose of the shares issued to him upon the exercise of an ISO within one years of such issuance or within two years from the date of the grant of the ISO, whichever is later, any gain or loss realized by the optionee on a later sale or exchange of such shares generally will be a long-term capital gain or long-term capital loss. If the optionee sells the shares during such period, the optionee will recognize ordinary income for the year in which disposition occurs equal to the amount, if any, by which the lesser of the fair market value of such shares on the date of exercise of such ISO or the amount realized from such sale exceeded the amount paid for such shares. The terms of options granted under the Plan are determined by the Committee at the time the option is granted. Each option is evidenced by a written option document, which, together with the provisions of the Plan itself determines such terms as: when options under the Plan become exercisable; the exercise price of options granted under the Plan, which may not be less than 100% of the fair market value of the Common Stock on the date of the grant in the case of ISOs (110% in the case of optionees who own 10% or more of the Company's Common Stock on the date of grant); the term of the option; vesting provisions; and special termination provisions. An option is not transferable by the optionee, other than by will or the laws of descent and distribution, and is exercisable only by the optionee during his lifetime or, in the event of his death, by a person who acquires the right to exercise the option by bequest or inheritance or by reason of the optionee's death. Generally, an optionee receiving an option will not have taxable income upon the grant of the option. In the case of Non-Qualified Options, the optionee will recognize ordinary income upon exercise of the Non-Qualified Option in an amount equal to the difference between the option price and the fair market value of the shares on the date of exercise. When the shares are sold, the grantee will generally recognize capital gain or loss equal to the difference between (i) the selling price of the shares, and (ii) the sum of the option price and the amount included in his income when the option is exercised. At the present time, options to purchase 50,000 shares have been granted under the Plan. 41 Series A Redeemable Warrants The Company has outstanding 1,153,425 Series A Redeemable Common Stock Purchase Warrant, each of which is exercisable to purchase one (1) shares of Common Stock at a price of $5.00 per share. The Warrants are redeemable, at the option of the Company, at any time after September 1, 1998, upon written notice of not less than twenty (20) days, at a redemption price of $.025 per Warrant. A copy of the Form of Series A Warrant has been filed as an exhibit with this Registration Statement. Other Warrants The Company also has outstanding warrants to purchase 500,000 shares at a price of $2.50 per share (the "GCR Warrants"), 7,937 shares at a price of $21.82 (the "Berckeley Warrants"), and 300,000 shares at a price of $10.00 per share (the "Meyerson Warrants"). 150,000 of the Meyerson warrants are subject to forfeiture if the Company terminates its non-exclusive investment banking relationship with M. H. Meyerson & Co. Inc. prior to May 17, 1999. Forms of the GCR, Berckeley and Meyerson Warrants have been filed as exhibits to this Registration Statement. "Anti-Takeover" Provisions Although the Board of Directors is not presently aware of any takeover attempt or interest involving the Company, the Articles of Incorporation and Bylaws of the Company and the Idaho Business Corporation Act contain certain provisions which may be deemed to be "anti-takeover" in nature in that such provisions may deter, discourage or make more difficult the assumption of control of the Company by another corporation or person through a tender offer, merger, proxy contest or similar transaction or series of transactions. SVR Preferred Stock: As indicated above, the Company's outstanding Special Voting Rights Preferred Stock prevents a "change of control" of the Company without the consent of the holders of the SVR Preferred. See "--SVR Preferred" above. Authorized but Unissued Shares: The authorized capital stock of the Company is 50,000,000 shares of Common Stock, and 1,000,000 shares of Preferred Stock in addition to the SVR Preferred Stock. These shares of capital stock were authorized for the purpose of providing the Board of Directors of the Company with as much flexibility as possible to issue additional shares for proper corporate purposes, including equity financing, acquisitions, stock dividends, stock splits, employee stock option plans, and other similar purposes which could include public offerings or private placements. The Company has no agreements, commitments or immediate plans for the sale or issuance of the additional shares of Common Stock or Preferred Stock at this time. However, shares of Preferred Stock could be issued quickly with terms calculated to delay or prevent a change in control of the Company without any further action by the stockholders. Stockholders of the Company do not have preemptive rights with respect to the purchase of these shares. Therefore, such issuance could result in a dilution of voting rights and book value per share of the Common Stock of the Company. No shares of "undesignated" Preferred Stock have been issued, and the Company has no present plan to issue any such shares. No Cumulative Voting: Neither the Company's Articles of Incorporation nor its Bylaws contain provisions for cumulative voting. Cumulative voting entitles each stockholder to as many votes as equal the number of shares owned by him multiplied by the number of directors to be elected. A stockholder may cast all these votes for one candidate or distribute them among any two or more candidates. Thus, cumulative voting for the election of directors allows a stockholder or group of stockholders who hold less than 50% of the outstanding shares voting to elect one or more members of a board of directors. Without cumulative voting for the election of directors, the vote of holders of a plurality of the shares 42 voting is required to elect any member of a board of directors and present stockholders would be able to elect all of the members of the board of directors. Control Share Acquisitions: The Idaho Control Share Acquisition Law provides for notice to shareholders of a "control share acquisition", which is defined as the acquisition of 20% of the voting power of a Idaho corporation, or of voting power exceeding one-third of such total voting power by a person who owns 20% or more of such voting power prior to the acquisition, or a majority or more of such voting power by a person who already owns one-third or more of the voting power. Shareholders have the right to demand "fair value" for their shares if a control share acquisition occurs. Among other things, the "control share" provisions limit the voting power of the acquiror in a control share acquisition, and permit a corporation to recover profits resulting from the sale of control shares in certain situations. Section 30-1603 of the Control Share Acquisition Law permits an Idaho corporation to elect not to be subject to such Law by adopting a Bylaw provision to that effect. At this time, the Company has not made such an election. Item 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS Article XIV of the Company's Articles of Incorporation provide that, subject to certain limitations (receipt of improper personal gains, intentional infliction of harm on the Company or its stockholders, unlawful dividends or criminal law violations), no director shall be personally liable to the Company or its stockholders for monetary damages for any breach of fiduciary duty by such director as a director. The Bylaws of the Company provide for indemnification of directors and officers of the Company in accordance with the Idaho Business Corporation Act. Section 30-1-851 of the Idaho Business Corporation Act (the "Idaho Act") authorizes the Company to indemnify any director or officer under certain prescribed circumstances and subject to certain limitations against certain costs and expenses, including attorneys' fees actually and reasonably incurred in connection with any action, suit or proceeding, whether civil, criminal, administrative or investigative, to which such person is a party by reason of being a director of officer of the Company if it is determined that such person acted in accordance with the applicable standard of conduct set forth in such statutory provisions. Section 30-1-852 of the Idaho Act makes indemnification mandatory for such expenses incurred in a successful defense by a director in any action brought against the director based on his service as a director. The Company also may purchase and maintain insurance for the benefit of any director or officer which may cover claims for which the Company could not indemnify such person. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore unenforceable. 43 Item 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA GENEREX BIOTECHNOLOGY CORPORATION (A DEVELOPMENT STAGE COMPANY) INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Independent Auditors' Reports F-1 to F-2 Consolidated Balance Sheets July 31, 1998 and 1997 F-3 Consolidated Statements of Operations For the Years Ended July 31, 1998 and 1997, For the Period November 2, 1995 (Date of Inception) to July 31, 1996, and Cumulative From Inception to July 31, 1998 F-4 Consolidated Statements of Changes in Stockholders' Equity For the Period November 2, 1995 (Date of Inception) to July 31, 1998 F-5 to F-7 Consolidated Statements of Cash Flows For the Years Ended July 31, 1998 and 1997, For the Period November 2, 1995 (Date of Inception) to July 31, 1996, and Cumulative From Inception to July 31, 1998 F-8 Notes to Consolidated Financial Statements F-9 to F-24
INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders, Generex Biotechnology Company: We have audited the accompanying consolidated balance sheet of Generex Biotechnology Company and Subsidiaries (a development stage company) as of July 31, 1998, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for the year then ended and the cumulative amounts of operations and cash flows for the period November 2, 1995 (date of inception) to July 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Generex Biotechnology Company and Subsidiaries as of July 31, 1998 and the consolidated results of its operations and its cash flows for the year then ended and the cumulative amounts of operations and cash flows for the period November 2, 1995 (date of inception) to July 31, 1998, in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company is a development stage enterprise and has suffered recurring losses and net cash outflows from operations since inception that raise substantial doubt about its ability to continue as a going concern. As such, the Company is dependent upon future capital infusions from existing and/or new investors to fund operations. Management's plans with regard to these matters are also described in Note 2. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty. Withum, Smith & Brown New Brunswick, New Jersey October 15, 1998 F-1 INDEPENDENT AUDITORS' REPORTS To the Board of Directors and Stockholders, Generex Biotechnology Company: We have audited the accompanying consolidated balance sheet of Generex Biotechnology Company and Subsidiaries (a development stage company) as of July 31, 1997, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for the year then ended and for the period November 2, 1995 (date of inception) to July 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidation financial position of Generex Biotechnology Company and Subsidiaries as of July 31, 1997 and the consolidated results of its operations and its cash flows for the year ended July 31, 1997 and for the period November 2, 1995 (date of inception) to July 31, 1996, in conformity with generally accepted accounting principles. Withum, Smith & Brown Mintz & Partners New Brunswick, New Jersey Toronto, Ontario October 15, 1998 October 3, 1997 F-2 GENEREX BIOTECHNOLOGY CORPORATION (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED BALANCE SHEETS
July 31 ---------------------------------- 1998 1997 -------------- --------------- ASSETS Current Assets: Cash $ 2,090,827 $ 196,004 Restricted cash 106,527 -- Miscellaneous receivables 209,090 168,234 Notes receivable -- 102,750 Other current assets 131,340 46,790 ----------- ----------- Total Current Assets 2,537,784 513,778 Property and Equipment, Net 1,634,447 45,959 Deposits 82,509 -- Due From Related Parties, Net 964,944 3,113,038 ----------- ----------- TOTAL ASSETS $ 5,219,684 $ 3,672,775 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued expenses $ 1,253,004 $ 223,939 Current maturities of long-term debt 795,876 -- ----------- ----------- Total Current Liabilities 2,048,880 223,939 Long-Term Debt, Less Current Maturities 528,506 -- Commitments and Contingencies Stockholders' Equity: Preferred stock, $.001 par value; authorized 1,000,000 shares, issued and outstanding 1,000 and -0- shares at July 31, 1998 and 1997, respectively 1 -- Common stock, $.001 par value; authorized 50,000,000 shares, issued and outstanding 11,971,272 and 9,000,118 shares at July 31, 1998 and 1997, respectively 11,971 9,000 Additional paid-in capital 9,162,329 5,159,276 Equity adjustment for foreign currency translation (199,433) (474) Deficit accumulated during the development stage (6,332,570) (1,718,966) ----------- ----------- Total Stockholders' Equity 2,642,298 3,448,836 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,219,684 $ 3,672,775 =========== ===========
The Notes to Consolidated Financial Statements are an integral part of these statements. F-3 GENEREX BIOTECHNOLOGY CORPORATION (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF OPERATIONS
For the Cumulative Period From For the Years Ended November 2, November 2, July 31, 1995 (Date 1995 (Date --------------------------------- of Inception) of Inception) to July 31, to July 31, to July 31, 1998 1997 1996 1998 -------------- --------------- -------------- -------------- Revenues $ -- $ -- $ -- $ -- Operating Expenses: Research and development 876,404 727,479 67,142 1,671,025 General and administrative 3,673,909 628,064 296,281 4,598,254 ------------ ------------ ------------ ------------ Total Operating Expenses 4,550,313 1,355,543 363,423 6,269,279 ------------ ------------ ------------ ------------ Operating Loss (4,550,313) (1,355,543) (363,423) (6,269,279) Other Expense: Interest expense 63,291 -- -- 63,291 ------------ ------------ ------------ ------------ Net Loss $ (4,613,604) $ (1,355,543) $ (363,423) $ (6,332,570) ============ ============ ============ ============ Basic and Diluted Net Loss Per Common Share $ (.46) $ (.25) $ (.40) ============ ============ ============ Weighted Average Number of Shares of Common Stock Outstanding 10,078,875 5,512,840 903,972 =========== ============ ============
The Notes to Consolidated Financial Statements are an integral part of these statements. F-4 GENEREX BIOTECHNOLOGY CORPORATION (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE PERIOD NOVEMBER 2, 1995 (DATE OF INCEPTION) TO JULY 31, 1998
Preferred Common Stock Stock Additional Adjustment for ----------------------- -------------------- Paid-In Foreign Currency Shares Amount Shares Amount Capital Translation -------- -------- -------- -------- ----------- ----------------- Balance - November 2, 1995 (Inception) -- $ -- $-- $ -- $ -- $ -- Issuance of common stock for cash, February 1996, $.0254 321,429 321 -- -- 7,838 -- Issuance of common stock for cash, February 1996, $.0510 35,142 35 -- -- 1,757 -- Issuance of common stock for cash, February 1996, $.5099 216,428 216 -- -- 110,142 -- Issuance of common stock for cash, March 1996, $10.2428 2,500 3 -- -- 25,604 -- Issuance of common stock for cash, April 1996, $.0516 489,850 490 -- -- 24,773 -- Issuance of common stock for cash, May 1996, $.0512 115,571 116 -- -- 5,796 -- Issuance of common stock for cash, May 1996, $.5115 428,072 428 -- -- 218,534 -- Issuance of common stock for cash, May 1996, $10.2302 129,818 130 -- -- 1,327,934 -- Issuance of common stock for cash, July 1996, $.0051 2,606,528 2,606 -- -- 10,777 -- Issuance of common stock for cash, July 1996, $.0255 142,857 143 -- -- 3,494 -- Issuance of common stock for cash, July 1996, $.0513 35,714 36 -- -- 1,797 -- Issuance of common stock for cash, July 1996, $10.1847 63,855 64 -- -- 650,282 -- Costs related to issuance of common stock -- -- -- -- (10,252) -- Equity adjustment for foreign currency translation -- -- -- -- -- (4,017) Net loss -- -- -- -- -- -- ----------- ----------- --- -------- ----------- ----------- Balance - July 31, 1996 4,587,764 $ 4,588 -- $ -- $ 2,378,476 $ (4,017) =========== =========== === ======== =========== ===========
Deficit Accumulated During the Total Development Stockholders' Stage Equity ------------- ------------- Balance - November 2, 1995 (Inception) $ -- $ -- Issuance of common stock for cash, February 1996, $.0254 -- 8,159 Issuance of common stock for cash, February 1996, $.0510 -- 1,792 Issuance of common stock for cash, February 1996, $.5099 -- 110,358 Issuance of common stock for cash, March 1996, $10.2428 -- 25,607 Issuance of common stock for cash, April 1996, $.0516 -- 25,263 Issuance of common stock for cash, May 1996, $.0512 -- 5,912 Issuance of common stock for cash, May 1996, $.5115 -- 218,962 Issuance of common stock for cash, May 1996, $10.2302 -- 1,328,064 Issuance of common stock for cash, July 1996, $.0051 -- 13,383 Issuance of common stock for cash, July 1996, $.0255 -- 3,637 Issuance of common stock for cash, July 1996, $.0513 -- 1,833 Issuance of common stock for cash, July 1996, $10.1847 -- 650,346 Costs related to issuance of common stock -- (10,252) Equity adjustment for foreign currency translation -- (4,017) Net loss (363,423) (363,423) ----------- ----------- Balance - July 31, 1996 $ (363,423) $ 2,015,624 =========== ===========
The Notes to Consolidated Financial Statements are an integral part of these statements. F-5 GENEREX BIOTECHNOLOGY CORPORATION (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE PERIOD NOVEMBER 2, 1995 (DATE OF INCEPTION) TO JULY 31, 1998
Preferred Common Stock Stock Additional Adjustment for ----------------------- -------------------- Paid-In Foreign Currency Shares Amount Shares Amount Capital Translation -------- -------- -------- -------- ----------- ----------------- Balance - August 1, 1996 4,587,764 $ 4,588 -- $-- $ 2,378,476 $ (4,017) Issuance of common stock for cash, September 1996, $.0509 2,143 2 -- -- 107 -- Issuance of common stock for cash, December 1996, $10.2421 1,429 1 -- -- 14,635 -- Issuance of common stock for cash, January 1997, $.0518 1,466 1 -- -- 75 -- Issuance of common stock for cash, March 1997, $10.0833 12 -- -- -- 121 -- Issuance of common stock for cash, May 1997, $.0513 4,233 4 -- -- 213 -- Issuance of common stock for cash, May 1997, $.5060 4,285,714 4,286 -- -- 2,164,127 -- Costs related to issuance of common stock, May 1997 -- -- -- -- (108,421) -- Issuance of common stock for cash, May 1997, $10.1194 18,214 18 -- -- 184,297 -- Issuance of common stock for cash, June 1997, $.0504 10,714 11 -- -- 529 -- Issuance of common stock for cash, June 1997, $.5047 32,143 32 -- -- 16,190 -- Issuance of common stock for cash, June 1997, $8.9810 29,579 30 -- -- 265,618 -- Issuance of common stock for cash, June 1997, $10.0980 714 1 -- -- 7,209 -- Issuance of common stock for cash, July 1997, $10.1214 25,993 26 -- -- 263,060 -- Costs related to issuance of common stock -- -- -- -- (26,960) -- Equity adjustment for foreign currency translation -- -- -- -- -- 3,543 Net loss -- -- -- -- -- -- --------- ----------- --- ---- ----------- ----------- Balance - July 31, 1997 9,000,118 $ 9,000 -- $-- $ 5,159,276 $ (474) ========= =========== === ==== =========== ===========
Deficit Accumulated During the Total Development Stockholders' Stage Equity ------------- ------------- Balance - August 1, 1996 $(363,423) $2,015,624 Issuance of common stock for cash, September 1996, $.0509 -- 109 Issuance of common stock for cash, December 1996, $10.2421 -- 14,636 Issuance of common stock for cash, January 1997, $.0518 -- 76 Issuance of common stock for cash, March 1997, $10.0833 -- 121 Issuance of common stock for cash, May 1997, $.0513 -- 217 Issuance of common stock for cash, May 1997, $.5060 -- 2,168,413 Costs related to issuance of common stock, May 1997 -- (108,421) Issuance of common stock for cash, May 1997, $10.1194 -- 184,315 Issuance of common stock for cash, June 1997, $.0504 -- 540 Issuance of common stock for cash, June 1997, $.5047 -- 16,222 Issuance of common stock for cash, June 1997, $8.9810 -- 265,648 Issuance of common stock for cash, June 1997, $10.0980 -- 7,210 Issuance of common stock for cash, July 1997, $10.1214 -- 263,086 Costs related to issuance of common stock -- (26,960) Equity adjustment for foreign currency translation -- 3,543 Net loss (1,355,543) (1,355,543) ----------- ----------- Balance - July 31, 1997 $(1,718,966) $ 3,448,836 =========== ===========
The Notes to Consolidated Financial Statements are an integral part of these statements. F-6 GENEREX BIOTECHNOLOGY CORPORATION (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE PERIOD NOVEMBER 2, 1995 (DATE OF INCEPTION) TO JULY 31, 1998
Preferred Equity Common Stock Stock Additional Adjustment for ----------------------- -------------------- Paid-In Foreign Currency Shares Amount Shares Amount Capital Translation -------- -------- -------- -------- ----------- ----------------- Balance - August 1, 1997 9,000,118 $ 9,000 -- $-- $ 5,159,276 $ (474) Issuance of warrants in exchange for services rendered, October 1997, $.50 -- -- -- -- 234,000 -- Exercise of warrants for cash, December 1997, $0.0467 234,000 234 -- -- 10,698 -- Shares issued pursuant to the January 9, 1998 reverse merger between GBT-Delaware, Inc. and Generex Biotechnology Corporation 1,105,000 1,105 -- -- (1,105) -- Issuance of preferred stock for services rendered, January 1998, $.1000 -- -- 1,000 1 99 -- Issuance of common stock for cash, March 1998, $2.50 70,753 71 -- -- 176,812 -- Issuance of common stock for cash, April 1998, $2.50 60,000 60 -- -- 149,940 -- Issuance of common stock in exchange for services rendered, April 1998, $2.50 38,172 38 -- -- 95,392 -- Issuance of common stock for cash, May 1998, $2.50 756,500 757 -- -- 1,890,493 -- Issuance of warrants in exchange for services rendered, May 1998, $.50 -- -- -- -- 250,000 -- Issuance of common stock in exchange for services rendered, May 1998, $2.50 162,000 162 -- -- 404,838 -- Issuance of common stock for cash, June 1998, $2.50 286,000 286 -- -- 714,714 -- Exercise of warrants for cash, June 1998, $.0667 234,000 234 -- -- 15,373 -- Issuance of common stock in exchange for services rendered, June 1998, $2.50 24,729 24 -- -- 61,799 -- Equity adjustment for foreign currency translation -- -- -- -- -- (198,959) Net loss -- -- -- -- -- -- ---------- ------- ----- ------ ----------- ----------- Balance - July 31, 1998 11,971,272 $11,971 1,000 $ 1 $ 9,162,329 $ (199,433) ========== ======= ===== ====== =========== ===========
Deficit Accumulated During the Total Development Stockholders' Stage Equity ------------- ------------- Balance - August 1, 1997 $(1,718,966) $3,448,836 Issuance of warrants in exchange for services rendered, October 1997, $.50 -- 234,000 Exercise of warrants for cash, December 1997, $0.0467 -- 10,932 Shares issued pursuant to the January 9, 1998 reverse merger between GBT-Delaware, Inc. and Generex Biotechnology Corporation -- -- Issuance of preferred stock for services rendered, January 1998, $.1000 -- 100 Issuance of common stock for cash, March 1998, $2.50 -- 176,883 Issuance of common stock for cash, April 1998, $2.50 -- 150,000 Issuance of common stock in exchange for services rendered, April 1998, $2.50 -- 95,430 Issuance of common stock for cash, May 1998, $2.50 -- 1,891,250 Issuance of warrants in exchange for services rendered, May 1998, $.50 -- 250,000 Issuance of common stock in exchange for services rendered, May 1998, $2.50 -- 405,000 Issuance of common stock for cash, June 1998, $2.50 -- 715,000 Exercise of warrants for cash, June 1998, $.066 7 -- 15,607 Issuance of common stock in exchange for services rendered, June 1998, $2.50 -- 61,823 Equity adjustment for foreign currency translation -- (198,959) Net loss (4,613,604) (4,613,604) ----------- ----------- Balance - July 31, 1998 $(6,332,570) $ 2,642,298 =========== ===========
The Notes to Consolidate Financial Statements are an integral part of these statements. F-7 GENEREX BIOTECHNOLOGY CORPORATION (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Cumulative Period From November 2, November 2, For the Years Ended 1995 (Date 1995 (Date July 31, of Inception) of Inception) -------------------------------- to July 31, to July 31, 1998 1997 1996 1998 -------------- ------------- -------------- -------------- Cash Flows from Operating Activities: Net loss $(4,613,604) $(1,355,543) $ (363,423) $(6,332,570) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 31,096 10,411 2,578 44,085 Common stock and warrants issued for services rendered 1,046,253 -- -- 1,046,253 Preferred stock issued for services rendered 100 -- -- 100 Changes in operating assets and liabilities: Miscellaneous receivables -- (119,967) (50,212) (170,179) Other current assets (89,268) (37,020) (10,289) (136,577) Accounts payable and accrued liabilities 1,099,815 226,131 -- 1,325,946 Other, net 110,317 -- -- 110,317 ----------- ----------- ----------- ----------- Net Cash Used in Operating Activities (2,415,291) (1,275,988) (421,346) (4,112,625) Cash Flows from Investing Activities: Purchases of property and equipment (16,287) (41,987) (17,499) (75,773) Change in restricted cash (111,250) -- -- (111,250) Change in deposits (17,601) -- -- (17,601) Change in notes receivable 104,153 (104,153) -- -- Change in due from related parties 390,969 (1,212,654) (1,916,677) (2,738,362) Other, net 89,683 -- -- 89,683 ----------- ----------- ----------- ----------- Net Cash Provided by (Used in) Investing Activities 439,667 (1,358,794) (1,934,176) (2,853,303) Cash Flows from Financing Activities: Proceeds from issuance of long-term debt 993,149 -- -- 993,149 Repayment of long-term debt (63,389) -- -- (63,389) Proceeds from the issuance of common stock, net 2,959,672 2,785,212 2,383,064 8,127,948 ----------- ----------- ----------- ----------- Net Cash Provided By Financing Activities 3,889,432 2,785,212 2,383,064 9,057,708 Effect of Exchange Rates on Cash (18,985) 17,251 781 (953) ----------- ----------- ----------- ----------- Net Increase in Cash 1,894,823 167,681 28,323 2,090,827 Cash, Beginning of Period 196,004 28,323 -- -- ----------- ----------- ----------- ----------- Cash, End of Period $ 2,090,827 $ 196,004 $ 28,323 2,090,827 =========== =========== =========== ===========
The Notes to Consolidated Financial Statements are an integral part of these statements. F-8 GENEREX BIOTECHNOLOGY CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Organization and Business: Generex Biotechnology Corporation (the Company) was incorporated in Idaho in 1983 as Green Mt. P.S., Inc. Since 1983 and prior to January 9, 1998, the Company had essentially been inactive. In January 1998, the Company with a wholly-owned subsidiary which had been recently formed, acquired all of the outstanding capital stock of GBT - Delaware, Inc., an entity whose only asset consisted of the stock of Generex Pharmaceuticals, Inc. ("Generex Pharmaceuticals"), a Canadian corporation formed in November 1995 to engage in pharmaceutical and biotechnological research and other activities. The shareholders of GBT - Delaware, Inc. were the same shareholders of Generex Pharmaceuticals. As a result of this acquisition, the former shareholders of GBT - Delaware, Inc. acquired approximately 90 percent of the Company's outstanding capital stock. GBT - Delaware, Inc. was treated as the acquiror in this transaction for accounting purposes, and accordingly, the historical financial statements of GBT - Delaware, Inc., prior to the acquisition date, are deemed to be the historical financial statements of the Company. The Company is engaged in the research and development of drug delivery systems and technology. Since its inception, the Company has devoted its efforts and resources to the development of a platform technology for the oral administration of large molecule drugs, including proteins, peptides, monoclonal antibodies, hormones and vaccines, which historically have been administered by injection, either subcutaneously or intravenously. The Company is a development stage company, which has a very limited history of operations and has not generated any revenues from operations. The Company has no products approved for commercial sale at the present time. There can be no assurance that the Company will be successful in developing any new products, that regulatory clearance for the sale of future products will be obtained or that any future product will be commercially viable. Note 2 - Basis of Preparation: Since inception, the Company has suffered recurring losses and net cash outflows from operations. The Company expects to continue to incur substantial losses to complete the development and testing of its drug candidates, and does not expect to complete the development stage and begin commercialization of its products in the foreseeable future. Management is actively pursuing various options, which include entering into strategic partnerships with large pharmaceutical companies. Since its inception, the Company has funded operations through debt and common stock issuances in order to meet its strategic objectives. Management is also actively pursuing other financing options, which include securing additional equity financing, and believes that sufficient funding will be available to meet its planned business objectives including anticipated cash needs for working capital, for a reasonable period of time. However, there can be no assurance that the Company will be able to obtain sufficient funds to continue the development of, and if successful, to commence the manufacture and sale of its drug candidates, if and when approved by the applicable regulatory agencies. As a result of the foregoing, there exists substantial doubt about the Company's ability to continue as a going concern. These financial statements do not include any adjustments relating to the recoverability of the carrying amounts of recorded assets or the amount of liabilities that might result from the outcome of this uncertainty. F-9 GENEREX BIOTECHNOLOGY CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 3 - Summary of Significant Accounting Policies: Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany transactions and balances have been eliminated. Development Stage Company The accompanying consolidated financial statements have been prepared in accordance with the provisions of Statement of Financial Accounting Standard No. 7, "Accounting and Reporting by Development Stage Enterprises." Restricted Cash The Company maintains cash funds held in trust by an attorney for the future purchase of the Company's stock pursuant to an agreement (see Note 7). Property and Equipment, Net Property and equipment are recorded at cost less accumulated depreciation. Depreciation is provided on the straight-line method over the estimated useful lives of the assets, which range from three to thirty years. Gains and losses on depreciable assets retired or sold are recognized in the statement of operations in the year of disposal. Repairs and maintenance expenditures are expensed as incurred. Research and Development Costs Expenditures for research and development are expensed as incurred and include, among other costs, those related to the production of experimental drugs, including payroll costs, and amounts incurred for conducting clinical trials. Amounts expected to be received from foreign governments under research and development tax credit arrangements are offset against the related expenses. Included in miscellaneous receivables is $153,597 and $168,234 of such a receivable, due from the Canadian government, at July 31, 1998 and 1997, respectively. Income Taxes Income taxes are accounted for under the asset and liability method prescribed by SFAS No. 109, "Accounting for Income Taxes." Deferred income taxes are recorded for temporary differences between financial statement carrying amounts and the tax bases of assets and liabilities. Deferred tax assets and liabilities reflect the tax rates expected to be in effect for the years in which the differences are expected to reverse. A valuation allowance is provided if it is more likely than not that some or all of the deferred tax asset will not be realized. F-10 GENEREX BIOTECHNOLOGY CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 3 - Summary of Significant Accounting Policies (Continued): Net Loss Per Common Share The Company has adopted SFAS No. 128, "Earnings per Share" ("FAS 128"), which requires presentation of basic earnings per share ("Basic EPS") and diluted earnings per share ("Diluted EPS") by all entities that have publicly traded common stock or potential common stock (options warrants, convertible securities or contingent stock arrangements). FAS 128 also requires presentation of earnings per share by an entity that has made a filing or is in the process of filing with a regulatory agency in preparation for the sale of securities in a public market. Basic EPS is computed by dividing income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period. The computation of Diluted EPS does not assume conversion, exercise or contingent exercise of securities that would have an antidilutive effect on earnings. Refer to Note 12 for methodology for determining net loss per share. New Accounting Standards The Company will adopt Statement of Financial Accounting Standard (FAS) No. 130, "Reporting Comprehensive Income" in fiscal 1999. This statement establishes standards for reporting and displaying comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general-purpose financial statements. This statement requires the classification of items of comprehensive income by their nature in a financial statement and the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of the balance sheet. The Company believes that adoption of this statement will not have a material effect on its financial statements. The Company will also adopt FAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" in fiscal 1999. This statement supercedes FAS No. 14, "Financial Reporting for Segments of a Business Enterprise," but retains the requirement to report information about major customers. This statement establishes standards for reporting information about operating segments in annual financial statements. Operating segments are defined as components of an enterprise evaluated regularly by the Company's senior management in deciding how to allocate resources and in assessing performance. The Company believes that adoption of this statement will not have a material effect on its financial statements. In 1998 , the FASB issued Statement of Financial Accounting Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133). SFAS No. 133 modifies the accounting for derivative and hedging activities and is effective for fiscal years beginning after December 15, 1999. The Company believes that the adoption of SFAS No. 133 will not have a material impact on the Company's financial reporting. F-11 GENEREX BIOTECHNOLOGY CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 3 - Summary of Significant Accounting Policies (Continued): Concentration of Credit Risk The Company maintains cash balances, at times, with financial institutions in excess of amounts insured by the Federal Deposit Insurance Corporation. Management monitors the soundness of these institutions and considers the Company's risk negligible. The Company also maintains cash balances with Canadian legal counsel resulting from transactions which have been consummated, but final funds have not yet been disbursed. Management believes their credit risk on these balances to be minimal. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Foreign Currency Translation Foreign denominated assets and liabilities of the Company are translated into US dollars at the prevailing exchange rates in effect at the end of the reporting period. Income statement accounts are translated at a weighted average of exchange rate which were in effect during the period. Translation adjustments that arise from translating the foreign subsidiary's financial statements from local currency to US dollars are recorded in the cumulative translation adjustment component of stockholders' equity. Financial Instruments The carrying values of accounts payable and accrued expenses approximate their fair values. The fair value of the Company's long-term debt is assumed to approximate its book value. Note 4 - Property and Equipment: The costs and accumulated depreciation of property and equipment at July 31, are summarized as follows: 1998 1997 ---- ---- Land $ 239,810 $ -- Buildings 1,366,956 -- Furniture and Fixtures 7,998 5,938 Office Equipment 60,850 52,869 ---------------- ------------ Total Property and Equipment 1,675,614 58,807 Less: Accumulated Depreciation 41,167 12,848 ---------------- ------------ Property and Equipment, Net $ 1,634,447 $ 45,959 ================ ============ F-12 GENEREX BIOTECHNOLOGY CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 4 - Property and Equipment (Continued): Depreciation expense amounted to $31,096, $10,411 and $2,578 for the years ended July 31, 1998 and 1997, and the period November 2, 1995 (date of inception) to July 31, 1996, respectively. Note 5 - Income Taxes: The Company has incurred losses since inception which have generated net operating loss carryforwards on a consolidated basis of approximately $4,500,000 at July 31, 1998 which are available to offset future taxable income. The net operating loss carryforwards arise from both United States and Canadian sources. The net operating loss carryforwards will expire in 2005 through 2018. These loss carryforwards are subject to limitation on future years utilization should certain ownership changes occur. For the years ended July 31, 1998 and 1997 and for the period November 2, 1995 (date of inception) to July 31, 1996, the Company's effective tax rate differs from the federal statutory rate principally due to net operating losses and other temporary differences for which no benefit was recorded. Deferred tax assets consist of the following at July 31: 1998 1997 ---- ---- Net operating loss carryforwards $ 2,008,795 $ 750,500 Research and development tax credits 75,705 22,362 Depreciation and amortization 204,755 23,035 Accrued liabilities 118,914 -- ----------- --------- Total deferred tax assets 2,408,169 795,897 Valuation allowance $(2,408,169) $(795,897) ----------- --------- Net deferred tax assets -0- -0- Note 6 - Accounts Payable and Accrued Expense: Accounts payable and accrued expenses consist of the following at July 31: 1998 1997 ---- ---- Accounts Payable $ 336,634 $ 223,939 Penalty Arising from Violation of Financing Agreement 738,000 -- Consulting Accruals 151,945 -- Building Purchase Liability 26,425 -- --------------- ------------- Total $ 1,253,004 $ 223,939 =============== ============= F-13 GENEREX BIOTECHNOLOGY CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 7 - Commitments and Contingent Liabilities: Consulting Services In October 1996, the Company entered into a Consulting Agreement with the Vice President of Research and Development (the V.P.) pursuant to which, among other things, the V.P. assigned to the Company his entire right, title and interest in and to all inventions, ideas, designs and discoveries made by him during the term of such agreements which relate in any manner to the development, manufacturing, marketing, distribution and sale of generic drug products, including, without limitation, controlled release drugs, topical insulin, intra-nasal insulin and liposome creams. Concurrently with execution of this Consulting Agreement, the V.P. and the Company entered into an Assignment and Assumption Agreement pursuant to which the V.P. assigned to the Company his interests in and to specific drug delivery systems, controlled release drug delivery systems, controlled release drug delivery systems and technology patents invented/discovered/conceived by the V.P. prior to the execution of the Agreement, including three existing patents covering insulin delivery systems, applicable to peptides and proteins; drug vaccines and hormones delivery; and controlled release of drugs and hormones (the "Existing Patents"). In addition to the Existing Patents, the V.P. assigned to the Company four US and/or Canadian patent applications and certain abstracts covering, among other things, liposomes drug delivery for vaccines, drugs, hormones, peptides and cosmetic delivery; transdermal drug delivery for proteins, peptides, hormones and small molecules; controlled release drug delivery systems for capsules, caplets, and liquid suspensions; and DNA technology relating to insulin preparation (collectively, "Other Existing Technology"). The Existing Patents are owned of record by a Company, which is 50 percent owned by the V.P. Under the terms of the agreement, which expires December 31, 2004, a fee of $87,204 is paid for each year during the term of this agreement, which shall be in equal monthly installments of $7,267 each payable on the 30th day of each month, not in advance; and the sum of $500 per month payable on the 30th day of each month, not in advance, to offset the expenses and costs (including expenses and costs incurred in obtaining and operating an automobile) incurred in connection with the performance of the V.P.'s services. The Company has also agreed to reimburse the V.P. for $99,095 of expense incurred in research activities prior to his association with the Company, all of which was included in accounts payable, at July 31, 1998. F-14 GENEREX BIOTECHNOLOGY CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 7 - Commitments and Contingent Liabilities (Continued): Consulting Services (Continued) On March 17, 1998, the Company entered into separate consulting agreements with two consultants to assist the Company: to test and evaluate the therapeutic effects of its formulations; to develop protocols for testing its formulations; to review and provide suggestions in respect of draft submissions to regulatory authorities and otherwise assist the Company in its efforts to obtain regulatory approvals for its formulations in various jurisdictions, including its efforts to obtain approvals of any Ethics Committees of institutions with which the Consultants are ordinarily affiliated; to arrange and in some cases to conduct clinical trials of its formulations in Canada; and to provide input and assistance with respect to, and evaluate results of, clinical trials in other jurisdictions. The Consultants shall also attend meetings with regulators and assist the Company in making presentations to regulators when reasonably convenient. Under the terms of the agreement, the Company will pay retainer fees of $10,000 per consultant each on August 1, 1998, December 1, 1998, March 1, 1999 and July 1, 1999. In addition, the Company will pay an hourly or per diem amount for all services actually rendered and reimburse reasonable and necessary travel and lodging expenses incurred incident to services rendered. The agreement shall terminate on December 31, 2000. Also on March 17, 1998, the Company entered into separate consulting agreements with two additional consultants to assist the Company: to test and evaluate the therapeutic effects of its formulations; to develop protocols for testing its formulations; to review and provide suggestions in respect of draft submissions to regulatory authorities and otherwise assist the Company in its efforts to obtain regulatory approvals for its formulations in various jurisdictions, including its efforts to obtain approvals of any Ethics Committees of institutions with which the Consultants' representatives are ordinarily affiliated; and to provide input and assistance with respect to, and evaluate results of, clinical trials in other jurisdictions. The additional Consultants shall also attend meetings with regulators and assist the Company in making presentations to regulators when reasonably convenient. Under the terms of the agreement, the Company will pay an hourly or per diem fee for all services actually rendered and reimburse reasonable and necessary travel and lodging expenses incurred incident to services rendered. The agreement shall terminate on December 31, 2000. Leases The Company has entered into various lease agreements for the use of vehicles and office equipment. F-15 GENEREX BIOTECHNOLOGY CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 7 - Commitments and Contingent Liabilities (Continued): Leases (Continued) Aggregate minimum annual lease commitments of the Company as of July 31, 1998 are as follows: Year Amount ---- ------ 1999 $ 13,078 2000 10,004 2001 5,990 2002 4,446 Thereafter 253 ----------- Total Minimum Lease Payments $ 33,771 =========== Lease expense amounted to $50,757, $9,206 and $6,946 for the years ended July 31, 1998 and 1997 and for the period November 2, 1995 (date of inception) to July 31, 1996, respectively. The preceding data reflects existing leases and does not include replacements upon their expiration. In the normal course of business, operating leases are generally renewed or replaced by other leases. Rental Operations The Company leases a portion of the floor that it owns in an office building located in Toronto, Canada. The Company, pursuant to a debt agreement with Rumspen Investment Corporation, has assigned their interest in these lease payments to a management company who then also pays certain expenses related to these rental units. This assignment will end on December 31, 1998, or when the additional amount of $26,425 (see Note 6) is paid to the prior owner of the properties. Once the assignment period ends, the Company will be entitled to the sublease rental income from the other tenants. Based upon the estimated ending of the assignment period of December 31, 1998, the following represents the approximate amount of sublease income to be received in years ending after July 31, 1998: Year Amount ---- ------ 1999 $ 126,000 2000 104,000 2001 6,000 2002 -- 2003 -- ------------- Total $ 236,000 ============= F-16 GENEREX BIOTECHNOLOGY CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 7 - Commitments and Contingent Liabilities (Continued): Pending Litigation Sands Brothers & Co., Ltd. (Sands), a New York City-based investment banking and brokerage firm, initiated an arbitration against the Company under New York Stock Exchange rules in September 1998. This claim is based upon a claim that Sands has the right to purchase, for nominal consideration, approximately 1.5 million shares of the Company's common stock. This claim is based upon an October 1997 letter agreement which purportedly confirmed the terms of an agreement appointing Sands as the exclusive financial advisor to Generex Pharmaceuticals, Inc. (GPI) and granting Sands the right to receive shares representing 17 percent of the outstanding capital stock of GPI on a fully diluted basis. Following the acquisition of GPI by GBT - Delaware, Inc., Sands' claimed right to receive shares of GPI common stock would, allegedly, now apply to the Company's Common Stock. Sands also claims that it is entitled to additional shares of the Company as a result of the Generex Biotechnology Corporation Delaware, Inc.'s acquisition of GPI (approximately 460,000 shares), and $144,000 in fees under the terms of the purported Agreement. Sands has never performed any services for the Company, and the Company and GPI have denied that the individual who is alleged to have entered into the purported agreement between Sands and GPI had the authority to act on GPI's behalf, and accordingly, is defending against Sands' claim primarily on the basis that no agreement has ever existed between GPI and Sands. The arbitration process is in an early stage and the Company is unable to predict the outcome at this time. However, the Company intends to vigorously defend itself in this matter and does not expect that the ultimate resolution of this matter will have a material effect on its results of operations and financial condition. Generex Pharmaceuticals, Inc., is also contesting a claim for wrongful dismissal in the amount of approximately $300,000 plus special damages, interest and costs. The Company believes that the plaintiff was never employed by the Company or any of its subsidiaries and that the case is without merit. An action was also commenced against GPI and other companies and individuals seeking approximately $3,965,000 for allegedly causing certain adverse consequences of a plaintiff's particular investment in a company. GPI's only involvement was that at one time there was interest on its part in buying certain assets from this company. GPI failed to file a Statement of Defense to the Statement of Claim and GPI was noted in default on October 1, 1996. An application has been filed to set aside that default notice, however that application has been adjourned indefinitely. The Company plans to take action after January 1, 1999 to terminate this action against itself and GPI. F-17 GENEREX BIOTECHNOLOGY CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 7 - Commitments and Contingent Liabilities (Continued): Stock Redemption Under the terms of a settlement, determined in an Ontario, Canada Court, the Company agreed to purchase 15,357 shares from a shareholder for a total purchase price of $142,035, payable in four equal installments commencing December 31, 1997, to be held in trust by the shareholder's legal counsel. Each installment is to be released to the shareholder upon delivery of the related shares to the Company or its legal counsel (the Company). The shareholder maintains the right at any time to advise the Company, in writing, which shall be irrevocable, that the shareholder will forego any of the four installments, in which case the Company shall have no obligation to deliver payment for that portion of the shares. As of July 31, 1998, the Company had not been advised that the shareholder would forego any payments and had not received any of the shares for which funds were held in trust. The Company's funding for this potential share repurchase is being maintained in an attorney trust account and has been labeled "Restricted Cash" on the July 31, 1998 consolidated balance sheet (See Note 14). Note 8 - Related Party Transactions: The amounts due from (to) related parties at July 31, are as follows:
Golden The Angara Angara Ching Bull Great Tao Equities Investments, Chew An Estates Inc. Inc. Inc. Breweries Inc. EBI, Inc. Total ---------- --------- ------------- --------- ---------- ------------ ------------ Beginning Balance, August 1, 1997 $ 126,628 $ 815,643 $ -- $ -- $ -- $ 2,170,767 $ 3,113,038 Purchase of properties -- -- -- -- -- (1,646,188) (1,646,188) Cash collection -- (403,639) -- -- -- -- (403,639) Company expenses paid by related parties (352,384) (22,171) (277,962) (29,481) (209,637) -- (891,635) Related party expenses paid by the Company 122,338 293,976 136,644 29,381 468,851 -- 1,051,190 Other 1,263 (63,928) 7,543 6 (13,837) (188,869) (257,822) ----------- --------- ----------- --------- ---------- ------------ ------------ Ending Balance, July 31, 1998 $ (102,155) $ 619,881 $ (133,775) $ (94) $ 245,377 $ 335,710 $ 964,944 =========== ========= =========== ========= ========== ============ ============
F-18 GENEREX BIOTECHNOLOGY CORPORATION (A DEVELOPMENT COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 8 - Related Party Transactions (Continued): These amounts are non-interest bearing. There are no fixed terms of repayment. Each of the related parties is owned in whole or in part by the Company's Chairman of the Board. In addition, EBI, Inc. and Golden Bull Estates, Inc. are shareholders of the Company. As of July 31, 1998, the Company's three senior officers, who are also shareholders of the Company were compensated indirectly by the Company through a management services contract between the Company and a management firm of which they were equal owners. The amounts paid to this management firm amounted to $280,000, $-0- and $-0- for the years ended July 31, 1998 and 1997 and for the period November 2, 1995 (date of inception) to July 31, 1996. Prior to December 17, 1997, the Company occupied its executive offices at Harbour Square Business Center under an Occupancy Agreement between Generex Pharmaceuticals, Inc. (GPI), Angara Equities, Inc. and 1097346 Ontario, Inc. (the Angara/1097346 lease) pursuant to which GPI paid Angara a monthly occupancy fee of approximately $4,880 CAD, which represents the rental and other charges allocable to it space under Angara's lease for space, which included the Company's offices, 1097346 Ontario, Inc., the owner of the space. Angara Equities, Inc. is owned by the Company's Chairman of the Board. On December 17(?), 1997, GPI terminated the Angara/1097346 lease. During fiscal year 1998, the Company purchased two buildings from the father of the Company's Chairman of the Board. The total purchase price was $984,343. Note 9 - Long-Term Debt: Long-term debt consists of the following at July 31:
1998 1997 ---- ---- Mortgage payable - Romspen Investment Corporation, interest at 10.5 percent per annum, monthly payments of interest only, principal due on March 20, 2000, secured by real property located at 33 Harbour Square, Toronto Suites #202 and #3501, which is owned personally by the Company's Chairman of the Board, and an assignment of all rents until December 31, 1998 $528,506 $ -- -------- ---- Subtotal $528,506 $ --
F-19 GENEREX BIOTECHNOLOGY CORPORATION (A DEVELOPMENT COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 9 - Long-Term Debt (Continued):
1998 1997 ---- ---- Subtotal $ 528,506 $ -- Mortgage payable - Laurential Bank, balance was originally to be paid in full by July 31, 1998, interest of 11.25 percent per annum secured by real property located at 98 Stafford Drive, Brampton 183,565 -- Mortgage payable - Laurential Bank, balance to be paid in full by July 31, 1998, interest of 11.25 percent per annum secured by real property located at 1740 Sismet Road, Mississauga 218,561 -- Note payable - Berckeley Investment Group, Ltd., inclusive of interest, balance originally was to be paid in full June 1998 (a) 393,750 -- ---------- ------ Total Debt 1,324,382 -- Less Current Maturities 795,876 -- ---------- ------ Long-Term Debt, Less Current Maturities $ 528,506 $ -- ========== ====== - ----------- (a) Pursuant to an agreement, The Company originally agreed that in the event that the common stock, or their equivalent, were not listed or quoted for trading on a public market in North America within ninety (90) days of the agreement, the Company shall pay the sum of $300,000 as damages within five (5) days of the end of such ninety (90) day period. This milestone was not achieved by the Company. However, upon mutual agreement, the Company issued shares of its common stock subsequent to year-end. The value of this settlement is included in accounts payable and accrued expenses at July 31, 1998. (See Note 6)
Aggregate maturities of long-term debt of the Company due within the next five years ending July 31, are as follows: Year Amount ---- ------ 1999 $ 795,876 2000 528,506 2001 -- 2002 -- 2003 -- ------------- $ 1,324,382 ============= Note 10 - Stockholders' Equity: Reverse Merger On January 9, 1998, the Company issued 9,234,118 of common stock to acquire GBT - Delaware, Inc. (see Note 1). For accounting purposes, the acquisition of GBT - Delaware, Inc. by the Company has been treated as a reverse merger. Accordingly, the 9,234,118 shares issued to acquire GBT - Delaware, Inc. have been treated as outstanding from November 2, 1995 (as adjusted for historical issuances of GBT - Delaware, Inc. and Generex Pharmaceuticals, Inc. during the period from November 2, 1995 to January 8, 1998) and the previously outstanding 1,105,000 shares have been treated as issued on the acquisition date. Since the assets and liabilities acquired on this date were immaterial, no amounts have been assigned to common stock as a result of this transaction. F-20 GENEREX BIOTECHNOLOGY CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 10 - Common Stock (Continued): Warrants The Company has outstanding 1,153,425 Series A Redeemable Common Stock Purchase Warrant, each of which is exercisable to purchase one (1) share of common Stock at a price of $5.00 per share. The warrants are redeemable, at the option of the Company, at any time after September 1, 1998, upon written notice of not less than twenty (20) days, at a redemption price of $.025 per warrant. These warrants expire December 31, 2000. The warrants were sold between March 1, 1998 and June 30, 1998, in units, with each unit consisting of one warrant and one share of common stock, in a private placement effected by the Company pursuant to Rule 506, Regulation D, under the Act, and applicable Canadian securities laws. Included in these transactions were 993,253 units sold for cash at $2.50, and 160,172 units issued in payment for various services rendered and valued at $2.50 per unit. The Company also has outstanding warrants to purchase 500,000 shares of Common Stock at a price of $2.50 which expire on March 31, 2003, and warrants to purchase 7,937 shares at a price of $21.82 per share which expire on September 6, 2002. Preferred Stock The Company has authorized 1,000,000 shares with a par value of one-tenth of a cent ($.001) per share of preferred stock. The preferred stock may be issued in various series and shall have preference as to dividends and to liquidation of the Company. The Company's Board of Directors is authorized to establish the specific rights, preferences, voting privileges and restrictions of such preferred stock, or any series thereof. Other than the Special Voting Rights Preferred Stock, described below, there are no shares of preferred stock currently issued and outstanding. Special Voting Rights Preferred Stock The Company has issued 1,000 shares of Special Voting Rights Preferred Stock (SVR) with a par value of $.001. The Company has the right at any time after December 31, 2000, upon written notice to all holders of preferred shares, to redeem SVR Shares at $.10 per share. Holders of SVR Shares are not entitled to vote, except as specifically required by Idaho law or in the event of change in control, as defined. In addition, holders of SVR Shares are entitled to receive a dividend per share equal to the dividend declared and paid on shares of the Company's common stock as and when dividends are declared and paid on the Company's common stock. Note 11 - Stock Based Compensation: The Company intends to apply Accounting Principles board Opinion No. 25, "Accounting for Stock issued to Employees," and related interpretations in accounting for options as allowed by Statement of Financial Accounting Standards No. 123 "Accounting for Stock Based Compensation." During the years ended July 31, 1998 and 1997 and for the period November 2, 1995 (date of inception) to July 31, 1996, the Company did not grant options; thus no compensation expense was recorded in these years. F-21 GENEREX BIOTECHNOLOGY CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 11 - Stock Based Compensation (Continued): 1998 Stock Option Plan On January 22, 1998, the Company's Board of Directors approved the 1998 Stock Option Plan (the Plan), subject to shareholder approval of the Plan, and reserved 1,000,000 shares of Common Stock for issuance upon options granted under the Plan. As of July 31, 1998, no options have been issued under the Plan. The Plan presently is administered by the Board of Directors, but the Board may establish a Stock Option Committee (the Committee), which consists of at least three directors, to administer the Plan. References to the Committee herein include the Board of Directors so long as it continues to administer the Plan directly. The Committee is authorized to select from among eligible employees, directors, advisors and consultants those individuals to whom options are to be granted and to determine the number of shares to be subject to, and the terms and conditions of, the options. The Committee also is authorized to prescribe, amend and rescind terms relating to options granted under the Plan and the interpretation of options. Generally, the interpretation and construction of any provision of the Plan or any options granted thereunder is within the discretion of the Committee. The Plan provides that options may or may not be Incentive Stock Options within the meaning of Section 422 of the Internal Revenue Code (ISOs). Only employees of the Company are eligible to receive ISOs, while employees and non-employee directors, advisors and consultants are eligible to receive options which are not ISOs, i.e. "Non-Qualified Options." The options granted by the Board in connection with its adoption of the Plan are Non-Qualified Options. Note 12 - Net Loss Per Share: Basic EPS and Diluted EPS for the years ended July 31, 1998, 1997 and for the period November 2, 1995 (date of inception) to July 31, 1996 have been computed by dividing the net loss for each respective period by the weighted average shares outstanding during that period. All outstanding stock options and warrants have been excluded from the computation of Diluted EPS as they are antidilutive. F-22 GENEREX BIOTECHNOLOGY CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 13 - Supplemental Disclosure of Cash Flow Information:
For the Period For the Years Ended November 2, July 31, 1995 (Date ------------------- of Inception) 1998 1997 1996 -------- ------- -------------- Cash paid during the year for: Interest $ 63,291 $ -- -- Income taxes -- -- --
Disclosure of non-cash investing and financing activities: Year ended July 31, 1998 Miscellaneous receivable acquired with long-term debt $ 58,516 Long-term debt was assumed in conjunction with acquisition of property and equipment $ 402,126 Acquisition of property and equipment with collection of related party receivables $ 1,404,640 Acquisition of a deposit on property and equipment with collection of related party receivables $ 68,000
Note 14 - Subsequent Events (Unaudited): Subsequent events occurring after July 31, 1998 consist of the following: The Company entered into a consulting agreement with an individual. As part of the consultant's compensation, the Company granted the consultant options to purchase 50,000 shares of the Company's common stock at an exercise price of $8.00 per share under the 1998 stock option plan. The debt as discussed in Note 9 with Berckeley Investment Group, Ltd. was paid off in cash. For consideration of financial consulting services provided, the Company issued warrants to purchase 300,000 shares of common stock at $10 per share. F-23 GENEREX BIOTECHNOLOGY CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 14 - Subsequent Events (Unaudited) (Continued): The Company received a total of $4,061,006 from the sale of 1,107,353 shares of common stock at prices ranging from $2.50 to $5.00. Of this amount 250,000 shares were issued to an individual from which the Company has the right of first refusal to purchase the shares at 70 percent of the current market price. The Company also has agreed to repurchase from the individual after December 31, 1999, at the individual's option, such portion or all of his shares as he may elect to tender to the Company at a price equal to 70 percent of the then current market price. The individual also has the right to purchase an additional 250,000 shares of the Company's common stock until December 23, 1998, on the same terms and conditions as the first 250,000 shares purchased. The Company acquired 15,357 shares for $142,036 under the terms of the arrangement described in Note 7. The Company utilized their restricted cash balance for this transaction. The Company purchased property to be used as a manufacturing facility in Toronto, Canada for approximately $25,000 in cash and approximately $82,250 of long-term debt. The Company acquired land in Ecuador, South America. Under the terms of the agreement, a facility will be constructed for a research and development pilot plant. To acquire this facility, the Company utilized $68,000 in deposit money and $350,000 from the proceeds received from the collection of a related party receivable. The Company settled the liability arising from the violation of a financing agreement, as described in Note 6, by the issuance of 180,000 shares of common stock valued at $738,000. F-24 Item 14. CHANGES IN, AND DISAGREEMENTS WITH ACCOUNTANTS Prior to the Company's "reverse acquisition" of Generex Pharmaceuticals, Inc. in January 1998, its financial statements were audited by Jack F. Burke, Jr. Since, under "reverse acquisition" accounting rules, the financial statements of the Company represent the historical financial statements of Generex Pharmaceuticals, Inc., the Company dismissed Mr. Burke and engaged new auditors, Withum Smith & Brown, to perform the audit on the Company's financial statements as of and for the year ended July 31, 1998. The Company also engaged Withum, Smith & Brown and Mintz & Partners to perform a joint audit on the Company's financial statements as of July 31, 1997 and for the year then ended and for the period November 2, 1995 (date of inception) to July 31, 1996. Mr. Burke's reports on the Company's financial statements for the fiscal years ending prior to July 31, 1998, did not contain an adverse opinion, a disclaimer of opinion, or any qualification or modification as to uncertainty, audit scope or accounting principles, nor is current management aware of any disagreements between the Company and Mr. Burke about any accounting or audit issues. The change in auditors was recommended and approved by the Company's Board of Directors. Prior to its engagement of Withum, Smith & Brown and Mintz & Partners as auditors, the Company had no consultations with such auditors, and is unaware of any such consultation by anyone on its behalf, concerning any specific accounting matter or transaction other than the need to prepare the historical financial statements at Generex Pharmaceuticals, Inc. in accordance with US GAAP, and that such financial statements would be required to be prepared in accordance with and conform to Regulation S-X requirements. Item 15. FINANCIAL STATEMENTS AND EXHIBITS (a) Financial Statements The following financial statements have been filed with this Registration Statement: Consolidated Balance Sheets of Generex Biotechnology Corporation and Subsidiaries (a Development Stage Company) as of July 31, 1998 and 1997. Consolidated Statement of Changes in Stockholders' Equity of Generex Biotechnology Corporation and Subsidiaries (a Development Stage Company) for the period November 2, 1995 (date of inception) to July 31, 1998. Consolidated Statement of Operations and Cash Flows of Generex Biotechnology Corporation and Subsidiaries (a Development Stage Company) for the fiscal years ended July 31, 1998 and 1997, and for the period November 2, 1995 (date of inception) to July 31, 1996 and the cumulative amounts of operations and cash flows for the period November 2, 1995 (date of inception) to July 31, 1996. 44 (b) Exhibits The following exhibits have been filed with this Registration Statement: Exhibit No. - ----------- 3.1 Articles of Incorporation of the Company and all amendments thereto 3.2 Bylaws of the Company 4.1 Form of Common Stock Certificate 4.2 Form of Special Voting Rights Preferred Stock Certificate 4.3 1998 Incentive Stock Option Plan 4.4.1 Form of Series A Warrant 4.4.2 Form of GCR Warrant 4.4.3 Form of Berckeley Warrant 4.4.4 Form of Meyerson Warrant 4.5.1 Form of Subscription/Voting/Put Agreement between the Company and Dr. William Steinbrink 4.5.2 Form of Subscription/Voting Agreement executed by purchasers of 337,670 shares of Common Stock 10.1.1 Consulting Agreement with Pankaj Modi 21 Subsidiaries of the Company 23.1.1 Consent of Withum, Smith & Brown, independent certified public accountants 23.1.2 Consent of Mintz & Partners, independent chartered public accountants 27 Financial Data Schedules 45 The Company has caused this Registration Statement to be executed on its behalf this 13th day of December, 1998, by the undersigned officers. GENEREX BIOTECHNOLOGY CORPORATION By: /s/ E. Mark Perri ----------------------------- E. MARK PERRI, Chairman By: /s/ Anna E. Gluskin ----------------------------- ANNA E. GLUSKIN, President 46 EX-3.1 2 ARTICLES OF INCORPORATION '82 JUL 12 PH 12 55 SECRETARY OF STATE ARTICLES OF INCORPORATION OF GREEN MT. P.S., INC. BE IT KNOWN, that we, the undersigned, do hereby associate ourselves together to form a corporation under the provisions of the Idaho Revised Statutes, Chapter 78, as amended, and make, subscribed; acknowledge, file and adopt the following Articles of Incorporation: ARTICLE I The name of the corporation is GREEN MT. P.S., INC. and its duration shall be perpetual. ARTICLE II The principal office or place of business of the corporation in the State of Idaho is 2550 East Boise Ave., Boise, Idaho, and the name of the resident agent of the corporation at such address is Dehlia Boone. Other offices may be established, business transacted, and meetings of stockholders and directors held at such place within or without the State of Idaho as the by-laws of the corporation shall provide. ARTICLE III The general nature of the business or subjects or purposes of the corporation to be transacted, promoted, or carried on by the corporation are as follows: 1. To engage in any lawful activity. 2. To locate, purchase, or otherwise acquire mining claims, or interests therein, whether within or without the State of Idaho and to explore, develop and mine such properties and to treat or beneficiate the minerals or metals recovered therefrom, and to lease, sell or otherwise dispose of such mining claims and products therefrom. 3. To enter into, make, and perform contracts of every kind and for any lawful purpose, with any person, firm association, or corporation, town, city, county, body politic, state, territory, government, colony or dependency thereof. 4. To borrow money for any of the purposes of the corporation and to draw, make, endorse, discount, issue, sell, pledge, or otherwise dispose of promissory notes, drafts, bills of exchange, warrants, bonds, debentures, and other negotiable or non-negotiable, transferable or non-transferable instruments and 1 evidences of indebtedness, and to secure the payment thereof and the interest thereon by mortgage or pledge, conveyance or assignment in trust of the whole or any part of the property of the corporation at the time owned or thereafter acquired. 5. To purchase, hold, sell, and transfer the shares of capital stock. 6. To have one or more offices and to conduct any or all of its operations and business and to promote its objections within or without the State of Idaho without restrictions as to place or amount. 7. To do any or all of the things herein set forth as principal, agent, contractor, trustee, partner, limited or general partner, or joint venturer, or otherwise, alone or in company with others. 8. The objects and purposes herein specified shall be regarded as independent objects and purposes, and except where otherwise expressed, shall be in no way limited or restricted by reference to or inference from the terms of any other clause or paragraph of these Articles of Incorporation. 9. The foregoing shall be construed both as objects and powers, and enumeration thereof shall not be held to limit or restrict in any manner the general powers conferred on this corporation by the laws of the State of Idaho. ARTICLE IV The total number of shares of stock which this corporation is authorized to issue is ten million (10,000,000) shares of no par value stock, which shall be paid in as the Board of Directors shall designate and as provided by law in cash, real or personal property, services, lease option to purchase, or any other valuable right or thing for the uses and purposes of the corporation, and all shares of the capital stock when issued in exchange therefor, shall thereafter become and be fully paid, and the judgment of the Directors as to the value of any property, right or thing acquired in purchase or exchange for capital stock shall be conclusive. ARTICLE V The members of the governing board of this corporation shall be styled and known as Directors. The affairs and business of the corporation shall be conducted by a Board of Directors of three, and the number of such directors shall be increased or decreased from time to time by resolution of the Board of Directors, provided that the number of directors shall not be less than three (3). The directors shall elect a President, a Secretary and a Treasurer, and may elect one or more Vice-Presidents of the corporation. The directors shall have full and complete power and authority to carry on and conduct all of the business of the corporation to the same effect and extent as though specifically authorized at meetings of the specifically authorized at meetings or the stockholders. They shall be elected by the stockholders at such time and place and in such manner as shall be provided for in the by-laws of the corporation. Until their 2 successors are elected and qualified, the following named three persons shall be the first Board or Directors: Name Address ---- ------- ALBERT BOONE 2550 E. Boise Ave. Boise, Id. 83706 DEHLIA BOONE 2550 E. Boise Ave. Boise, Id. 83706 JERRY BOONE Star Ranch Placerville, ID 83666 ARTICLE VI The time or the commencement of this corporation shall be the day these Articles of Incorporation are filed in accordance with law, and the corporation shall thereafter have and enjoy perpetual existence, as now provided by law. ARTICLE VII The capital stock of' this corporation shall not be assessable for any purpose whatsoever. ARTICLE VIII The names and Post office addresses of each of the incorporators signing these Articles of Incorporation are: Name Address ---- ------- ALBERT BOONE 2550 E. Boise Ave. Boise, Id. 83706 DEHLIA BOONE 2550 E. Boise Ave. Boise, Id. 83706 JERRY BOONE Star Ranch Placerville, ID 83666 In addition to and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized: 1. To make, alter, amend, and rescind the by-laws of this corporation from time to time, to fix and determine and to vary the amount to be reserved as 3 working capital over and above its capital stock paid in, and to direct and determine the use and disposition of any surplus or net profits over and above the capital stock paid in; to authorize and cause to be executed mortgages and liens upon the real and personal property of this corporation. 2. To sell, exchange, assign, convey, or otherwise dispose of a part of the property, assets, and effects of the corporation, less than the whole or less than substantially the whole thereof, on such terms and conditions as they shall deem advisable without the assents of the stockholders in writing or otherwise. 3. From time to time to determine whether and to what extent and at what times and places and under what conditions and regulations the accounts and books of this corporation, (other than the stock ledger) or any of them, shall be open to the inspection of the stockholders, and no stock holder shall have the right of inspecting any account or book or document of this corporation, except as conferred by statute or authorized by the directors of by resolution of the stockholders. 4. To fill vacancies occurring in the Board from any cause, and by resolution or resolutions passed by a majority of the whole board to designate one or more of the directors of this corporation, which to the extent provided in said resolution or resolutions, or in the by-laws of this corporation, (except the power to make, alter, amend. or rescind the by-laws, and the power to remove and elect officers) and may have the power to authorize the seal of this corporation to be affixed to all papers that may require it. Such committee or committees shall have such name or names as way be stated in the by-laws of this corporation, or as may be determined from time to time by--resolution adopted--by the Board of Directors. ARTICLE X The private property of the stockholders shall be forever exempt from corporate debts or liability of any kind whatsoever. ARTICLE XI The shares of capital stock of this corporation may be issued by this corporation from time to time for such consideration as from time to time may be fixed by the Board of Directors of this corporation; and all issued shares of the capital stock of this corporation shall be deemed fully paid and non-assessable, and the holders of such shares shall not be liable thereunder to this corporation or its creditors. Stockholders of this corporation shall have pre-emptive right of subscription to any shares of any stock of this corporation, as the Board of Directors may fix from time to time, pursuant to the authority hereby conferred by the Articles of Incorporation of this corporation, and the Board of Directors may issue stock of this corporation, or obligations convertible into stock without offering such issue of stock either in whole or in part to the stockholders of this corporation. The acceptance of stock in this corporation shall be a waiver of any such pre-emptive or preferential right which, in the absence of this provision, might otherwise be asserted by stockholders of this corporation, or any of them. 4 ARTICLE XII No contract or other transaction between the corporation and any other corporation, and no act of the corporation shall in any way be affected or invalidated by the fact that any of the directors of the corporation are pecuniarily or otherwise interested in it, or are directors or officers of such other corporation. Any director individually, and any firm of which any director may be a member, may be a party to, or may be pecuniarily interested in. any contract or transaction of the corporation, provided that the fact that he or such firm is so interested shall be disclosed or shall have been known to the Board of Directors. or a majority thereof, and any director of the corporation who is also a director or officer of such corporation. or who is so interested, may be counted in determining the existence of a quorum at any meeting of the Board of Directors of the corporation which shall authorize such contract or transaction with like force and effect as if he were not a director or an officer or such corporation, or not so interested. ARTICLE XIII The corporation shall indemnify every officer or director, his heirs, executors and administrators, against all costs. expenses and liabilities reasonably incurred by him in connection with any action, suit. or proceeding to which he may be made a party by reason of his being or having been an officer or director of the corporation. or at its request of any other corporation of which it is a stockholder or creditor and from which he is not entitled to be indemnified, except in relation to matters as to which he shall be finally adjudged in such action, suit or proceedings to be liable for negligence or misconduct in the performance of his duty as such director or officer. In the event of a settlement, indemnification shall be provided only in connection with such matters covered by the settlement as to which the corporation is advised by counsel that the person to be indemnified did not commit a breach of duty involving negligence or misconduct. The foregoing rights of indemnification shall not be exclusive of any of any other rights to which any such officers or director may be entitled as a matter of law. IN WITNESS WHEREOF, we hereunto affix our signatures this __ day of ______, 19__. /s/ Dehlia Boone ---------------------- Dehlia Boone /s/ Jerry Boone ---------------------- Jerry Boone /s/ Albert Boone ---------------------- Albert Boone 5 STATE OF IDAHO ) ) ss. COUNTY OF ADA ) Before me, the undersigned Notary Public is and for said County and State, on this day personally appeared Albert Boone, Dehlia Boone and Jerry Boone, known to me to be the same persons who signed the foregoing instrument and acknowledged to me that they executed the same freely and voluntarily for the uses and purposes therein mentioned. Given under my hand and seal of office this 12th day of July, 1983. /s/ --------------------------- Notary Public for Idaho My Commission Expires: Lifetime 6 JAN 29 10 31 AM '96 SECRETARY OF STATE STATE OF IDAHO CERTIFICATE OF AMENDMENT TO ARTICLES OF INCORPORATION OF GREEN MT. P.S., INC. THE UNDERSIGNED President and Secretary of Green Mt. P.S., Inc. an Idaho Corporation, pursuant to the provisions of Section 30-1-61 of the Idaho Business Corporation Act, for the purpose of amending the Articles of Incorporation of said Corporation, do hereby certify as follows: That the shareholders of said Corporation at its Special Meeting in Lieu of Annual Meeting of Shareholders duly convened and held on the 18th day of January, 1996, adopted resolutions to amend the Articles of Incorporation of the Corporation as follows: (1) Article IV shall be amended to read as follows: "Article IV The total number of shares of stock which this corporation is authorized to issue is fifty million (50,000,000) shares of no par value ($0.00) common stock, which shall be paid in as the Board of Directors shall designate and as provided by law in cash, real or personal property, services, lease, option to purchase, or any other valuable right or thing for the uses and purposes of the corporation, and all shares of the capital stock when issues in exchange therefor, shall thereafter become and be dully paid and the judgment of the Directors as to the value of any property, right or thing acquired in purchase or exchange for capital stock shall be conclusive." The foregoing amendments to the Articles of Incorporation were duly adopted by the shareholders of the Corporation on the 18th day of January, 1996. At the date of the meeting of Shareholders, the number of shares of the Corporation's common stock outstanding and entitled to vote on the foregoing amendment to the Articles of Incorporation was ten million (10,000,000). A total of 8,213,600 shares voted FOR amendment (1) (representing approximately 82% of the issued and outstanding shares of the Corporation) and -0- shared voted AGAINST amendment (1) (representing approximately -0-% of the issued and outstanding shares of the Corporation). Also at the Special Meeting of Shareholders, the shareholders approved a reverse stock split on a 1-for-10 basis. This action together with the amendment to the Articles of Incorporation to change the authorization did not result in any change in the Company's capital as the par value is still $0.00. 1 DATED this 26th day of January, 1996. The undersigned President and Secretary of the Corporation hereby declare that the foregoing Certificate of Amendment to the Articles of Incorporation is true and correct to the best of their knowledge and belief. /s/ Pete Wells ------------------------------ PETE WELLS, President /s/ Daniel T. Elkins ------------------------------ DANIEL T. ELKINS, Secretary STATE OF IDAHO ) ) ss. COUNTY OF LEMHI ) On this 26th day of January, 1996, before me, the undersigned, a Notary Public, in and for said State, personally appeared PETE WELLS and DANIEL T. ELKINS who first being duly sworn, did each hereby affirm that they are the President and Secretary, respectively of Green Mt. P.S., Inc., an Idaho Corporation, and that they did execute the foregoing Amendment to the Articles of Incorporation on behalf of said Corporation and that such instrument was executed pursuant to a resolution of the Board of Directors and ratified by more than a 50% majority of the issued and outstanding shares of the Corporation's common stock. /s/ Terri J. Morton ------------------------------ NOTARY PUBLIC Residing at: Salmon My Commission Expires: 4/25/96 2 FILED 98 JAN 14 am 10:25 SECRETARY OF STATE STATE OF IDAHO ARTICLES OF AMENDMENT TO THE ARTICLES OF INCORPORATION OF GREEN MT. P.S., INC. Pursuant to the provisions of the Idaho Business Corporation Act ("Idaho Code"), the following amendments to the Articles of Incorporation of Green Mt. P.S., Inc., an Idaho Corporation (the "Corporation"), were adopted by the shareholders of the Corporation on January 9, 1998 in the manner prescribed by the Idaho Code. First: Article I of the Articles of Incorporation is hereby amended to read as follows: "I The name of the Corporation shall be Generex Biotechnology Corporation and its duration shall be perpetual." Second: Article IV of the Articles of Incorporation is hereby amended to read as follows: "IV The aggregate number of shares of all classes of capital stock that this Corporation shall have authority to issue is 51,000,000 non-assessable shares, 50,000,000 of which shall be of a class designated as common stock (the "Common Stock") with a par value of One Tenth of a Cent ($0.001) per share, and 1,000,000 shares of which shall be of a class designated as preferred stock (the "Preferred Stock") of the par value of One Tenth of a Cent ($0.001) per share. The Preferred Stock may be issued in series and shall have preference as to dividends and to liquidation of the Corporation. The Board of Directors of the Company shall establish the specific rights, preferences, voting privileges and restrictions of such Preferred Stock, or any series thereof." 1 Third: A New Article XIV shall be added to the Articles of Incorporation and shall read as follows: "XIV A director of the Corporation shall not be personally liable to the Corporation or its shareholders for monetary damages for any action taken, or any failure to take any action, as a director, except liability for (i) the amount of a financial benefit received by a director to which he is not entitled, (ii) an intentional infliction of harm on the Corporation or its shareholders, (iii) a violation of Section 30-1-833, Idaho business Corporation Act, or (iv) an intentional violation of criminal law. If the Idaho Business Corporation Act is hereafter amended to authorize the further elimination or limitation of the liability of a director, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the amended Idaho Business Corporation Act. Any repeal or modification of this Article shall not adversely affect any right or protection of a director of the Corporation existing hereunder with respect to any or omission occurring prior to such repeal or modification." The number of shares of the Corporation outstanding at the time of adoption of the above amendments was 1,105,000, and the number of shares entitled to vote thereon was 1,005,000. As to Amendment First set forth above, the number of shares voting Against such amendment was -0-. As to Amendment Second set forth above, the number of shares consenting and voting for such amendment was 849,360, and the number of shares voting Against such amendment was -0-. As to Amendment Third set forth above, the number of shares consenting and voting For such Amendment was 845,360, and the number of shares voting Against such amendment was 4,000. DATED this 9th day of January 1998. /s/ Pete Wells ---------------------- Pete Wells, President 2 FILED 98 FEB 10 AM 10:18 SECRETARY OF STATE OF IDAHO ARTICLES OF AMENDMENT TO THE ARTICLES OF INCORPORATION OF GENEREX BIOTECHNOLOGY CORPORATION 1. The name of the corporation is GENEREX BIOTECHNOLOGY CORPORATION, a corporation organized and existing under the Business Corporation Act of the State of Idaho (the "Act"). 2. Pursuant to Section 30-1-602 of the Act, the following amendment to the Articles of Incorporation of Generex Biotechnology Corporation (the "Corporation") were adopted by the Board of Directors of the Corporation on January 16, 1998: FIRST: The following shall be added to Article IV of the Articles of Incorporation, at the end of Article IV as in effect immediately prior to the amendment: Special Voting Rights Preferred Stock. One thousand (1,000) shares of authorized and heretofore unissued shares of the $.001 par value Preferred Stock of the Corporation are designated as the Corporation's "Special Voting Rights Preferred". The Special Voting Rights Preferred Stock shall have the following preferences and relative, participating, optional or other rights, qualifications, limitations and restrictions: 1. Divides. Holders of Special Voting Rights Preferred Stock (hereinafter referred to as the "Preferred Shares" or "Shares") shall be entitled to receive a dividend per Share which equals the dividend declared and paid on shares of the Corporation's Common Stock as and when dividends are declared and paid on the Corporation's Common Stock. 2. Rights and Liquidation, Dissolution or Winding Up. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the assets of the Corporation available for distribution to its shareholders, whether from capital, surplus or earnings, shall be distributed in the following order of priority: a. First, to the holders of any class or series of Preferred Stock or other capital stock of the Corporation which is entitled to a preference in liquidation and dissolution over the Shares, but only to the extent of that preference. b. Next, to the holders of Shares and any class or series of Preferred Stock or other capital stock of the Corporation which is of equal rank with the Shares with respect to sharing in the proceeds of liquidation and dissolution of the Corporation, pari passu, but only to the extent that such class or series of capital stock is of equal rank. In any such distribution, holders of Shares shall be entitled to receive, prior to and in preference to any distribution to the holders of the Corporation's Common Stock or any other class or series of capital stock of the Corporation which is inferior to the rights of holders of Shares in liquidation and dissolution and winding up an amount equal to $.10 per Preferred Share then outstanding (the "Shares Liquidation Preference"). c. After distribution of the Shares Liquidation Preference to holders of Shares, the remaining assets, if any, of the Corporation available for distribution to the shareholders of the Corporation shall be distributed, pari passu, to the holders of all shares of capital stock of the Corporation, without distinction as to class, as their rights may appear. 3. Voting. a. The holders of Preferred Shares are not entitled to vote, except as specifically required by Idaho law or as expressly provided below: (i) If a Change of Control (as hereinafter defined) occurs, thereafter, holders of Preferred Shares shall be entitled to elect a number of directors of the Corporation equal to a majority of the entire Board of Directors of the Corporation. Any holder of Preferred Shares may call a meeting of holders of Preferred Shares for the purpose of exercising these special voting rights (the "Special Voting Rights") upon not less than ten (10) days notice. Holders of the Preferred Shares may exercise the Special Voting Rights by written consent in lieu of a meeting pursuant to Section 30-1-704 of the Idaho Business Corporation Act. Upon exercise of the Special Voting Rights by holders of the Preferred Shares, the Bylaws of the Corporation shall be deemed amended to increase the size of the Board of Directors to accommodate directors elected by the holders of the Preferred Shares. After the Special Voting Rights have been exercised, the Corporation shall give holders of Preferred Shares the same notice that is required to be sent to holders of the Corporation's Common Stock of any meeting at which directors of the Corporation are to be elected. Once Special Voting Rights have been exercised, they shall remain in force at all times thereafter until the Preferred Shares have been redeemed by the Corporation. (ii) The affirmative vote of the holders of a majority of the Preferred Shares then outstanding, voting separately as a class, shall be required to approve any transaction that would result in a Change of Control (a "Change of Control Transaction"). The Corporation 2 shall give each holder of Preferred Shares at least twenty (20) days prior written notice of any meeting of shareholders called for the purpose of voting on a Change of Control Transaction. Holders of Preferred Shares may approve any Change of Control Transaction by written consent in lieu of a meeting pursuant to Section 30-1-704 of the Idaho Business Corporation Act. b. A "Change of Control" of the Corporation, as that term is used herein, shall occur at any time that (a) the Current Management Group shall cease to constitute at least sixty (60%) of all directors of the Corporation, or (b) that any person becomes either the Chairman of the Board of Directors or Chief Executive Officer of the Corporation without the prior approval of a majority of the Current Management Group, acting in their capacities as directors of the Corporation. The term "Current Management Group" as used herein shall mean Anna H. Gluskin, Rose C. Perri, E. Mark Perri, Pankaj Modi and/or any other person (a) who is appointed a director of the Corporation by action of the Board of Directors of the Corporation with the approval of a majority of the Current Management Group then serving as directors of the Corporation, in their capacities as directors, or (b) who is nominated for election as a director of the Corporation by action of the Board of Directors of the Corporation with the approval of a majority of the Current Management Group then serving as directors of the Corporation, in their capacities as directors. c. On any matter as to which the holders of Preferred Shares shall be entitled to vote as provided above, they shall be entitled to one vote per share. 4. Redemption. a. The Corporation shall have the right, at any time after December 31, 2000, upon written notice (a "Preferred Shares Redemption Notice") to all holders of Preferred Shares at their respective registered addresses stating that the Corporation is exercising its right of redemption set forth herein and fixing a date for such redemption (the "Preferred Shares Redemption Date") which shall be no more than sixty (60) and no less than thirty (30) days following the date of the Preferred Shares Redemption Notice, redeem Preferred Shares at a price per Preferred Share (the "Preferred Share Redemption Price") equal to ten ($.10) cents. b. From and after the Preferred Shares Redemption Date, holders of Preferred Shares shall cease to be shareholders of the Corporation and the sole right of holders of Preferred Shares shall be to receive the Preferred Shares Redemption Price as provided herein. 3 c. The Corporation shall pay the Preferred Shares Redemption Price to each holder of record of Preferred Shares as of the Preferred Shares Redemption Date, provided, however, that as a condition precedent to the Corporation's payment of the Preferred Shares Redemption Price to any holder, such holder shall deliver to the Corporation the certificate representing the Preferred Shares to be redeemed or, in lieu thereof, satisfactory evidence that such certificate has been lost or destroyed, together with a bond or surety satisfactory to the Corporation to protect it against loss should such certificate subsequently be tendered for redemption. d. If the Corporation at any time redeems fewer than all Preferred Shares, it shall redeem the Preferred Shares pro-rata from all holders thereof. e. The Corporation shall have the right to redeem Preferred Shares owned by any Holder thereof upon the same terms and conditions set forth above upon the death of the holder. 5. Transferability. The Preferred Shares shall not be transferrable by a holder thereof without the prior written consent of the Corporation except pursuant to the laws of descent and distribution. 6. Other. Except as expressly provided herein, Preferred Shares shall have the same rights and privileges as shares of the Corporation's Common Stock. IN WITNESS WHEREOF, these Articles of Amendment have been signed by the President of the Corporation and the Corporation has caused its corporate seal to be hereunto affixed as of this 6th day of February, 1998. GENEREX BIOTECHNOLOGY CORPORATION By: /S/ ANNA E. GLUSKIN --------------------------------------- Anna E. Gluskin, President Attest: /S/ ROSE C. PERRI ----------------------------------- Rose C. Perri, Secretary 4 EX-3.2 3 AMENDED AND RESTATED BY-LAWS AMENDED AND RESTATED BY-LAWS OF GENEREX BIOTECHNOLOGY CORPORATION Adopted January 22, 1998 ARTICLE I - Stockholders 1.1 Place of Meetings. All meetings of stockholders shall be held at such place within or without the State of Idaho as may be designated from time to time by the Board of Directors (the "Board"), the Chairman of the Board or the President or, if not so designated, at the registered office of the Corporation. 1.2 Annual Meeting. The annual meeting of stockholders for the election of directors and for the transaction of such other business as may properly be brought before the meeting shall be held at a time fixed by the Board or, if not so fixed by the Board, by the President. 1.3 Special Meeting. Special meetings of stockholders may be called at any time by the Board, the Chairman of the Board or the President, and shall be called by the Board upon the request of the holders of twenty percent (20%) of the outstanding shares of stock of the Corporation entitled to vote at the meeting. Business transacted at any special meeting of stockholders shall be limited to matters relating to the purpose or purposes stated in the notice of meeting. 1.4 Notice of Meetings. Except as otherwise provided by law, written notice of each meeting of stockholders, whether annual or special, shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting. The notices of all meetings shall state the place, date and hour of the meeting. The notice of a special meeting shall state, in addition, the purpose or purposes for which the meeting is called. 1.5 Voting List. The officer who has charge of the stock ledger of the Corporation shall prepare, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, at the place where the meeting is to be held or, if such place is specified in the notice of the meeting at a place within the city which the meeting is to be held other than the place of the meeting. The list shall also be produced and kept at the time and place of the meeting during the whole time of the meeting, and may be inspected by any stockholder who is present. 1.6 Quorum and Required Vote. Except as otherwise provided by law or in the Certificate of Incorporation, the holders of a majority of the shares of stock entitled to vote on a particular matter present in person or represented by proxy shall constitute a quorum for the purpose of considering such matter. 1.7 Voting and Proxies. Each holder of Common Stock shall have one vote for each share of such stock entitled to vote and held of record by such stockholder, and holders of shares of capital stock other than Common Stock shall have such voting rights as are provided in the Articles of Incorporation. Each stockholder of record entitled to vote at a meeting of the stockholders, or to express consent or dissent to corporate action in writing without a meeting, may vote or express such consent or dissent in person or may authorize another person or persons to vote or act for such stockholder by proxy in accordance with applicable law. 1.8 Business to be Conducted. At any meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before a meeting of stockholders, such business must be (a) specified in the notice of the meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (c) otherwise properly brought before the meeting by a stockholder. For business to be properly brought before a meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than 60 days nor more than 90 days prior to the meeting; provided, however, that in the event that less than 70 days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the meeting (a) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting, (b) the name and address, as they appear on the Corporation's books, of the stockholder proposing such business, (c) the class and number of shares of the Corporation's capital stock which are beneficially owned by the stockholder, and (d) any material interest of the stockholder in such business. Notwithstanding anything in the Bylaws to the contrary, no business shall be conducted at any meeting of the stockholders except in accordance with the procedures set forth in this Section 1.8. The Chair of the meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the Bylaws and, in such event, such business shall not be transacted. 1.9 Nominations for Election as Directors. Only persons who are nominated in accordance with the procedures set forth in this Section 1.9 shall be eligible for election as Directors of the Corporation. Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of stockholders (a) by or at the direction of the Board of Directors, or (b) by any stockholder of the Corporation entitled to vote for the election of Directors at the meeting who gives timely notice of his/her/its intention to make such nomination at the meeting. Such notice shall be made in writing to the Secretary of the Corporation, and must be delivered to or mailed and received at the principal executive offices of the Corporation not less than 60 days nor more than 90 days prior to the meeting; provided, however, that in the event that less than 70 days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely 2 must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. Such stockholder's notice shall set forth (x) as to each person whom the stockholder proposes to nominate for election or re-election as a Director (i) the name, age, business address and residence address of such person, (ii) the principal occupation or employment of such person, (iii) the class and number of shares of the Corporation which are beneficially owned by such person, and (iv) any other information relating to such person that is required to be disclosed in solicitations of proxies for the election of directors or otherwise is required pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including without limitation such persons' written consent to being named in any proxy statement as a nominee and to serving as a Director if elected); and (y) as to the stockholder giving the notice (i) the name and address, as they appear on the Corporation's books, of such stockholder and (ii) the class and number of shares of the Corporation which are beneficially owned by such stockholder. At the request of the Board of Directors any person nominated by the Board of Directors for election as a Director shall furnish to the Secretary of the Corporation that information required to be set forth in a stockholder's notice of nomination which pertains to the nominee. No person shall be eligible for election as a Director of the Corporation unless nominated in accordance with the procedures set forth in this Section 1.9. The Chair of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the Bylaws and, in such event, the defective nomination shall be disregarded. 1.10 Applicability of Federal Securities Laws and Regulations. At any time that the Corporation has a class of equity securities registered under the Securities Exchange Act of 1934, to the extent that any provision of this Article I shall be in conflict with rules and regulations of the Securities and Exchange Commission promulgated under such Act with respect to the nomination and/or election of Directors of the Corporation, or otherwise with respect to the conduct of business at a meeting of stockholders, such rules and regulations shall govern and this Article shall be interpreted and limited in its application, as necessary, to conform with such rules and regulations. ARTICLE II - Directors 2.1 General Powers. The business and affairs of the Corporation shall be managed by or under the direction of the Board, which may exercise all of the powers of the Corporation except as may be otherwise provided by law or the Certificate of Incorporation. 2.2 Number and Term. The Board of Directors shall have not less than three (3) nor more than nine (9) members. Except as may be provided in the Certificate of Incorporation and subject to any resolution of the stockholders, the Board shall have the authority to determine the number of directors which shall constitute the Board and the terms of office of directors. 2.3 Nomination by Stockholders. Nominations for election to the Board of Directors may be made by the Board of Directors or by any stockholder of any 3 outstanding class of capital stock of the Corporation entitled to vote for the election of directors in accordance with the procedures set forth in Article I hereof. 2.4 Regular Meetings. Regular meetings of the Board may be held without notice at such time and place, either within or without the State of Delaware, as shall be determined from time to time by the Board. 2.5 Special Meeting. Unless the Board shall otherwise direct, special meetings of the Board may be held at any time and place, within or without the State of Delaware, and shall be called at any time by or at the request of the President and shall be called by or at the written request of one-third of the directors, or by one director in the event that there is only a single director in office. Notice, which need not be written, of the time and place of special meetings shall be given to each director at least twenty-four (24) hours before the time for which the meeting is scheduled. A notice or waiver of notice of a meeting of the Board need not specify the purposes of the meeting. Any business may be transacted at a special meeting. 2.6 Meetings by Telephone Conference Calls. Directors or any members of any committee designated by the Directors may participate in a meeting of the Board or such committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation by such means shall constitute presence in person at such meeting. 2.7 Quorum. A majority of all the directors in office shall constitute a quorum at all meetings of the Board. 2.8 Committees. The Board may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members of the committee present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board and subject to the provisions of the General Corporation Law of the State of Delaware, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Corporation. ARTICLE III - Officers 3.1 Enumeration. The officers of the Corporation shall consist of a President, a Secretary, a Treasurer and such other officers with such other titles as the Board may determine. 4 3.2 Election. Officers shall be elected annually by the Board at its first meeting following the annual meeting of stockholders. 3.3 Duties and Powers. Except as otherwise provided by the Board, the officers shall have, exercise and perform the duties and powers usually incident to their offices and as set forth herein: (i) Chief Executive Officer and President. The President shall be the chief executive officer of the Corporation unless the Board shall elect a Chairman and vest in such Chairman the authority of chief executive officer of the Corporation. The Chief Executive Officer of the Corporation shall, subject to the direction of the Board, have general charge and supervision of the business of the Corporation. Unless otherwise provided by the Board, the President shall preside at all meetings of the stockholders, and if he is a director, at all meetings of the Board. If the Chairman of the Board of Directors shall be the chief executive officer of the Corporation, the President shall perform such duties and possess such powers as the Board of Directors may from time to time prescribe. (ii) Vice President. Any Vice President shall perform such duties and possess such powers as the Board or the President may from time to time prescribe. In the event of the absence, inability or refusal to act of the President, the Vice President (or if there shall be more than one, the Vice President in the order determined by the Board) shall perform the duties of the President and when so performing shall have all the powers of and be subject to all the restrictions upon the President. (iii) Secretary. The Secretary shall perform such duties and shall have such powers as the Board or the President may from time to time prescribe, including without limitation the duty and power to give notices of all meetings of stockholders and special meetings of the Board, to attend all meetings of stockholders and the Board and keep a record of the proceedings, to maintain a stock ledger and prepare lists of stockholders and their addresses as required, to be custodian of corporate records and the corporate seal and to affix and attest to the same on documents. (iv) Treasurer. The Treasurer shall perform such duties and shall have such powers as may from time to time be assigned to him by the Board or the President, including without limitation the duty and power to keep and be responsible for all funds and securities of the Corporation, to deposit funds of the Corporation in depositories selected by the Board, to disburse such funds as ordered by the Board, to make proper accounts of such funds, and to render as required by the Board statements of all such transactions and of the financial condition of the Corporation. 3.4 Salaries. Officers of the Corporation shall be entitled to such salaries, compensation or reimbursement as shall be fixed or allowed from time to time by the Board. 5 ARTICLE IV - Transfer of Share Certificates 4.1 General. Except as otherwise established by rules and regulations adopted by the Board and subject to applicable law, shares of stock may be transferred on the books of the Corporation only by the registered holder or by duly authorized attorney. Transfers shall be made only on surrender to the Corporation or its transfer agent of the certificate representing such shares properly endorsed or accompanied by a written assignment or power of attorney properly executed, and with such proof of authority of the authenticity of signature as the Corporation or its transfer agent may reasonably require. Except as may be otherwise required by law, by the Articles of Incorporation or by these By-Laws, the Corporation shall be entitled to treat the record holder of stock as shown on its books as the owner of such stock for all purposes, including the payment of dividends and the right to vote with respect to such stock, regardless of any transfer, pledge or other disposition of such stock until the shares have been transferred on the books of the Corporation in accordance with the requirements of these By-Laws. 4.2 Restriction on Certain Transfers. Whenever shares of the Corporation's capital stock are issued pursuant to exemptions from registration under the Securities Act of 1933 or regulations adopted under that Act which require or impose limitations on the resale or other transfers of such shares by the holders thereof, no resale or other transfer of such shares shall be permitted except in compliance with the terms and conditions of the exemption or regulation pursuant to which the shares were issued. ARTICLE V - Indemnification 5.1 Right to Indemnification. The Corporation shall indemnify any person who was or is a party or threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (collectively, a "proceeding"), by reason of the fact such person is or was (a) a director or executive officer of the Corporation or a constituent corporation absorbed in a consolidation or merger (hereinafter, a "constituent corporation"), or, (b) is or was serving at the request of the Corporation or a constituent corporation as a director, officer, partner, employee or agent of another corporation, partnership, joint venture or other enterprise or entity, or (c) is or was a director or officer of the Corporation serving at its request as an administrator, trustee or other fiduciary of one or more of the employee benefit plans, if any, of the Corporation or another entity which may be in effect from time to time, against all expenses, liability and loss actually and reasonably incurred or suffered by such person in connection with such proceeding, whether or not the indemnified 6 liability arises or arose from any proceeding by or in the right of the Corporation, to the extent that such person is not otherwise indemnified and to the extent that such indemnification is not prohibited by law as it presently exists or may hereafter be amended. 5.2 Advance of Expenses. The Corporation shall advance all expenses reasonably incurred by a person entitled to indemnification pursuant to Section 5.1 above, in defending a proceeding in advance of the final disposition of such proceeding, and may, but shall not be obligated to, advance expenses of other persons entitled to indemnification pursuant to any other agreement or provision of law. 5.3 Procedure for Determining Permissibility. To determine whether any indemnification under this Article V is permissible, the Board by a majority vote of a quorum consisting of directors not parties to such proceeding may, and on request of a person seeking indemnification shall be required to, determine in each case whether the applicable standards in any applicable statute have been met, or such determination shall be made by independent legal counsel if such quorum is not obtainable, or, even if obtainable, a majority vote of a quorum of disinterested directors so directs. If a claim for indemnification under this Article is not paid in full within ninety (90) days after a written claim therefor has been received by the Corporation, the claimant may file suit to recover the unpaid amount of such claim, and the Corporation shall have the burden of proving that the claimant was not entitled to the requested indemnification under applicable law. The reasonable expenses of any person in prosecuting a successful claim for indemnification hereunder, and the fees and expenses of any independent legal counsel engaged to determine permissibility of indemnification, shall be borne by the Corporation. For purposes of this paragraph, "independent legal counsel" means legal counsel other than that regularly or customarily engaged by or on behalf of the Corporation. 5.4 Proceedings Initiated by Indemnitee. Notwithstanding any other provision of this Article V, the Corporation shall be required to indemnify a person in connection with a proceeding initiated by such person only if the proceeding was authorized by the Board. 5.5 Indemnification Not Exclusive; Inuring of Benefit. The indemnification provided by this Article V shall not be deemed exclusive of any other right to which one seeking indemnification may have or hereafter acquire under any statute, provision of the Articles of Incorporation, these By-Laws, agreement, vote of stockholders or disinterested directors or otherwise, and shall inure to the benefit of the heirs, executors and administrators of any such person. 5.6 Insurance and Other Indemnification. The Board shall have the power to (i) authorize the Corporation to purchase and maintain, at the Corporation's expenses, insurance on behalf of the Corporation and on behalf of others to the 7 extent that power to do so has not been prohibited by applicable law, and (ii) give other indemnification to the extent not prohibited by applicable law. 5.7 Modification or Repeal. Any modification or repeal of any provision of this Article V shall not adversely affect any right or protection of an Authorized Representative existing hereunder with respect to any act or omission occurring prior to such modification or repeal. ARTICLE VI - Amendments 6.1 By the Board of Directors. These By-Laws may be altered, amended or repealed or new By-Laws may be adopted by the affirmative vote of a majority of the directors present at any regular or special meeting of the Board at which a quorum is present. 6.2 By the Stockholders. These By-Laws may be altered, amended or repealed or new By-Laws may be adopted by the affirmative vote of the holders of a majority of the shares of the capital stock of the Corporation entitled to vote at any regular meeting of stockholders, or at any special meeting of stockholders, provided such change shall have been set forth, or a summary thereof shall have been provided, in the notice of such special meeting. EX-4.1 4 CERTIFICATE [FRONT SIDE OF CERTIFICATE] NOT VALID UNLESS COUNTERSIGNED BY TRANSFER AGENT INCORPORATED UNDER THE LAWS OF THE STATE OF IDAHO - --------------- --------------- NUMBER SHARES GENEREX BIOTECHNOLOGY CORPORATION AUTHORIZED COMMON STOCK: 50,000,000 SHARES PAR VALUE: $.001 THIS CERTIFIES THAT ____________________________________________________, THE RECORD HOLDER OF ______________________________________________________ Shares of GENEREX BIOTECHNOLOGY CORPORATION Common Stock, transferable on the books of the Corporation in person or by duly authorized attorney upon surrender of this Certificate properly endorsed. This Certificate is not valid until countersigned by the Transfer Agent and registered by the Registrar. Witness the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers. Dated: - -------------------------------------- ------------------------------------- Secretary President [REVERSE SIDE OF CERTIFICATE] NOTICE: Signature must be guaranteed by a firm which is a member of a registered national stock exchange, or by a bank (other than a saving bank), or a trust company. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT -- ........... Custodian ........... TEN ENT - as tenants by the entireties (Cust) (Minor) JT TEN - as joint tenants with right of under Uniform Gifts to Minors survivorship and not as tenants Act.............................. in common (State)
Additional abbreviations may also be used though not in the above list. FOR VALUE RECEIVED, _______________________________ hereby sell, assign and transfer unto _____________________________________________ (PLEASE INSERT SOCIAL SECURITY OR OTHER IDEN- TIFYING NUMBER OF ASSIGNEE) ________________________________________________________________________________ (PLEASE PRINT NAME OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE) ________________________________________________________________________________ ________________________________________________________________________________ _________________________________________________________________________ Shares of the capital stock represented by the within certificate, and do hereby irrevocably constitute and appoint ____________________________________________________________________ Attorney to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises. Dated _____________________ _________________________________________________________ NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER EX-4.2 5 SPECIAL VOTING RIGHTS PREFERRED STOCK GENEREX BIOTECHNOLOGY CORPORATION (a corporation organized under the General Corporation Law of the State of Idaho) Special Voting Rights Preferred Stock authorized - 1,000 shares, par value $.001 per share THIS CERTIFIES THAT __________________________________________________ is the owner of ____________________________________________________ shares of the SPECIAL VOTING RIGHTS PREFERRED STOCK of GENEREX BIOTECHNOLOGY CORPORATION, full paid and non assessable and transferable on the books of said Corporation in person or by attorney upon surrender of this Certificate, properly endorsed, subject to the restrictions on transfer set forth below. Holders of Special Voting Rights Preferred Stock are entitled only to such rights, privileges and benefits of a shareholder of the Corporation as are set forth below. 1. Divides. Holders of Special Voting Rights Preferred Stock (hereinafter referred to as the "Preferred Shares" or "Shares") shall be entitled to receive a dividend per Share which equals the dividend declared and paid on shares of the Corporation's Common Stock as and when dividends are declared and paid on the Corporation's Common Stock. 2. Rights and Liquidation, Dissolution or Winding Up. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the assets of the Corporation available for distribution to its shareholders, whether from capital, surplus or earnings, shall be distributed in the following order of priority: a. First, to the holders of any class or series of Preferred Stock or other capital stock of the Corporation which is entitled to a preference in liquidation and dissolution over the Shares, but only to the extent of that preference. b. Next, to the holders of Shares and any class or series of Preferred Stock or other capital stock of the Corporation which is of equal rank with the Shares with respect to sharing in the proceeds of liquidation and dissolution of the Corporation, pari passu, but only to the extent that such class or series of capital stock is of equal rank. In any such distribution, holders of Shares shall be entitled to receive, prior to and in preference to any distribution to the holders of the Corporation's Common Stock or any other class or series of capital stock of the Corporation which is inferior to the rights of holders of Shares in liquidation and dissolution and winding up an amount equal to $.10 per Preferred Share then outstanding (the "Shares Liquidation Preference"). 1 c. After distribution of the Shares Liquidation Preference to holders of Shares, the remaining assets, if any, of the Corporation available for distribution to the shareholders of the Corporation shall be distributed, pari passu, to the holders of all shares of capital stock of the Corporation, without distinction as to class, as their rights may appear. 3. Voting. a. The holders of Preferred Shares are not entitled to vote, except as specifically required by Delaware law or as expressly provided below: (i) If a Change of Control (as hereinafter defined) occurs, thereafter, holders of Preferred Shares shall be entitled to elect a number of directors of the Corporation equal to a majority of the entire Board of Directors of the Corporation. Any holder of Preferred Shares may call a meeting of holders of Preferred Shares for the purpose of exercising these special voting rights (the "Special Voting Rights") upon not less than ten (10) days notice. Holders of the Preferred Shares may exercise the Special Voting Rights by written consent in lieu of a meeting pursuant to Section 228 of the Delaware General Corporation Law. Upon exercise of the Special Voting Rights by holders of the Preferred Shares, the Bylaws of the Corporation shall be deemed amended to increase the size of the Board of Directors to accommodate directors elected by the holders of the Preferred Shares. After the Special Voting Rights have been exercised, the Corporation shall give holders of Preferred Shares the same notice that is required to be sent to holders of the Corporation's Common Stock of any meeting at which directors of the Corporation are to be elected. Once Special Voting Rights have been exercised, they shall remain in force at all times thereafter until the Preferred Shares have been redeemed by the Corporation. (ii) The affirmative vote of the holders of a majority of the Preferred Shares then outstanding, voting separately as a class, shall be required to approve any transaction that would result in a Change of Control (a "Change of Control Transaction"). The Corporation shall give each holder of Preferred Shares at least twenty (20) days prior written notice of any meeting of shareholders called for the purpose of voting on a Change of Control Transaction. Holders of Preferred Shares may approve any Change of Control Transaction by written consent in lieu of a meeting pursuant to Section 228 of the Delaware General Corporation Law. b. A "Change of Control" of the Corporation, as that term is used herein, shall occur at any time that (a) the Current Management Group shall cease to constitute at least sixty (60%) of all directors of the Corporation, or (b) that any person becomes either the Chairman of the Board of Directors or Chief Executive Officer of the Corporation without the prior approval of a majority of the Current Management Group, acting in their capacities as directors of the Corporation. The term "Current Management Group" as used herein shall mean Anna H. Gluskin, Rose C. Perri, E. Mark Perri, Pankaj Modi and/or any other person (a) who is appointed a director of the Corporation by action of the Board of Directors of the Corporation with the approval of a majority of the 2 Current Management Group then serving as directors of the Corporation, in their capacities as directors, or (b) who is nominated for election as a director of the Corporation by action of the Board of Directors of the Corporation with the approval of a majority of the Current Management Group then serving as directors of the Corporation, in their capacities as directors. c. On any matter as to which the holders of Preferred Shares shall be entitled to vote as provided above, they shall be entitled to one vote per share. 4. Redemption. a. The Corporation shall have the right, at any time after December 31, 2000, upon written notice (a "Preferred Shares Redemption Notice") to all holders of Preferred Shares at their respective registered addresses stating that the Corporation is exercising its right of redemption set forth herein and fixing a date for such redemption (the "Preferred Shares Redemption Date") which shall be no more than sixty (60) and no less than thirty (30) days following the date of the Preferred Shares Redemption Notice, redeem Preferred Shares at a price per Preferred Share (the "Preferred Share Redemption Price") equal to ten ($.10) cents. b. From and after the Preferred Shares Redemption Date, holders of Preferred Shares shall cease to be shareholders of the Corporation and the sole right of holders of Preferred Shares shall be to receive the Preferred Shares Redemption Price as provided herein. c. The Corporation shall pay the Preferred Shares Redemption Price to each holder of record of Preferred Shares as of the Preferred Shares Redemption Date, provided, however, that as a condition precedent to the Corporation's payment of the Preferred Shares Redemption Price to any holder, such holder shall deliver to the Corporation the certificate representing the Preferred Shares to be redeemed or, in lieu thereof, satisfactory evidence that such certificate has been lost or destroyed, together with a bond or surety satisfactory to the Corporation to protect it against loss should such certificate subsequently be tendered for redemption. d. If the Corporation at any time redeems fewer than all Preferred Shares, it shall redeem the Preferred Shares pro-rata from all holders thereof. e. The Corporation shall have the right to redeem Preferred Shares owned by any Holder thereof upon the same terms and conditions set forth above upon the death of the holder. 5. Transferability. The Preferred Shares shall not be transferrable by a holder thereof without the prior written consent of the Corporation except pursuant to the laws of descent and distribution. 6. Other. Except as expressly provided herein, Preferred Shares shall have the same rights and privileges as shares of the Corporation's Common Stock. 3 IN WITNESS WHEREOF, this Certificate has been signed by the President of the Corporation and the Corporation has caused its corporate seal to be hereunto affixed as of this _____ day of ______________, 1998. GENEREX BIOTECHNOLOGY CORPORATION By: --------------------------------------------- Anna E. Gluskin, President [CORPORATE SEAL] Attest: ----------------------------------------- Rose C. Perri, Secretary 4 EX-4.3 6 1998 STOCK OPTION PLAN GENEREX BIOTECHNOLOGY CORPORATION 1998 STOCK OPTION PLAN 1. Purpose. The Plan is intended as an additional incentive to key employees, consultants, advisors and members of the Board of Directors (together, the "Optionees") to enter into or remain in the service or employ of Generex Biotechnology Corporation, an Idaho corporation (the "Company"), or any Affiliate (as defined below) of the Company, and to devote themselves to the Company's success by providing them with an opportunity to acquire or increase their proprietary interest in the Company through receipt of rights (the "Options") to acquire the Company's Common Stock, par value $.001 per share (the "Common Stock"). Each Option granted under the Plan to a person who is employed by the Company or an Affiliate is intended to be an incentive stock option ("ISO") within the meaning of section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code"), for federal income tax purposes, except to the extent (i) any such ISO grant would exceed the limitation of subsection 6(a) below, or (ii) any Option is specifically designated at the time of grant (the "Grant Date") as not being an ISO. No Option granted to a person who is not an employee of the Company or any Affiliate on the Grant Date, or is not identified as an ISO in the Option Documents (as hereinafter defined), shall be an ISO. For purposes of the Plan, the term "Affiliate" shall mean a corporation which is a parent corporation or a subsidiary corporation with respect to the Company within the meaning of section 424(e) or (f) of the Code. 2. Administration. The Plan shall be administered by the Board of Directors of the Company, without participation by any director on any matter pertaining to him, provided that any director may join in a written consent to action signed by all directors notwithstanding that such action pertains to such director, in whole or in part. The Board of Directors may appoint a Stock Option Committee composed of three or more of its members to operate and administer the Plan in its stead. The Stock Option Committee or the Board of Directors in its administrative capacity with respect to the Plan is referred to herein as the "Committee." The Committee shall hold meetings at such times and places as it may determine. Acts approved at a meeting by a majority of the members of the Committee or acts approved in writing by the unanimous consent of the members of the Committee shall be the valid acts of the Committee. The Committee shall from time to time at its discretion grant Options pursuant to the terms of the Plan. The Committee shall have plenary authority to determine the Optionees to whom and the times at which Options shall be granted, the number of Option Shares (as defined in Section 4 below) to be covered by such Options and the price and other terms and conditions thereof, including a specification with respect to whether an Option is intended to be an ISO, subject, however, to the express provisions of the Plan. In making such determinations the Committee may take into account the nature of the Optionee's services and responsibilities, the Optionee's present and potential contribution to the Company's success and such other factors as it may deem relevant. The interpretation and construction by the Committee of any provision of the Plan or of any Option granted under it shall be final, binding and conclusive. No member of the Board of Directors or the Committee shall be personally liable for any action or determination made in good faith with respect to the Plan or any Option granted under it, nor shall any member of the Board of Directors or Committee be liable for any act or omission of any other member of the Committee or for any omission on his own part, including but not limited to the exercise of or the failure to exercise any power or discretion given to him under the Plan, except that this section shall not absolve any member of personal responsibility for liabilities which arises out of or result from (i) an intentional infliction of harm on the Company or its shareholders, (ii) intentional violation of criminal law, (iii) acts or omissions that would result in liability under Section 30-1-833 of Idaho Business Corporation Act, and (iv) the receipt of an improper personal financial benefit, to the extent of the amount of such benefit. In addition to such other rights of indemnification as he may have as a member of the Board of Directors or the Committee, and with respect to the administration of the Plan and the granting of Options under it, each member of the Board of Directors and of the Committee shall be entitled without further action on his part to indemnity from the Company for all expenses (including the amount of judgment and the amount of approved settlements made with a view to the curtailment of costs of litigation, other than amounts paid to the Company itself) reasonably incurred by him in connection with or arising out of any action, suit or proceeding with respect to the administration of the Plan or the granting of Options under it in which he may be involved by reason of his being or having been a member of the Board of Directors or the Committee, whether or not he continues to be such member of the Committee at the time of the incurring of such expenses; provided, however, that such indemnity shall not include any expenses incurred by such member of the Board of Directors or Committee: (i) in respect of matters as to which he shall be finally adjudged in such action, suit or proceeding to have been guilty of gross negligence or willful misconduct in the performance of his duties as a member of the Board of Directors or the Committee; or (ii) in respect of any settlement amount in excess of an amount approved by the Company on the advice of its legal counsel; and provided further that no right of indemnification hereunder shall be available to or accessible by any such member of the Committee unless within a reasonable time after institution of any such action, suit or proceeding (which shall be no later than the earlier of ten (10) days prior to the date that any responsive pleading or other action in response to the institution of any such proceeding is due, or ten (10) days after he has actual notice of the institution of such proceeding) he shall have offered the Company in writing the opportunity to handle and defend such action, suit or proceeding at its own expense. The foregoing right of indemnification shall inure to the benefit of the heirs, executors or administrators of each such member of the Board of Directors or the Committee and shall be in addition to all other rights to which such member of the Board of Directors or the Committee would be entitled to as a matter of law, contract or otherwise. -2- 3. Eligibility. All key employees of the Company or its Affiliates (who may also be directors of the Company or its Affiliates) shall be eligible to receive Options hereunder, and such Options may be either ISOs or Options which are not ISOs (hereinafter, "Nonqualified Options"). Consultants, advisors and directors of the Company shall be eligible to receive Nonqualified Options hereunder. The Committee, in its sole discretion, shall determine whether an individual qualifies as an employee or an Optionee. An Optionee may receive more than one Option. 4. Option Shares. The aggregate maximum number of shares of the Common Stock for which Options may be granted under the Plan is One Million (1,000,000) shares (the "Option Shares"), which number is subject to adjustment as provided in Section 8(b). Option Shares shall be issued from authorized and unissued Common Stock or Common Stock held in or hereafter acquired for the treasury of the Company. If any outstanding Option granted under the Plan expires, lapses or is terminated for any reason, the Option Shares allocable to the unexercised portion of such Option may again be the subject of an Option granted pursuant to the Plan. 5. Term of Plan. The Plan is adopted by the Board of Directors effective on February 1, 1998, but shall terminate (a) on the first anniversary of the Effective Date unless the Plan is approved by the stockholders of the Company as set forth in section 422(b)(1) of the Code, and (b) if the Plan is so approved, on the tenth anniversary of the Effective Date. Notwithstanding anything to the contrary herein or in any Option Document (as hereinafter defined), all Options granted hereunder shall be Nonqualified Options if the Plan is not approved by shareholders of the Company prior to the first anniversary of the Effective Date. 6. Terms and Conditions of Options. Options granted pursuant to the Plan shall be evidenced by written documents (the "Option Documents") in such form as the Committee shall from time to time approve, which Option Documents shall comply with and be subject to the following terms and conditions and with any other terms and conditions (including vesting schedules for the exercisability of Options) which the Committee shall from time to time provide which are not inconsistent with the terms of the Plan. a. Number of Option Shares. Each Option Document shall state the number of Option Shares to which it pertains. In no event shall the aggregate fair market value, as of the Grant Date, of Option Shares with respect to which an ISO is exercisable for the first time by the Optionee during any calendar year (under all incentive stock option plans of the Company or its Affiliates) exceed $100,000. b. Option Price. Each Option Document shall state the price at which Option Shares may be purchased (the "Option Price"), which, for any ISO, shall be at least 100% of the fair market value of the Common Stock on the date the option is granted as determined by the Committee; provided, however, that if an ISO is granted to an Optionee who then owns, directly or by attribution under section 424(b) of the Code, shares possessing more than ten percent of the total combined voting power of all classes of stock of the Company or an Affiliate, then the ISO Option Price shall be at least 110% of the fair market value of the -3- Option Shares on the Grant Date. The Option Price of Nonqualified Options may be below 100% of the fair market value of the Common Stock on the Grant Date. The fair market value of the Common Stock shall be as determined by the Committee, provided that the fair market value of the Common Stock on the Grant Date in respect of the grant of an ISO shall be determined in accordance with Section 422(b)(4) of the Code and Regulations hereunder. c. Medium of Payment. An Optionee shall pay for Options Shares (i) in cash, (ii) by certified check payable to the order of the Company, or (iii) by such other mode of payment as the Committee may approve, including payment through a broker in accordance with procedures permitted by Regulation T of the Federal Reserve Board. d. Termination of Options. No Option shall be exercisable after the first to occur of the following: (i) Expiration of the Option term specified in the Option Documents pertaining thereto, which shall not exceed ten years from the date of grant (or five years from the date of grant in the case of an ISO if, on such date the Optionee owns, directly or by attribution under section 424(b) of the Code, shares possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or an Affiliate); (ii) If the Optionee is an employee of the Company or an Affiliate, expiration of three months (or such shorter period as the Committee may select) from the date the Optionee's employment with the Company or its Affiliates terminates for any reason other than (A) disability (within the meaning of section 22(e)(3) of the Code) or death, or (B) circumstances described by subsection (d)(v), below; or expiration of one year from the date the Optionee's employment with the Company or its Affiliates terminates by reason of the Optionee's disability (within the meaning of section 22(e)(3) of the Code) or death; (iii) The date, if any, fixed by the Committee as an accelerated expiration date in the event of a "Change in Control" described in sub-Section 6(e)(i) and (ii) below, provided an Optionee who holds an Option affected by such acceleration of expiration date is given written notice at least sixty (60) days before the date so fixed; (iv) The date set by the Committee to be an accelerated expiration date after a finding by the Committee that a change in the financial accounting treatment for Options from that in effect on the date the Plan was adopted adversely affects or, in the determination of the Committee, may adversely affect in the foreseeable future, the Company, provided that (A) an Optionee who holds an Option affected by such acceleration of expiration date is given written notice at least sixty (60) days before the date so fixed, and (B) the Committee may take whatever other action, including acceleration of any exercise provisions, it deems necessary or appropriate should it make the determination referred to hereinabove; or -4- (v) A finding by the Committee, after full consideration of the facts presented on behalf of both the Company and the Optionee, that the Optionee has been discharged from employment or service with the Company or an Affiliate for Cause. For purposes of this Section, "Cause" shall mean: (A) a breach by Optionee of his employment or service agreement with the Company or an Affiliate, (B) a breach of Optionee's duty of loyalty to the Company or an Affiliate, including without limitation any act of dishonesty, embezzlement or fraud with respect to the Company or an Affiliate, (C) the commission by Optionee of a felony, a crime involving moral turpitude or other act causing material harm to the Company's or an Affiliate's standing and reputation, (D) Optionee's continued failure to perform his duties to the Company or an Affiliate or (E) unauthorized disclosure of trade secrets or other confidential information belonging to the Company or an Affiliate. In the event of a finding that the Optionee has been discharged for Cause, in addition to immediate termination of the Option, the Optionee shall automatically forfeit all Option Shares for which the Company has not yet delivered the share certificates upon refund of the Option Price; provided, however, that, with respect to any Non-Qualified Option, the Committee may provide other and additional terms and conditions in the Option Document which are expressly or by implication at variance with the above terms and conditions, in which case the terms and conditions set forth in the Option Documents shall be controlling. e. Change of Control. In the event of a Change in Control (as defined below), the Committee may take whatever action with respect to the Options outstanding it deems necessary or desirable, including, without limitation, accelerating the vesting, expiration or termination dates in the respective Option Documents to a date no earlier than thirty (30) days after notice of such acceleration is given to the Optionee; provided, however, that (x) the Committee shall not accelerate the expiration or termination date of any outstanding option except in the case of a Change in Control as described in sub-Sections (i) or (ii) below, and (y) the Committee may provide in the Option Documents other and additional terms and conditions of such Option which are applicable if a Change of Control occurs, including terms and conditions which limit the Committee's discretion under this section. A Change of Control shall be deemed to have occurred upon the earliest to occur of the following events: (i) the date the stockholders of the Company (or the Board of Directors, if stockholder action is not required) approve a plan or other arrangement pursuant to which the Company will be dissolved or liquidated; (ii) the date the stockholders of the Company (or the Board of Directors, if stockholder action is not required) approve a definitive agreement to sell or otherwise dispose of substantially all of the assets of the Company; (iii) the date the stockholders of the Company (or the Board of Directors, if stockholder action is not required) and the stockholders of the other constituent corporation (or its board of directors if stockholder action is not required) have approved a definitive agreement to merge or consolidate the Company with or into such other corporation, other than, in either case, a merger or consolidation of the Company in which holders of shares of the Common -5- Stock immediately prior to the merger or consolidation will hold at least a majority of the ownership of common stock of the surviving corporation (and, if one class of common stock is not the only class of voting securities entitled to vote on the election of directors of the surviving corporation, a majority of the voting power of the surviving corporation's voting securities) immediately after the merger or consolidation, which common stock (and, if applicable, voting securities) is to be held in the same proportion as such holders' ownership of Common Stock immediately before the merger or consolidation; (iv) the date any entity, person or group, (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Securities Exchange Act of 1934, as amended), other than (A) the Company or any of its subsidiaries or any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its subsidiaries or (B) any person who, on the date the Plan is effective, shall have been the beneficial owner of at least twenty percent (20%) of the outstanding Common Stock, shall have become the beneficial owner of, or shall have obtained voting control over, more than fifty percent (50%) of the outstanding shares of the Common Stock; or (v) the first day after the first anniversary of the adoption of this Plan by the Board of Directors a majority of the directors comprising the Board of Directors shall have been members of the Board of Directors for less than twenty-four (24) months, unless each director who was not a director at the beginning of such twenty-four (24) month period was either appointed or nominated for election with the approval of at least two-thirds of the directors then still in office who were directors at the beginning of such period. f. Transfers. No Option granted under the Plan may be transferred, except by will or by the laws of descent and distribution and, in the case of a Non-Qualified Option, as expressly set forth in the Option Documents. During the lifetime of the person to whom an Option is granted, such Option may be exercised only by the Optionee. g. Other Provisions. The Option Documents shall contain such other provisions including, without limitation, additional restrictions upon the exercise of the Option or additional limitations upon the term of the Option, as the Committee shall deem advisable. h. Amendment. Subject to the provisions of the Plan, the Committee shall have the right to amend Option Documents issued to such Optionee, subject to the Optionee's consent if such amendment is not favorable to the Optionee except that the consent of the Optionee shall not be required for any amendment made under subsection 6(e) above. 7. Exercise. No Option shall be deemed to have been exercised prior to the receipt by the Company of written notice of such exercise and of payment in full of the Option Price for the Option Shares to be purchased. Each such notice shall specify the number of Option Shares to be purchased and shall satisfy the securities law requirements set forth in this Section 7. -6- Each exercise notice shall (unless the Option Shares are covered by a then current registration statement or a Notification under Regulation A under the Securities Act of 1933 (the "Act")), contain the Optionee's acknowledgment in form and substance satisfactory to the Company that (i) such Option Shares are being purchased for investment and not for distribution or resale (other than a distribution or resale which, in the opinion of counsel satisfactory to the Company, may be made without violating the registration provisions of the Act), (ii) the Optionee has been advised and understands that (A) the Option Shares have not been registered under the Act and are "restricted securities" within the meaning of Rule 144 under the Act and are subject to restrictions on transfer and (B) the Company is under no obligation to register the Option Shares under the Act or to take any action which would make available to the Optionee any exemption from such registration, (iii) such Option Shares may not be transferred without compliance with all applicable federal and state securities laws, and (iv) an appropriate legend referring to the foregoing restrictions on transfer and any other restrictions imposed under the Option Documents may be endorsed on the certificates. Notwithstanding the above, should the Company be advised by counsel that the issuance of Option Shares upon the exercise of an Option should be delayed pending (A) registration under federal or state securities laws or (B) the receipt of an opinion that an appropriate exemption therefrom is available, (C) the listing or inclusion of the shares on any securities exchange or in an automated quotation system or (D) the consent or approval of any governmental regulatory body whose consent or approval is necessary in connection with the issuance of such Option Shares, the Company may defer the exercise of any Option granted hereunder until either such event in A, B, C or D has occurred. 8. Adjustments on Changes in Common Stock. a. In case the Company shall (i) declare a dividend or make a distribution on outstanding shares of its Common Stock in shares of Common Stock, (ii) subdivide or reclassify the outstanding shares of its Common Stock into a greater number of shares, or (iii) combine or reclassify the outstanding shares of its Common Stock into a lesser number of shares, the number of Option Shares subject to outstanding Options shall be increased or decreased in proportion to the increase or decrease, as the case may be, in the total number of outstanding shares of Common Stock of the Company as a result of such subdivision, combination or reclassification. Such adjustment shall be effective as of the record date of such subdivision, combination or reclassification. Adjustments hereunder shall be made successively whenever any event specified above shall occur. b. The aggregate number of shares of Common Stock as to which Options may be granted hereunder shall be adjusted in proportion to any adjustment made in the number of Option Shares covered by outstanding Options pursuant to Section 8(a) above. c. In case of any reclassification, recapitalization or other change in the capital structure of the Company affecting its Common Stock, other than a change in par value, or from par value to no par value, or as a result of a subdivision or combination, but including any change in the Common Stock into -7- two or more classes or series of shares), the Optionee shall have the right thereafter to receive upon exercise of this Option solely the kind and amount of shares of stock and other securities, property, cash or any combination thereof receivable in connection with such reclassification, recapitalization or other change by a holder of a number of shares of Common Stock equal to the number of Option Shares for which this Option might have been exercised immediately prior to such event. d. In case of a Change of Control of the Company involving a consolidation with or merger of the Company into another corporation (other than a merger of consolidation in which the Company is the continuing or surviving corporation), the Optionee shall have the right thereafter to receive upon exercise of the Option solely the kind and amount of shares of stock and other securities, property, cash or any combination thereof receivable upon such consolidation, merger, sale, lease or conveyance by a holder of a number of shares of Common Stock equal to the number of Option Shares for which this Option might have been exercised immediately prior to such consolidation or merger. 9. Amendment of the Plan. The Board of Directors may amend the Plan from time to time in such manner as it may deem advisable, subject to compliance with applicable corporate laws, securities laws and exchange requirements. Notwithstanding the foregoing, any amendment which would change the class of individuals eligible to receive an ISO, extend the expiration date of the Plan, decrease the Option Price of an ISO granted under the Plan or increase the maximum number of shares as to which Options may be granted will only be effective if such action is approved by a majority of the outstanding voting stock of the Company within twelve months before or after such action. 10. Continued Employment. The grant of an Option pursuant to the Plan shall not be construed to imply or to constitute evidence of any agreement, express or implied, on the part of the Company or any Affiliate to retain the Optionee in the employ of the Company or an Affiliate, as a member of the Board of Directors, as an independent contractor or in any other capacity. 11. Withholding of Taxes. Whenever the Company proposes or is required to issue or transfer Option Shares, the Company shall have the right to (a) require the recipient or transferee to remit to the Company an amount sufficient to satisfy any federal, state and/or local withholding tax requirements prior to the delivery or transfer of any certificate or certificates for such Option Shares or (b) take whatever action it deems necessary to protect its interests. 12. Assumption by Successors. Any agreement providing for a Change of Control involving a consolidation with or merger into another corporation (other than a merger or consolidation in which the Company is the continuing or surviving corporation) shall make express, effective provisions for the assumption of the Company's obligations under this Plan by the surviving or continuing corporation, and/or by the parent of the surviving or continuing corporation in the case of a "triangular" merger in which holders of the Company's Common Stock receive securities of such parent corporation in exchange for or in conversion of the Company's Common Stock. -8- EX-4.4.1 7 SERIES A REDEEMABLE COMMON STOCK PURCHASE WARRANT THE WARRANT REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES ISSUABLE UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS SO REGISTERED OR UNLESS IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY, AN EXEMPTION FROM REGISTRATION UNDER ALL SUCH LAWS IS AVAILABLE. GENEREX BIOTECHNOLOGY CORPORATION Series A Redeemable Common Stock Purchase Warrant No. SA-____ __________ Shares THIS CERTIFIES THAT, for value received, _________________________________ _________________________________________ ("Holder"), is entitled to subscribe for and purchase from GENEREX BIOTECHNOLOGY CORPORATION, an Idaho corporation (the "Company"), at any time from the date hereof through and including the last day of the Exercise Period described below, ____________________________________ (____________) fully paid and nonassessable shares (the "Shares") of the Company's Common Stock, $.001 par value per share (the "Common Stock"), at a price of Five and zero/100 ($5.00) Dollars per Share (the "Exercise Price"), subject to the limitations, terms and conditions set forth herein. This Warrant is one of a series of warrants of like tenor representing, in the aggregate, the right to purchase up to four hundred thousand shares of Common Stock (the "Series A Warrants") issued by the Company. Transfer, assignment or hypothecation of this Warrant by the Holder may be made only in accordance with and subject to the terms, conditions and other provisions of this Warrant. The term "Holder", as used herein, shall include the original Holder and only such persons to whom this Warrant is transferred in strict conformity with the terms and conditions set forth or incorporated by reference herein. As used herein, the term "Warrant" shall mean and include this Warrant and any Warrant or Warrants hereafter issued in consequence of the exercise or transfer of this Warrant, in whole or in part. 1. This Warrant shall expire on December 31, 2000, unless the term of the Warrant is extended pursuant to Section 13(f) below, in which case the Warrant shall expire on a date to be determined in accordance with Section 13(f). 2. The period during which this Warrant may be exercised (the "Exercise Period") shall end on (a) the earlier of (i) the expiration date described in Section 2 hereof and (ii) the date determined pursuant to Section 13(f) hereof, or (b) the Redemption Date as described in Section 16 hereof, as to all or less than all Shares by the surrender of this Warrant (with the form of Election at the end hereof duly completed and executed) to the Company, marked to the attention of its President, 33 Harbor Square, Suite 202, Toronto, Ontario, Canada M5J 2G2, or such other place as is designated in writing and delivered to Holder by the Company, accompanied by a certified or bank cashier's check payable to the order of the Company in an amount equal to the Exercise Price multiplied by the number of Shares covered by such exercise (the "Shares Purchase Price"). 3. Exercise of this Warrant shall be deemed to have been effected as of the close of the business day on which the Company has received the last of this Warrant, a duly executed form of election, the Shares Purchase Price and such further documentation as may be required pursuant to Section 9(c) below. Upon each exercise of this Warrant, the Holder shall be deemed to be the holder of record of the Shares issuable upon such exercise, notwithstanding that the stock transfer books of the Company shall then be closed. As soon as practicable after each such exercise of this Warrant, the Company shall issue and deliver to the Holder a certificate or certificates for the Shares issuable upon such exercise, registered in the name of the Holder or its designee. If this Warrant should be exercised in part only, the Company shall, upon surrender of this Warrant for cancellation, execute and deliver a new Warrant evidencing the right of the Holder to purchase the balance of the Shares subject to purchase hereunder. 4. The Company shall maintain a register (the "Warrant Register") on which the names and addresses of the persons to whom this Warrant is issued and shall be entitled to treat the registered holder of any Warrant on the Warrant Register as the owner in fact thereof for all purposes and shall not be bound to recognize any equitable or other claim to or interest in such Warrant on the part of any other person, and shall not be liable for any registration or transfer of Warrants which are registered or to be registered in the name of a fiduciary or the nominee of a fiduciary unless made with the actual knowledge that a fiduciary or nominee is committing a breach of trust in requesting such registration or transfer, or with the knowledge of such facts that its participation therein amounts to bad faith. Subject to compliance with applicable securities laws and any other restrictions set forth herein, this Warrant shall be transferable on the books of the Company only upon delivery thereof with the form of Assignment at the end hereof duly completed by the Holder or by his duly authorized attorney or representative, or accompanied by proper evidence of succession, assignment or authority to transfer. In all cases of transfer by an attorney, the original power of attorney, duly approved, or an official copy thereof, duly certified, shall be deposited with the Company. In case of transfer by executors, administrators, guardians or other legal representatives, duly authenticated evidence of their authority shall be produced, and may be required to be deposited with the Company in its discretion. Upon any registration of transfer, the Company shall deliver a new Warrant or Warrants exchanged, at the option of the Holder thereof, for another Warrant, or other Warrants of different denominations, of like tenor and representing in the aggregate the right to purchase a like number of shares of Common Stock upon surrender to the Company or its duly authorized agent. Notwithstanding the foregoing, the Company shall have no obligation to cause Warrants to be transferred on its books to any person, unless the Holder of such Warrants shall furnish to the Company evidence of compliance with all applicable securities laws in accordance with the provisions of Section 9 hereof. 5. The Company shall at all times reserve and keep available out of its authorized and unissued Common Stock, solely for the purpose of providing for the exercise of this Warrant, such number of Shares as shall, from time to time, be sufficient therefor. 6. The Exercise Price shall be subject to adjustment from time to time as follows: (a) In case the Company shall (i) declare a dividend or make a distribution on outstanding shares of its Common Stock in shares of Common Stock, (ii) subdivide or reclassify the outstanding shares of Common Stock into a greater number of shares, or (iii) combine or reclassify the outstanding shares of Common Stock into a lesser number of shares, the Exercise Price in effect at the time of the record date for such dividend or distribution on the effective date of such subdivision, combination or reclassification shall be adjusted so that it shall equal the price determined by multiplying the Exercise Price then in effect by a fraction, the denominator of which shall be the number of shares of Common Stock outstanding immediately after giving effect to such action, and of which the numerator shall be the number of shares of Common Stock outstanding immediately prior to such action. Such adjustment shall be made successively whenever any event specified above shall occur. -2- (b) Whenever the Exercise Price payable upon exercise of this Warrant is adjusted pursuant to subparagraph (a) above, the number of Shares purchasable upon exercise of this Warrant shall simultaneously be adjusted by multiplying the number of Shares initially issuable upon exercise of this Warrant by the initial Exercise Price in effect on the date hereof and dividing the product so obtained by the Exercise Price, as adjusted. (c) All calculations under this Section 6 shall be made to the nearest one-hundredth of a cent and to the nearest whole Share. 7. (a) In case of any consolidation with or merger of the Company with or into another corporation (other than a merger of consolidation in which the Company is the continuing or surviving corporation), or in case of any sale, lease or conveyance to another corporation of the property of the Company as an entirety or substantially as an entirety, appropriate provisions shall be made so that the Holder shall have the right thereafter to receive upon exercise of this Warrant solely the kind and amount of shares of stock and other securities, property, cash or any combination thereof receivable upon such consolidation, merger, sale, lease or conveyance by a holder of the number of Shares of Common Stock for which this Warrant might have been exercised immediately prior to such consolidation, merger, sale, lease or conveyance and, in any such case, effective provision shall be made in its Articles of Incorporation or otherwise, if necessary, in order to effect such agreement. Such agreement shall provide for adjustments which shall be as nearly equivalent as practicable to the adjustments in Section 6. (b) In case of any reclassification or change in the Shares of Common Stock issuable upon exercise of this Warrant (other than a change in par value, or from par value to no par value, or as a result of a subdivision or combination, but including any change in the Shares into two or more classes or series of shares) or in case of any consolidation or merger of another corporation into the Company in which the Company is the continuing corporation and in which there is a reclassification or change (including a change to the right to receive cash or other property) in the Shares of Common Stock (other than a change in par value, or from par value to no par value, or as a result of a subdivision or combination, but including any change in the Shares into two or more classes or series of Shares), the Holder shall have the right thereafter to receive upon exercise of this Warrant solely the kind and amount of shares of stock and other securities, property, cash or any combination thereof receivable by the holder of the number of Shares for which this Warrant might have been exercised immediately prior to such reclassification, change, consolidation or merger. Thereafter, appropriate provision (as reasonably determined by the Board of Directors) shall be made for adjustment which shall be as nearly equivalent as practicable to the adjustments in Section 6. (c) The above provisions of this Section 7 shall similarly apply to successive reclassification and changes in Shares of Common Stock and to successive consolidations, mergers, sales or conveyances. 8. The issue of any stock or other certificate upon the exercise of this Warrant shall be made without charge to the Holder for any tax in respect of the issue of such certificate. The Company shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of any certificate in a name other than that of the Holder and the Company shall not be required to issue or deliver any such certificates unless and until the person or persons requesting the issue thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. -3- 9. (a) Unless registered under the Securities Act of 1933, as amended (the "Securities Act"), the Warrants, Shares or other securities issued upon exercise of the Warrants shall not be transferrable unless, in the opinion of counsel reasonably satisfactory to the Company, an exemption from registration under applicable securities laws is available. The Warrants, Shares and other securities which may be issued upon the exercise of this Warrant shall be subject to a stop-transfer order and the certificate or certificates evidencing any such Shares or securities shall bear the following legend and any other legend which counsel for the Company may deem necessary or advisable: THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED, OR HYPOTHECATED UNLESS SO REGISTERED OR UNLESS IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY, AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE. (b) Additional restrictions and limitations may apply to the resale of Warrants and Shares outside the United States or to resales by Holders who are Canadian residents or citizens or otherwise are not "U.S. Persons", as that term is defined in Regulation S under the Securities Act. Such further limitations and restrictions shall be evidenced by legends placed on the certificates evidencing such securities. (c) Notwithstanding any other term of this Warrant, the Company may require, as a condition of issuing Shares or other securities upon the exercise of this Warrant or permitting the transfer of this Warrant or Shares or other securities issued upon exercise of this Warrant, that the Holder and/or transferee execute such agreements or give such assurances and information as may be required, in the opinion of counsel for the Company, to satisfy applicable securities laws' requirements. 10. Upon receipt of evidence satisfactory to the Company of the loss, theft, destruction or mutilation of any Warrant and upon surrender and cancellation of any Warrant if mutilated, and upon reimbursement of the Company's reasonable incidental expenses, the Company shall execute and deliver to the Holder thereof a new Warrant of like date, tenor and denomination. 11. The Holder of any Warrant shall not have, solely on account of such status, any rights of a shareholder of the Company, either at law or in equity, or to any notice of meetings of shareholders or of any other proceedings of the Company. 12. This Warrant shall be governed by and construed in accordance with the laws of the State of Idaho. 13. (a) The Company shall use its best efforts to prepare, file and process to effectiveness a Registration Statement ("Registration Statement") under the Securities Act with respect to the Shares, provided that the Company shall have no obligation to file a Registration Statement prior to June 30, 1999, or if the Warrants have previously been exercised or redeemed. The Company shall give prompt written notice of such filing and of the effectiveness of such Registration Statement to Holder, and shall use its best efforts to keep such Registration Statement in effect for a period of at least ninety (90) days from its effective date. (b) In addition to its obligations pursuant to Section 13(a) above, if, prior to the effectiveness of a Registration Statement, or following the effectiveness of a Registration Statement if the Company fails to maintain the effectiveness of such Registration Statement for at least ninety (90) days, the -4- Company proposes to file a Registration Statement under the Securities Act (other than in connection with an exchange offer, a "rights" offering to shareholders, a Registration Statement on Form S-8 or Form S-4 or any successor forms relating to employee benefit plans, an acquisition of another entity or in connection with a dividend reinvestment plan, an employee benefit plan, the conversion of any convertible securities, or a stand-by underwriting with respect to the call of a warrant, option, right or convertible security for redemption) with respect to shares of Common Stock (a "Piggy Back Registration Statement"), the Company shall give written notice of such proposed filing to Holder at least thirty (30) calendar days before the anticipated filing date of such Registration Statement or, in the event that the Company has not formulated its intent to file such Registration Statement at least thirty (30) calendar days before the anticipated filing date of such Registration Statement, as soon as practicable upon the formation by the Company of such intent. The notice shall specify the information required to be provided to the Company by Holder pursuant to paragraph 13(d) below and shall offer to Holder the opportunity to include in the Piggy Back Registration Statement such number of Shares then issuable upon exercise of this Warrant as Holder may request. The Company shall not be required to honor any such request to register in the aggregate fewer than 10,000 Shares. The Company shall permit, or, in the case of an offering made through an underwriter or group of underwriters on a "firm commitment" basis (an "Underwritten Offering"), shall use its best efforts to cause the managing underwriter of the proposed offering to permit, such Shares to be included in the proposed offering on the same terms and conditions as applicable to the shares of Common Stock offered by the Company and for the account of any person other than the Company, as the case may be. (c) Notwithstanding the foregoing, if the managing underwriter of an underwritten offering shall advise the Company in writing that, in its opinion, the distribution of all or a portion of the Shares requested by Holder to be included in the Piggy Back Registration Statement concurrently with the shares of Common Stock being registered would materially adversely affect the distribution of such securities by the Company for its own account or by persons who had asserted demand registration rights under any other agreement with respect to such registration for such persons' account, then such requested Shares shall not be included in the Registration. If the managing underwriter elects to include less than all Shares, then the number of Shares included for Holder's account shall be pro rata with (i) other securities properly requested to be included in the Piggy Back Registration Statement by other persons pursuant to piggy back or incidental registration rights under Series A Warrants or any other agreement or (ii) shares included in the Piggy Back Registration Statement for the account of any corporate officer or director of the Company and any of their respective family members, whichever results in the registration of the greater number of Shares for Holder's account. The Company shall not be required to maintain in effect the Piggy Back Registration Statement as it relates to Shares beyond the period necessary to comply with the Securities Act (otherwise than pursuant to Rule 415 or any similar regulation permitting "shelf registration") with respect to the distribution of securities for its own account. (d) In connection with any registration of Shares pursuant to paragraphs 13 (a), (b) or (c) above, and as a condition to the Company's obligation to register the Shares, Holder shall promptly furnish to the Company such information regarding Holder, the proposed distribution of the Shares by Holder and such other matters as the Company may reasonably request in writing. (e) All expenses incident to the Company's performance of or compliance with the provisions set forth herein (other than underwriting discounts and commissions relating to the sale of the Shares, and the fees and disbursements of Holder's counsel, if any) will be borne by the Company. In addition, the Company shall, without charge to Holder, provide Holder with reasonable quantities of preliminary prospectuses, final prospectuses and other material required to effect sales of the Shares to the public, and will take appropriate action to enable the Shares to be sold in the State of New York and such other states as the Company may elect. -5- (f) Notwithstanding any other term of this Warrant, unless the Company shall have prepared, filed and processed to effectiveness a Registration Statement pursuant to Sections !3(a) or 13 (b) on or before September 31, 1999, and such Registration Statement has remained effective for a period of at least ninety (90) days prior to the original Expiration Date, the Expiration Date shall be extended until the earliest date upon which that condition is satisfied. 14. Without limiting any indemnification rights of the Company or Holder arising under any other agreement or law, in any registration of Shares pursuant hereto: (a) the Company will indemnify and hold harmless Holder against any losses, claims, damages or liabilities (which shall include, but not be limited to, all costs of defense and investigation and all attorneys' fees) to which Holder may become subject under the Act, the Exchange Act or otherwise insofar as such losses, claims, damages or liability (or actions in respect thereof) arise out of or are based upon any untrue statement of any material fact contained, during the effective period thereof, in any Registration Statement, any preliminary or final prospectus furnished by the Company, or any amendment or supplement thereto, or arise out of or are based upon the omission to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that the Company shall have no obligation to Holder in respect of any such loss, claim, damage or liability arising out of or based upon an untrue statement or liability arising out of or based upon an untrue statement or omission made in a Registration Statement, preliminary prospectus, prospectus, or amendment or supplement thereto, in reliance upon and in conformity with written information furnished by Holder specifically for use in the preparation thereof. (b) Holder will indemnify and hold harmless the Company and each person, if any, who controls the Company within the meaning of Section 20 of the Exchange Act against any losses, claims, damages or liabilities (which shall include, but not be limited to, all costs of defense and investigation and all attorneys' fees) to which the indemnified party may become subject under the Act, the Exchange Act or otherwise, insofar as such losses, claims, damages or liability (or actions in respect thereof) arise out of or are based upon (i) an untrue statement or omission made in a Registration Statement, preliminary prospectus, prospectus, preliminary offering circular or offering circular, or any amendment or supplement, in reliance upon and in conformity with written information furnished by Holder for use by the Company in the preparation thereof, or (ii) actions or omissions by Holder or persons acting on his behalf in the sale of the Shares which are unrelated to the content of the Registration Statement but which violate the Act, the Exchange Act or regulations thereunder. 15. (a) Notwithstanding any other term hereof, the Holder shall have the right at any time after December 31, 1999, to convert this Warrant into that number of Shares (hereinafter referred to as the "Conversion Shares") which shall equal the product obtained by multiplying all Shares then issuable upon exercise of the Warrant pursuant to paragraph 2 above by a fraction, the denominator of which is the Market Price of the Company's Common Stock, as defined below, and the numerator of which is the difference between the Market Price and the Exercise price. Where the number of Conversion Shares equals "CS", the number of Shares equals "S", the Exercise Price equals "EP" and the Market Price equals "MP", the following formula shall determine the number of Conversion Shares at any time issuable upon conversion of this Warrant to Common Stock pursuant to this paragraph 15(a): CS = S (MP - EP) ----------- MP -6- (b) For purposes of paragraph 15(a) above, the term "Market Price" of the Company's Common Stock shall mean: (i) if the Common Stock is listed on a national securities exchange, the average closing prices for the Common Stock reported on such exchange for the five (5) trading days immediately preceding the date of exercise of the rights of conversion set forth in paragraph 15(a) (the "Conversion Rights"); or (ii) if the Common Stock is not listed on a national securities exchange but is quoted on the Nasdaq Stock Market (Small Cap or National Market System), the average closing prices for the Common Stock on the Nasdaq Stock Market for the five (5) trading days immediately preceding the date of exercise of Conversion Rights; or (iii) if neither (i) nor (ii) above applies, and "bid" and "asked" prices for the Common Stock are quoted on the National Association of Securities Dealers, Inc. ("NASD") OTC Bulletin Board and the average weekly trading volume for the Common Stock as reported on the NASD Bulletin Board has averaged at least one (1%) percent of the total number of shares of Common Stock outstanding during the four calendar weeks immediately preceding the exercise of Conversion Rights, the average of the mean between the closing "bid" and "asked" prices reported on the OTC Bulletin Board for the five (5) trading days immediately preceding the date of exercise of Conversion Rights; or (iv), if none of subsections (i), (ii) or (iii) apply, as determined by the Board of Directors of the Company. (c) The Conversion Rights shall be exercised in the same manner as provided in paragraph 2 above, except that payment of the Shares Purchase Price shall not be tendered. 16. (a) The Company shall have the right, at any time and from time to time on or after September 1, 1998, upon written notice (a "Redemption Notice") to the Holder at Holder's registered address stating that the Company is exercising its right of redemption set forth herein and fixing a date for such redemption (the "Redemption Date") which shall be no more than sixty (60) and no less than twenty (20) days following the date of the Redemption Notice, to redeem this Warrant at a price equal to $.025 per Share then issuable upon exercise of the Warrant (the "Redemption Price"). (b) From and after the Redemption Date, the Holder shall cease to have any rights as the Holder of this Warrant other than the right to receive the Redemption Price as provided herein. (c) The Company shall pay the Redemption Price to the Holder on the Redemption Date, provided, however, that as a condition precedent to the Company's payment of the Redemption Price Holder shall deliver to the Company the certificate representing this Warrant or, in lieu thereof, satisfactory evidence that such certificate has been lost or destroyed, together with a bond or surety satisfactory to the Company to protect it against loss should such certificate subsequently be tendered for redemption. 17. The Company warrants the due authorization, execution and delivery of this Warrant this _______ day of __________________, 1998. GENEREX BIOTECHNOLOGY CORPORATION [SEAL] By: ------------------------------------- Anna E. Gluskin, President -7- ELECTION TO PURCHASE -------------------- The undersigned Holder hereby irrevocably elects (check one): [ ] to exercise the within Warrant to purchase _____________________________ Shares* of Common Stock issuable upon the exercise thereof; [ ] to convert the within Warrant to shares of Common Stock pursuant to paragraph 15 thereof. The undersigned requests that certificates for such Shares, or, in the case of conversion, the number of Conversion Shares issuable pursuant to paragraph 15 thereof, be issued in his/her/its name and delivered to him/her/it at the following address: ________________________________________________________________________________ Date:__________________ ________________________________________________________________________________ Signature(s)(**) ________________________________________________________________________________ ASSIGNMENT ---------- FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers the within Warrant to the extent of _____________ Shares(*) purchasable upon exercise thereof to ______________ whose address is ___________________________ _____________________________________ and hereby irrevocably constitutes and appoints _______________________________ his/her/its Attorney to transfer said Warrant on the book of the Company, with full power of substitution. Date:___________________ ________________________________________________________________________________ Signature(s)(**) ________________________________________________________________________________ * If the Warrant is to be exercised or transferred in its entirety, insert the word "All" before "Shares"; otherwise insert the number of shares then purchasable on the exercise thereof as to which transferred or exercised. If such Warrants shall not be transferred or exercised to purchase all shares purchasable upon exercise thereof, that a new Warrant to purchase the balance of such shares be issued in the name of, and delivered to, the Holder at the address stated below. ** Signature(s) must conform exactly to the names(s) of the Holder as set forth on the first page of this Warrant. -8- EX-4.4.2 8 WARRANT FOR THE 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. GCR-____ __________ Shares THIS CERTIFIES THAT, for value received, _________________________________ ("Holder"), a ___________________________________________, is entitled to subscribe for and purchase from GENEREX BIOTECHNOLOGY CORPORATION, a Delaware corporation (the "Company"), at any time from the date hereof through and including the Expiration Date set forth below (the "Exercise Period"), ________ _______________________________________ (____________) fully paid and nonassessable shares (the "Shares") of the Company's Common Stock, $.001 par value per share (the "Common Stock"), at a price of TWO DOLLARS AND FIFTY CENTS ($2.50) per Share (the "Exercise Price"), subject to the limitations, terms and conditions set forth herein. This Warrant is one of a series of warrants of like tenor representing, in the aggregate, the right to purchase seven hundred and seventy five thousand shares of Common Stock (the "Series GC Warrants") issued by the Company in connection with its organization and initial capitalization. Transfer, assignment or hypothecation of this Warrant by the Holder may be made only in accordance with and subject to the terms, conditions and other provisions of this Warrant. The term "Holder", as used herein, shall include the original Holder and only such persons to whom this Warrant is transferred in strict conformity with the terms and conditions set forth or incorporated by reference herein. As used herein, the term "Warrant" shall mean and include this Warrant and any Warrant or Warrants hereafter issued in consequence of the exercise or transfer of this Warrant, in whole or in part. 1. This Warrant shall expire on March 31, 2003. 2. This Warrant may be exercised during the Exercise Period as to the whole or any lesser number of whole Shares by the surrender of this Warrant (with the form of Election at the end hereof duly completed and executed) to the Company, marked to the attention of its President, 33 Harbor Square, Suite 202, Toronto, Ontario, Canada M5J 2G2, or such other place as is designated in writing and delivered to Holder by the Company, accompanied by a certified or bank cashier's check payable to the order of the Company in an amount equal to the Exercise Price multiplied by the number of Shares covered by such exercise (the "Shares Purchase Price"). 3. Exercise of this Warrant shall be deemed to have been effected as of the close of the business day on which the Company has received the last of this Warrant, a duly executed form of election, the Shares Purchase Price and such further documentation as may be required pursuant to Section 9(c) below. Upon each exercise of this Warrant, the Holder shall be deemed to be the holder of record of the Shares issuable upon such exercise, notwithstanding that the stock transfer books of the Company shall then be closed. As soon as practicable after each such exercise of this Warrant, the Company shall issue and deliver to the Holder a certificate or certificates for the Shares issuable upon such exercise, registered in the name of the Holder or its designee. If this Warrant should be exercised in part only, the Company shall, upon surrender of this Warrant for cancellation, execute and deliver a new Warrant evidencing the right of the Holder to purchase the balance of the Shares subject to purchase hereunder. 4. The Company shall maintain a register (the "Warrant Register") on which the names and addresses of the persons to whom this Warrant is issued and shall be entitled to treat the registered holder of any Warrant on the Warrant Register as the owner in fact thereof for all purposes and shall not be bound to recognize any equitable or other claim to or interest in such Warrant on the part of any other person, and shall not be liable for any registration or transfer of Warrants which are registered or to be registered in the name of a fiduciary or the nominee of a fiduciary unless made with the actual knowledge that a fiduciary or nominee is committing a breach of trust in requesting such registration or transfer, or with the knowledge of such facts that its participation therein amounts to bad faith. Subject to compliance with applicable securities laws and any other restrictions set forth herein, this Warrant shall be transferable on the books of the Company only upon delivery thereof with the form of Assignment at the end hereof duly completed by the Holder or by his duly authorized attorney or representative, or accompanied by proper evidence of succession, assignment or authority to transfer. In all cases of transfer by an attorney, the original power of attorney, duly approved, or an official copy thereof, duly certified, shall be deposited with the Company. In case of transfer by executors, administrators, guardians or other legal representatives, duly authenticated evidence of their authority shall be produced, and may be required to be deposited with the Company in its discretion. Upon any registration of transfer, the Company shall deliver a new Warrant or Warrants exchanged, at the option of the Holder thereof, for another Warrant, or other Warrants of different denominations, of like tenor and representing in the aggregate the right to purchase a like number of shares of Common Stock upon surrender to the Company or its duly authorized agent. Notwithstanding the foregoing, the Company shall have no obligation to cause Warrants to be transferred on its books to any person, unless the Holder of such Warrants shall furnish to the Company evidence of compliance with the Act and applicable state securities law, in accordance with the provisions of Section 9 hereof. 5. The Company shall at all times reserve and keep available out of its authorized and unissued Common Stock, solely for the purpose of providing for the exercise of this Warrant, such number of Shares as shall, from time to time, be sufficient therefor. 6. The Exercise Price shall be subject to adjustment from time to time as follows: (a) In case the Company shall (i) declare a dividend or make a distribution on outstanding shares of its Common Stock in shares of Common Stock, (ii) subdivide or reclassify the outstanding shares of Common Stock into a greater number of shares, or (iii) combine or reclassify the outstanding shares of Common Stock into a lesser number of shares, the Exercise Price in effect at the time of the record date for such dividend or distribution on the effective date of such subdivision, combination or reclassification shall be adjusted so that it shall equal the price determined by multiplying the Exercise Price then in effect by a fraction, the denominator of which shall be the number -2- of shares of Common Stock outstanding immediately after giving effect to such action, and of which the numerator shall be the number of shares of Common Stock outstanding immediately prior to such action. Such adjustment shall be made successively whenever any event specified above shall occur. (b) Whenever the Exercise Price payable upon exercise of this Warrant is adjusted pursuant to subparagraph (a) above, the number of Shares purchasable upon exercise of this Warrant shall simultaneously be adjusted by multiplying the number of Shares initially issuable upon exercise of this Warrant by the initial Exercise Price in effect on the date hereof and dividing the product so obtained by the Exercise Price, as adjusted. (c) All calculations under this Section 6 shall be made to the nearest one-hundredth of a cent and to the nearest whole Share. 7. (a) In case of any consolidation with or merger of the Company with or into another corporation (other than a merger of consolidation in which the Company is the continuing or surviving corporation), or in case of any sale, lease or conveyance to another corporation of the property of the Company as an entirety or substantially as an entirety, appropriate provisions shall be made so that the Holder shall have the right thereafter to receive upon exercise of this Warrant solely the kind and amount of shares of stock and other securities, property, cash or any combination thereof receivable upon such consolidation, merger, sale, lease or conveyance by a holder of the number of Shares of Common Stock for which this Warrant might have been exercised immediately prior to such consolidation, merger, sale, lease or conveyance and, in any such case, effective provision shall be made in its Articles of Incorporation or otherwise, if necessary, in order to effect such agreement. Such agreement shall provide for adjustments which shall be as nearly equivalent as practicable to the adjustments in Section 6. (b) In case of any reclassification or change in the Shares of Common Stock issuable upon exercise of this Warrant (other than a change in par value, or from par value to no par value, or as a result of a subdivision or combination, but including any change in the Shares into two or more classes or series of shares) or in case of any consolidation or merger of another corporation into the Company in which the Company is the continuing corporation and in which there is a reclassification or change (including a change to the right to receive cash or other property) in the Shares of Common Stock (other than a change in par value, or from par value to no par value, or as a result of a subdivision or combination, but including any change in the Shares into two or more classes or series of Shares), the Holder shall have the right thereafter to receive upon exercise of this Warrant solely the kind and amount of shares of stock and other securities, property, cash or any combination thereof receivable by the holder of the number of Shares for which this Warrant might have been exercised immediately prior to such reclassification, change, consolidation or merger. Thereafter, appropriate provision (as reasonably determined by the Board of Directors) shall be made for adjustment which shall be as nearly equivalent as practicable to the adjustments in Section 6. (c) The above provisions of this Section 7 shall similarly apply to successive reclassification and changes in Shares of Common Stock and to successive consolidations, mergers, sales or conveyances. 8. The issue of any stock or other certificate upon the exercise of this Warrant shall be made without charge to the Holder for any tax in respect of the issue of such certificate. The Company shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of any certificate in a name other than that of the Holder and the Company shall not be required to issue or deliver any such certificates unless -3- and until the person or persons requesting the issue thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. 9. (a) Unless registered under the Securities Act of 1933, as amended (the "Act"), the Warrants and Shares or other securities issued upon exercise of the Warrants shall not be transferrable unless, in the opinion of counsel reasonably satisfactory to the Company, an exemption from registration under applicable securities laws is available. The Warrants, Shares and other securities issued upon the exercise of this Warrant shall be subject to a stop-transfer order and the certificate or certificates evidencing any such Shares or securities shall bear the following legend and any other legend which counsel for the Company may deem necessary or advisable: THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED, OR HYPOTHECATED UNLESS SO REGISTERED OR UNLESS IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY, AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE. (b) Additional restrictions and limitations may apply to the resale of Warrants and Shares outside the United States or to resales by Holders who are Canadian residents or citizens or otherwise are not "U.S. Persons", as that term is defined in Regulation S under the Securities Act. Such further limitations and restrictions shall be evidenced by legends placed on the certificates evidencing such securities. (c) Notwithstanding any other term of this Warrant, the Company may require, as a condition of issuing Shares or other securities upon the exercise of this Warrant or permitting the transfer of this Warrant or Shares or other securities issued upon exercise of this Warrant, that the Holder and/or transferee execute such agreements or give such assurances and information as may be required, in the opinion of counsel for the Company, to satisfy applicable securities laws' requirements. 10. Upon receipt of evidence satisfactory to the Company of the loss, theft, destruction or mutilation of any Warrant and upon surrender and cancellation of any Warrant if mutilated, and upon reimbursement of the Company's reasonable incidental expenses, the Company shall execute and deliver to the Holder thereof a new Warrant of like date, tenor and denomination. 11. The Holder of any Warrant shall not have, solely on account of such status, any rights of a shareholder of the Company, either at law or in equity, or to any notice of meetings of shareholders or of any other proceedings of the Company. 12. This Warrant shall be governed by and construed in accordance with the laws of the State of Delaware. 13. (a) The Company shall use its best efforts to prepare, file and process to effectiveness a Registration Statement ("Registration Statement") under the Act with respect to the Shares, provided that the Company shall have no obligation to file a Registration Statement prior to the earlier of (i) December 31, 2000, or (ii) eighteen (18) months after the date that the Company becomes subject to the periodic reporting requirements of the Securities Exchange Act of 1934 (the "Exchange Act") pursuant to Sections 13 or 15(d) thereof. The Company shall give prompt written notice of such filing and of the effectiveness of such -4- Registration Statement to Holder, and shall use its best efforts to keep such Registration Statement in effect for a period of at least ninety (90) days from its effective date (one hundred eighty [180] days if the Registration Statement is on Form S-3). (b) In addition to its obligations pursuant to Section 13(a) above, if, after December 31, 2000, but prior to the effectiveness of a Registration Statement, or following the effectiveness of a Registration Statement if the Company fails to maintain the effectiveness of the Registration Statement for at least ninety (90) days, the Company proposes to file a Registration Statement under the Securities Act (other than in connection with an exchange offer, a "rights" offering to shareholders, a Registration Statement on Form S-8 or Form S-4 or any successor forms relating to employee benefit plans, an acquisition of another entity or in connection with a dividend reinvestment plan, an employee benefit plan, the conversion of any convertible securities, or a stand-by underwriting with respect to the call of a warrant, option, right or convertible security for redemption) with respect to shares of Common Stock (a "Piggy Back Registration Statement"), the Company shall give written notice of such proposed filing to Holder at least thirty (30) calendar days before the anticipated filing date of such Registration Statement or, in the event that the Company has not formulated its intent to file such Registration Statement at least thirty (30) calendar days before the anticipated filing date of such Registration Statement, as soon as practicable upon the formation by the Company of such intent. The notice shall specify the information required to be provided to the Company by Holder pursuant to paragraph 13(d) below and shall offer to Holder the opportunity to include in the Piggy Back Registration Statement such number of Shares as Holder may request. The Company shall not be required to honor any such request (i) if, in the opinion of counsel to the Company reasonably acceptable to Holder, registration under the Act is not required for the transfer of the Shares in the manner proposed by Holder; or (ii) to register in the aggregate fewer than 10,000 Shares. The Company shall permit, or, in the case of an offering made through an underwriter or group of underwriters on a "firm commitment" basis (an "Underwritten Offering"), shall use its best efforts to cause the managing underwriter of the proposed offering to permit, such Shares to be included in the proposed offering on the same terms and conditions as applicable to the shares of Common Stock Offered by the Company and for the account of any person other than the Company, as the case may be. (c) Notwithstanding the foregoing, if the managing underwriter of an underwritten offering shall advise the Company in writing that, in its opinion, the distribution of all or a portion of the Shares requested by Holder to be included in the Piggy Back Registration Statement concurrently with the shares of Common Stock being registered by the Company would materially adversely affect the distribution of such securities by the Company for its own account, or for the account of any person or persons that have asserted demand registration rights under any other agreement with respect to such registration, then such requested Shares shall not be included in the Registration. If the managing underwriter elects to include less than all Shares, then the number of Shares shall be pro rata with (i) other securities properly requested to be included in the Piggy Back Registration Statement by other holders pursuant to piggy back or incidental registration rights under any other agreement or (ii) shares included in the Piggy Back Registration Statement for the account of any corporate officer or director of the Company and any of their respective family members, whichever results in the registration of the greater number of Shares for Holder's account. The Company shall not be required to maintain in effect the Piggy Back Registration Statement as it relates to Shares beyond the period necessary to comply with the Securities Act (otherwise than pursuant to Rule 415 or any similar regulation permitting "shelf registration") with respect to the distribution of the Shares included therein. (d) In connection with any registration of Shares pursuant to paragraphs 13 (a), (b) or (c) above, and as a condition to the Company's obligation to register the Shares, Holder shall promptly furnish to the Company such -5- information regarding Holder, the proposed distribution of the Shares by Holder and such other matters as the Company may reasonably request in writing. (e) All expenses incident to the Company's performance of or compliance with the provisions set forth herein (other than underwriting discounts and commissions relating to the sale of the Shares, and the fees and disbursements of Holder's counsel, if any) will be borne by the Company. In addition, the Company shall, without charge to Holder, provide Holder with reasonable quantities of preliminary prospectuses, final prospectuses and other material required to effect sales of the Shares to the public, and will take appropriate action to enable the Shares to be sold in the State of New York and such other states as the Company may elect. 14. Without limiting any indemnification rights of the Company or Holder arising under any other agreement or law, in any registration of Shares pursuant hereto: (a) the Company will indemnify and hold harmless Holder against any losses, claims, damages or liabilities (which shall include, but not be limited to, all costs of defense and investigation and all attorneys' fees) to which Holder may become subject under the Act, the Exchange Act or otherwise insofar as such losses, claims, damages or liability (or actions in respect thereof) arise out of or are based upon any untrue statement of any material fact contained, during the effective period thereof, in any Registration Statement, any preliminary or final prospectus furnished by the Company, or any amendment or supplement thereto, or arise out of or are based upon the omission to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that the Company shall have no obligation to Holder in respect of any such loss, claim, damage or liability arising out of or based upon an untrue statement or liability arising out of or based upon an untrue statement or omission made in a Registration Statement, preliminary prospectus, prospectus, or amendment or supplement thereto, in reliance upon and in conformity with written information furnished by Holder specifically for use in the preparation thereof. (b) Holder will indemnify and hold harmless the Company and each person, if any, who controls the Company within the meaning of Section 20 of the Exchange Act against any losses, claims, damages or liabilities (which shall include, but not be limited to, all costs of defense and investigation and all attorneys' fees) to which the indemnified party may become subject under the Act, the Exchange Act or otherwise, insofar as such losses, claims, damages or liability (or actions in respect thereof) arise out of or are based upon (i) an untrue statement or omission made in a Registration Statement, preliminary prospectus, prospectus, preliminary offering circular or offering circular, or any amendment or supplement, in reliance upon and in conformity with written information furnished by Holder for use by the Company in the preparation thereof, or (ii) actions or omissions by Holder or persons acting on his behalf in the sale of the Shares which are unrelated to the content of the Registration Statement but which violate the Act, the Exchange Act or regulations thereunder. 15. (a) Notwithstanding any other term of this Warrant, unless the Company shall have prepared, filed and processed to effectiveness a Registration Statement under the Act with respect to all of the Shares on or before December 31, 2000, and such Registration Statement has remained effective for a period of at least ninety (90) days prior to the Expiration Date (one hundred eighty [180] days if the Registration Statement is on Form S-3), the Holder shall have the right at any time after December 31, 2000, to convert this Warrant into that number of Shares (hereinafter referred to as the "Conversion Shares") which shall equal the product obtained by multiplying all Shares then issuable upon exercise of the Warrant pursuant to paragraph 2 above by a fraction, the denominator of which is the Market Price of the Company's Common Stock, as -6- defined below, and the numerator of which is the difference between the Market Price and the Exercise price. Where the number of Conversion Shares equals "CS", the number of Shares equals "S", the Exercise Price equals "EP" and the Market Price equals "MP", the following formula shall determine the number of Conversion Shares at any time issuable upon conversion of this Warrant to Common Stock pursuant to this paragraph 15(a): CS = S (MP - EP) ----------- MP (b) For purposes of paragraph 15(a) above, the term "Market Price" of the Company's Common Stock shall mean: (i) if the Common Stock is listed on a national securities exchange, the average closing prices for the Common Stock reported on such exchange for the five (5) trading days immediately preceding the date of exercise of the rights of conversion set forth in paragraph 15(a) (the "Conversion Rights"); or (ii) if the Common Stock is not listed on a national securities exchange but is quoted on the Nasdaq Stock Market (Small Cap or National Market System), the average closing prices for the Common Stock on the Nasdaq Stock Market for the five (5) trading days immediately preceding the date of exercise of Conversion Rights; or (iii) if neither (i) nor (ii) above applies, and "bid" and "asked" prices for the Common Stock are quoted on the National Association of Securities Dealers, Inc. ("NASD") OTC Bulletin Board and the average weekly trading volume for the Common Stock as reported on the NASD Bulletin Board has averaged at least one (1%) percent of the total number of shares of Common Stock outstanding during the four calendar weeks immediately preceding the exercise of Conversion Rights, the average of the mean between the closing "bid" and "asked" prices reported on the OTC Bulletin Board for the five (5) trading days immediately preceding the date of exercise of Conversion Rights; or (iv), if none of subsections (i), (ii) or (iii) apply, as determined by the Board of Directors of the Company. (c) The Conversion Rights shall be exercised in the same manner as provided in paragraph 2 above, except that payment of the Shares Purchase Price shall not be tendered. 16. The Company warrants the due authorization, execution and delivery of this Warrant this ____ day of ________________, 1998. GENEREX BIOTECHNOLOGY CORPORATION [SEAL] By: --------------------------------------- Anna H. Gluskin, President -7- 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-4.4.3 9 WARRANT THIS WARRANT WILL BE VOID AND OF NO VALUE UNLESS EXERCISED ON OR BEFORE 5:00 P.M. (TORONTO TIME) ON SEPTEMBER 6, 2002 THIS WARRANT IS NOT TRANSFERABLE GENEREX BIOTECHNOLOGY CORPORATION (Incorporated under the laws of Idaho) Right to Purchase 7,937 Common Shares THIS IS TO CERTIFY THAT, for value received, BERCKELEY INVESTMENT GROUP LTD., 50 Shirley Street, Nassau, Bahamas (the "Holder") is entitled to subscribe for and purchase 7,937 fully paid and non-assessable Common Shares in the capital of Generex Biotechnology Corporation (the "Company") at a price of $21.82 per share if purchased on or before September 6, 2002 subject, however, to the provisions and upon the terms and conditions hereinafter set forth. The rights represented by this Warrant may be exercised by the Holder hereof, in whole or in part (but not as to a fractional shares of Common Shares), by surrender of this Warrant (properly endorsed if required) at the office of the Company, 33 Harbour Square, Suite 202, Toronto, Ontario M5J 2G2 together with a certified cheque payable to the order of the Company in payment of the purchase price of the number of Common Shares subscribed for. In the event of any exercise of the rights represented by this Warrant, certificates for the Common Shares so purchased shall be delivered to the Holder hereof within a reasonable time, not exceeding ten days after the rights represented by this Warrant shall have been so exercised, and, unless this Warrant has expired, a new Warrant representing the number of Common Shares, if any, with respect to which this Warrant shall not then have been exercised shall also be issued to the Holder hereof within such time. The Company covenants and agrees that all Common Shares which may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be fully paid and non-assessable and free of all liens, charges and encumbrances. The Company further covenants and agrees that during the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved, a sufficient number of Common Shares to provide for the exercise of the rights represented by this Warrant. THE FOLLOWING ARE THE TERMS AND CONDITIONS REFERRED TO IN THIS WARRANT: I. In case the Company shall at any time subdivide its outstanding Common Shares into a greater number of shares, the Warrant purchase price shall be proportionately reduced and the number of subdivided Common Shares entitled to be purchased proportionately increased, and conversely, in case the Company shall at any time consolidate its outstanding Common Shares into a smaller number of shares, the Warrant purchase price shall be proportionately increased and the number of combined Common Shares entitled to be purchased hereunder shall be proportionately decreased. If any capital organization, reclassification or consolidation of the capital stock of the Company, or the merger or amalgamation of the Company with another company shall be effected, then as a condition of such reorganization, reclassification, subdivision or consolidation, merger or amalgamation, adequate provision shall be made whereby the Holder hereof shall have the right to purchase and receive upon the basis and upon the terms and conditions specified in this Warrant and in lieu of the Common Shares immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby, such shares of stock, or other securities as may be issued with respect to or in exchange for such number of outstanding Common Shares equal to the number of Common Shares purchasable and receivable upon the exercise of this Warrant had such reorganization, reclassification, subdivision or consolidation, merger or amalgamation not taken place. The Company shall not effect any merger or amalgamation unless prior to or simultaneously with the consummation thereof the successor company (if other than the Company) resulting from such merger or amalgamation shall assume by written instrument executed and mailed or delivered to the Holder of this Warrant the obligation to deliver to such Holder such shares of the stock or securities in accordance with the foregoing provisions, such Holder may be entitled to purchase. II. In case at any time: A. the Company shall pay any dividend payable in stock upon its Common Shares or make any distribution to the holders of its Common Shares; B. the Company shall offer for subscription pro rata to the holders of its Common Shares any additional shares of stock of any class or other rights; C. there shall be any capital reorganization, or reclassification of the capital stock of the Company, or subdivision or consolidation or merger or amalgamation of the Company with, or sale of all or substantially all of its assets to, another company; or D. there shall be a voluntary or involuntary dissolution, liquidation or winding-up of the Company; then, and in any one or more of such cases, the Company shall give to the Holder of this Warrant, at least twenty days' prior written notice of the date on which the books of the Company shall close or a record shall be taken for such dividend, distribution or subscription rights, or for determining rights to vote with respect to such reorganization, reclassification, subdivision or consolidation, merger or amalgamation, dissolution, liquidation or winding up and in the case of any such reorganization, reclassification, subdivision or consolidation, merger, amalgamation, sale, dissolution, liquidation or winding-up, at least twenty days' prior written notice of the date when the same shall take place. Such notice in accordance with the foregoing clause, shall also specify, in the case of any such dividend, distribution or subscription rights, the date on which the holders of Common Shares shall be entitled thereto, and such notice in accordance with the foregoing shall also specify the date on which the holders of Common Shares shall be entitled to exchange their Common Shares for securities or other property deliverable upon such reorganization, reclassification, subdivision or consolidation, merger, amalgamation, sale, dissolution, liquidation or winding-up as the case may be. Each such written notice shall be given by first class mail, registered postage prepared, addressed to the Holder of this Warrant at the address of such Holder, as shown on the books of the Company. III. As used herein, the term "Common Shares" shall mean and include the Company's presently authorized Common Shares and shall also include any capital stock of any class of the Company 2 hereafter authorized which shall not be limited to a fixed sum or percentage in respect of the rights of the holders thereof to participate in dividends and in the distribution of assets upon the voluntary or involuntary liquidation, dissolution or winding-up of the Company. IV. This Warrant shall not entitle the Holder hereof to any rights as a shareholder of the Company, including without limitation, voting rights. V. This Warrant and all rights hereunder are not transferable. IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by a duly authorized officer under its corporate seal, and this Warrant to be dated the 29th day of September 1998. GENEREX BIOTECHNOLOGY CORPORATION Per: /S/Anna E. Gluskin ------------------------------- 3 SUBSCRIPTION FORM TO: c/o Generex Biotechnology Corporation 33 Harbour Square Suite 202 Toronto, Ontario M5J 2G2 The undersigned, the holder of the within Non-Transferable Share Purchase Warrant, subscribes for _______________ of the common shares referred to in the same Non-Transferrable Share Purchase Warrant according to the conditions thereof and herewith makes payment of the purchase price in full for the said number of shares. The undersigned hereby directs that the shares hereby subscribed for be issued and delivered as follows: Name(s) in full Address Number of Shares - --------------- ------- ---------------- ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ DATED this _____ day of _____________________________, 199_. ___________________________________________________ Signature of subscriber ___________________________________________________ Print name of subscriber ___________________________________________________ Address in full of subscriber ___________________________________________________ 4 EX-4.4.4 10 LETTER OF AGREEMENT M. H. MEYERSON & CO., INC. FOUNDED IN 1960 BROKERS & DEALERS IN SECURITIES UNDERWRITERS NEWPORT OFFICE TOWER 525 WASHINGTON BLVD. o P. O. BOX 260 o JERSEY CITY, NJ 07303-0260 201-459-9500 o 800-888-8118 o fax 201-459-9521 o www.mhmeyerson.com Mr. Joseph Chicco, Esq. Ms. Anna E. Gluskin, President Chief Executive Officer Generex Pharmaceuticals Inc. 1515 Market Street, 9th Floor Philadelphia, PA 19102 Dear Mr. Chicco and Ms. Gluskin: THIS AGREEMENT (the "AGREEMENT") is made as of November 17, 1998 between Generex Biotechnology Corporation ("GENEREX ") and M. H. Meyerson & Co., Inc. ("MEYERSON"). In consideration of the mutual covenants contained herein and intending to be legally bound thereby, GENEREX and MEYERSON hereby agree as follows: 1. MEYERSON will perform investment banking services, on a non-exclusive basis, for GENEREX on the terms set forth below for a period of five years from the date hereof, subject to early termination pursuant to paragraph 17 below. Such services will be performed on a best efforts basis and will include, without limitation, advising GENEREX with respect to mergers, acquisitions, and internal capital structuring and the placement of new debt and equity issues of GENEREX, all with the objective of accomplishing GENEREX's business and financial goals. In each instance, MEYERSON shall endeavor, subject to market conditions, to assist GENEREX in identifying corporate candidates for mergers and acquisitions and sources of private and institutional funds; to provide planning, structuring, strategic and other advisory services to GENEREX; and, at the request of GENEREX, to assist in negotiations on behalf of GENEREX. In each instance, MEYERSON will render such services as to which GENEREX and MEYERSON mutually agree and MEYERSON will exert its best efforts to accomplish the goals agreed to by MEYERSON and GENEREX. 2. In connection with the performance of this AGREEMENT, MEYERSON and GENEREX shall comply with all applicable laws and regulations, including, without limitation, those of the National Association of Securities Dealers, Inc. and the Securities and Exchange Commission. 3. a) In consideration of the services previously rendered and to be rendered by MEYERSON hereunder, MEYERSON is hereby granted five-year Warrants to purchase, at a price of $10.00 per share, a total of 300,000 shares of Common Stock of GENEREX with demand and piggy back registration rights as set forth in paragraph 4 below. Such Warrants ("MEYERSON Warrants") may be exercised at any time from the time that such Warrants vest to and including November 17, 2003. The MEYERSON Warrants shall vest as follows: 150,000 Warrants shall vest immediately upon the signing of this AGREEMENT and the remaining 150,000 Warrants shall vest on May 17, 1999. After 18 months from the date of this AGREEMENT, MEYERSON shall have, at MEYERSON's discretion, both a cashless exercise option to exercise the Warrants and rights of registration as described in paragraph 4 below. If the cashless exercise option is exercised, it would be accomplished by surrendering the vested Warrants and replacing them with the equivalent of shares that may be sold under Rule 144. The amount of shares of common stock of GENEREX to be issued will be based on the fair market value per share on the date of exercise and shall be valued at the average of the daily closing price for the five consecutive trading days immediately preceding the date of exercise. The presentation of a copy of this AGREEMENT by MEYERSON, together with a request that part or all of the Warrant be exercised and a direction that the appropriate number of shares be withheld to pay the exercise price, shall be deemed to be the surrender of such number of shares for purposes of exercising the cashless exercise option. b) Unless a registration statement under the Securities Act of 1933 (the "1933 Act") covering the shares issuable upon exercise of the MEYERSON Warrants (the "MEYERSON SHARES") is in effect at the time such Warrants are exercised, the MEYERSON SHARES will be "restricted securities", as that term is defined in Rule 144 under the 1933 Act, and will be legended accordingly. MEYERSON acknowledges and agrees that it will not make any resale or other transfer of any MEYERSON SHARES that are Restricted Securities except in compliance with Rule 144. If some or all of the MEYERSON Warrants are assigned pursuant to paragraph 16 below, any assignee attempting to exercise MEYERSON Warrants shall furnish to GENEREX such undertakings, confirmations and information as GENEREX may reasonably require in order to assure compliance with the 1933 Act and other securities laws applicable to the issuance of restricted securities to such assignees. No exercise of MEYERSON Warrants by an assignee of MEYERSON shall be effective unless and until this requirement is satisfied. 4. a) In addition to the exercise format described in paragraphs 3 a) and b) above, an additional registration route may also be available to MEYERSON, at their sole discretion, which is as follows: during the period from May 17, 2000 to November 17, 2003, the holders of at least 51% of: (i) the MEYERSON Warrants not then exercised; and (ii) MEYERSON SHARES previously issued upon exercise of any of the MEYERSON Warrants (hereinafter, collectively, the "MEYERSON EQUITY",) may demand, on one occasion only, that GENEREX at GENEREX's expense, promptly file a Registration Statement under the Securities Act of 1933, as amended ("ACT"), to permit a public offering of the MEYERSON SHARES. Additionally, if GENEREX during the period from May 17, 2000 to November 17, 2003, files a Registration Statement covering the sale of any of GENEREX's common stock, then GENEREX on each such occasion, at the request of the holders of at least 51% of the shares and warrants constituting the MEYERSON EQUITY, shall include in any such Registration Statement, at GENEREX`s expense, the MEYERSON SHARES, provided that, if the sale of securities by GENEREX is being made through an underwriter and the underwriter objects to inclusion of the MEYERSON SHARES in the Registration Statement, the MEYERSON SHARES shall not be so included in the Registration Statement or in any registration statement filed within 90 days after the effective date of the underwritten Registration Statement. b) Notwithstanding anything to the contrary in paragraph 4(a) above, the demand registration rights provided for in paragraph 4(a) shall be suspended and may not be exercised (i) at any time (A) that a registration statement for a primary offering of GENEREX securities (a "GENEREX registration statement") is pending under the 1933 Act or (B) that GENEREX 2 is in the process of preparing and filing a GENEREX registration statement pursuant to a letter of intent with an underwriter, or (ii) within ninety (90) days following the effectiveness of a GENEREX registration statement. The maximum period of time during which the demand registration rights provided for in paragraph 4(a) shall be suspended on any single occasion under this paragraph 4(b) shall not exceed the earlier of (i) 135 days, or (ii) 90 days following the effectiveness of a GENEREX registration statement. 5. In the event that GENEREX fails to honor the exercise by MEYERSON of any vested warrants as set forth herein, by failing to deliver the certificates(s) for the underlying shares of common stock to MEYERSON within 10 days after the effective exercise thereof, then MEYERSON may take legal action, without further notice to GENEREX to obtain such underlying shares, and GENEREX agrees to pay all damages, costs and expenses incurred by MEYERSON, including reasonable attorneys' fees. In addition to any other damages sustained by MEYERSON as a result of GENEREX`s failure to honor such exercise, including any diminution in the value of the underlying shares over time, GENEREX agrees that it will pay MEYERSON interest, at the average prime rate based on New York City banking levels for the prior six months, on the market value of the underlying shares as of the 10th day after the exercise, for the period beginning on the 10th day after the exercise and ending on the day the certificates for the underlying shares are received by MEYERSON. 6. If GENEREX should, at any time, or from time to time hereafter, effect a stock split, a reverse stock split, a business combination, a recapitalization or merger, the terms of the MEYERSON Warrants shall be proportionately adjusted to prevent the dilution or enlargement of the rights of the MEYERSON interest except to the extent of, and in proportion to, any dilution or enlargement in the interests of holders of GENEREX common stock resulting from such event or action. 7. The obligation of GENEREX to register the MEYERSON SHARES, including the shares issuable upon exercise of the MEYERSON Warrants, pursuant to the demand or the piggy back registration rights set forth in paragraph 6 above, shall be without regard to whether the MEYERSON Warrants have been or will be exercised. 8. GENEREX agrees that, for a period of two (2) years from the date of this AGREEMENT GENEREX will not issue, without the consent of MEYERSON, which consent will not be unreasonably withheld, any security or right that can be converted into or exercised to purchase GENEREX securities at a price or ratio that is not "fixed" but rather is to be determined at the time of exercise or otherwise in the future based upon the market price of GENEREX securities. 9. This AGREEMENT constitutes the entire Warrant Agreement between the parties and when a copy hereof is presented to GENEREX's transfer agent, together with a request that all or part of the MEYERSON Warrant be exercised and a certified check in the proper amount or a direction, pursuant to the cashless exercise option, that shares be withheld to pay for the exercise, the certificates for the appropriate number of shares of Common Stock shall be promptly issued. 10. Upon the execution of this AGREEMENT, GENEREX shall include in its next annual report and filings the highlights and terms of this investment banking AGREEMENT. Except for such disclosure, no public announcement or other disclosure of the parties' agreement hereunder shall be made, except (a) by MEYERSON in connection with its release of any research report or recommendation relating to GENEREX, and (b) by 3 GENEREX if such disclosure is required, in its counsel's opinion, in any public filing or other disclosure. 11. Upon the signing of this AGREEMENT, GENEREX shall pay MEYERSON $10,000 as a non-accountable and non-refundable expense allowance for due diligence and general compliance review. In addition, if GENEREX consummates a financing, merger, acquisition or other transaction that is initiated by MEYERSON, the parties anticipate that MEYERSON will receive "success fees", "transaction fees" or "commissions", provided, that no additional compensation will be due or payable to MEYERSON in respect of any such transaction or service unless MEYERSON and GENEREX have agreed in writing that the transaction or service in question is one for which MEYERSON will receive additional compensation. The amount of additional compensation to be paid in such cases shall be negotiated in good faith by MEYERSON and GENEREX, but shall not exceed usual and customary investment banker/broker-dealer compensation for comparable transactions and services. In addition, MEYERSON shall be reimbursed by GENEREX for any reasonable out-of-pocket expenses that MEYERSON may incur in connection with rendering any service to or on behalf of GENEREX that is approved, in writing, in advance by GENEREX's Chief Executive Officer. 12. GENEREX agrees to indemnify and hold MEYERSON and its directors, officers and employees harmless from and against any and all losses, claims, damages, liabilities, costs or expenses arising out of any action or cause of action brought against MEYERSON in connection with its rendering services under this AGREEMENT except for any losses, claims, damages, liabilities, costs or expenses resulting from any violation by MEYERSON of applicable laws and regulations including, without limitation, those of the National Association of Securities Dealers, Inc. and the Securities and Exchange Commission or any state securities commission or from any act of MEYERSON involving willful misconduct and except that GENEREX shall not be liable for any amount paid in settlement of any claim that is settled without its prior written consent. 13. MEYERSON agrees to indemnify and hold GENEREX and its directors, officers and employees harmless from and against any and all losses claims, damages, liabilities, costs or expenses resulting from any violation by MEYERSON of applicable laws and regulations including, without limitation, those of the National Association of Securities Dealers, Inc., the Securities and Exchange Commission or any state securities commission or from any act of MEYERSON involving willful misconduct. 14. Within 90 days of the date of this AGREEMENT, a representative of MEYERSON will visit the corporate headquarters of GENEREX. GENEREX will submit to MEYERSON a current business plan setting forth how GENEREX plans to proceed over the next two (2) years. 15. Nothing contained in this AGREEMENT shall be construed to constitute MEYERSON as a partner, employee, or agent of GENEREX; nor shall either party have any authority to bind the other in any respect, it being intended that MEYERSON is, and shall remain an independent contractor. 16. This AGREEMENT may not be assigned by either party hereto, except that MEYERSON may assign any or all of its Warrants to its employees, and shall be interpreted in accordance with the laws of the State of New Jersey applicable to agreements negotiated, entered into, and performed wholly within the State of New Jersey, and shall be binding upon the successors of the parties. 4 17. a) This AGREEMENT, and the parties' rights and obligations hereunder, are subject to early termination, as follows: (i) GENEREX may terminate this AGREEMENT at any time, without cause; (ii) MEYERSON may terminate this AGREEMENT on or prior to May 17, 1999, if GENEREX breaches any of its agreements or undertakings herein; and (iii) MEYERSON may terminate this AGREEMENT at any time after May 17, 1999, without cause. b) Upon termination of this AGREEMENT: (i) MEYERSON Warrants which are not vested at the time of termination shall be canceled without the necessity of any further action by GENEREX, and shall be of no further force or effect; (ii) MEYERSON Warrants which are then vested shall remain outstanding, and the holders of such Warrants and any MEYERSON SHARES issued on the exercise of MEYERSON Warrants shall retain all of their rights relating thereto, including the registration rights provided for in paragraphs 4(a) and 4(b) above; (iii) MEYERSON's rights to receive additional compensation pursuant to paragraph 11 above in respect of any pending or completed transaction or service shall survive such termination; and (iv) The parties' respective rights under paragraphs 12 and 13 above shall survive such termination. 18. If any paragraph, sentence, clause or phrase of this AGREEMENT is for any reason declared to be illegal, invalid, unconstitutional, void or unenforceable, all other paragraphs, sentences, clauses or phrases hereof not so held shall be and remain in full force and effect. 19. None of the terms of this AGREEMENT shall be deemed to be waived or modified except by an express agreement in writing signed by the party against whom enforcement of such waiver or modification is sought. The failure of either party at any time to require performance by the other party of any provision hereof shall, in no way, affect the full right to require such performance at any time thereafter. Nor shall the waiver by either party of a breach of any provision hereof be taken or held to be a waiver of any succeeding breach of such provision or as a waiver of the provision itself. 20. Any dispute, claim or controversy arising out of or relating to this AGREEMENT, or the breach thereof, shall be settled by arbitration in Jersey City, New Jersey, in accordance with the Commercial Arbitration Rules of the American Arbitration. The parties hereto agree that they will abide by and perform any award rendered by the arbitrator(s) and that judgment upon any such award may be entered in any Court, state or federal, having jurisdiction over the party against whom the judgment is being entered. Any arbitration demand, summons, complaint, other process, notice of motion, or other application to an arbitration panel, Court or Judge, and any arbitration award or judgment may be served upon any party hereto by registered or certified mail, or by personal service, provided a reasonable time for appearance or answer is allowed. 5 21. For purposes of compliance with laws pertaining to potential inside information being distributed unauthorized to anyone, all communications regarding GENEREX`s confidential information should only be directed to Martin H. Meyerson, Chairman, Michael Silvestri, President, or Joseph Messina, Vice President, Compliance. If information is being faxed, our confidential compliance fax number is (201) 459-9534 for communication use. IN WITNESS WHEREOF, the parties hereto have executed this AGREEMENT as of the day and year set forth above. M. H. Meyerson & Co., Inc. Generex Biotechnology Corporation By: ______________________________ By: _____________________________________ Michael Silvestri Anna E. Gluskin President President and Chief Executive Officer EX-4.5.1 11 SUBSCRIPTION FOR SHARES OF COMMON STOCK Generex Biotechnology Corporation Attn: Anna E. Gluskin, President 33 Harbour Square, Suite 202 Toronto, Ontario CANADA M5J 2G2 RE: Subscription for Shares of Common Stock Gentlemen/Ladies: The undersigned (hereinafter referred to as "Investor") hereby subscribes for and agrees to purchase FIVE HUNDRED THOUSAND (500,000) SHARES of Common Stock (the "Shares") of Generex Biotechnology Corporation (hereinafter referred to as the "Company"), an Idaho corporation, at a price of FOUR ($4.00) DOLLARS per share, for a total purchase price of TWO MILLION ($2,000,000.00) DOLLARS, on and subject to the following terms and conditions: 1. Investor is making this subscription in the expectation that the Company will accept this subscription and deliver its acceptance promptly following receipt of the subscription from Investor. If this subscription is not accepted by the Company before the close of business on the fifth business day following the date of delivery to the Company of the within subscription, the subscription shall expire and have no further force or effect, and Investor shall have no further obligation hereunder. Except as set forth in the preceding sentence and in Section 9 below, the Investor acknowledges and agrees that this subscription is irrevocable, Investor is not entitled to cancel, terminate or revoke the subscription or any agreements of Investor hereunder, and that the subscription shall survive the death or disability of the Investor. 2. (a) Payment for one hundred twenty-five thousand (125,000) of the aforementioned shares, i.e. $500,000, is being tendered to the Company herewith either by bank cashier's or certified check payable to the Company, or by wire transfer of funds to the Company's account no. 400-764-7 in the name of the Company at Royal Bank of Canada located at 200 Bay Street, Toronto, Ontario, routing number 00002. (b) Payment for the remaining three hundred seventy-five thousand (375,000) shares (hereinafter sometimes referred to as the "Conditional Shares") shall be paid to the Company on or prior to December 23, 1998, in the manner described in (a) above. (c) Time shall be of the essence with respect to the times for payment of the subscription price for the Conditional Shares. If Investor shall fail to make payment for the Conditional Shares when due, the Company may elect to terminate its obligation to issue and sell to Investor hereunder any Conditional Shares not previously paid for on or prior to December 23, 1998. 3. Unless Investor otherwise advises the Company, the Shares, when issued, should be registered on the Company's books as follows: William H. Steinbrink, MD, 122 Columbia Circle, Erie, PA 16505. 4. Investor understands and agrees that: (a) This subscription may be accepted or rejected, in whole or in part, by the Company within the five day period referred to in Section 1 in its sole and absolute discretion. (b) No federal, state or provincial authority in Canada or the United States of America (the "US") has made any finding or determination as to the merits of an investment in the Company. (c) Investor is an "accredited investor" as that term is defined in Rule 501(a), Regulation D, promulgated under the US Securities Act of 1933, as amended (the "1933 Act"), and has conducted Investor's own investigation of the Company, its business and financial position. Investor has requested and received from the Company all information deemed necessary by Investor in order to evaluate an investment in the Company. The Shares are being acquired for Investor's own account and/or for the account of a limited number of friends, family and/or close business associates of Investor, all of whom also are accredited investors. Investor shall promptly advise the Company if anyone other than the Investor is the beneficial owner of any Shares registered in Investor's name, and shall furnish to the Company the name and residence address of such beneficial owner(s). (d) Because the Shares have not been registered under the 1933 Act or the securities laws of any other country, state or province, and are being sold to Investor in reliance upon an exemption from such registration requirements for non-public offerings pursuant to Rule 506 of Regulation D under the 1933 Act, the Shares shall be subject to restrictions on resale and/or other transfers to comply with and to assure future compliance with the 1933 Act. Investor will not resell or otherwise transfer any Shares except in compliance with the 1933 Act, and certificates for the Shares will bear a legend to the effect that transfer of the Shares is subject to restrictions to insure that any such transfer is in compliance with the 1933 Act. In addition, stop transfer instructions will be placed with the transfer agent for the Company's Common Stock to enforce such restrictions. 5. Investor understands that Investor must bear the economic risk of an investment in the Shares for an indefinite period of time, and represents and warrants to the Company that, except as indicated in paragraph 4(c) above, Investor: is purchasing the Shares for Investor's own account and not for the purpose of resale or otherwise effecting a distribution of the Shares; has no contract, undertaking, agreement or arrangement with any person to sell, transfer or pledge any Shares to such person or anyone else; has no present plans to enter into any such contract, undertaking, agreement or arrangement; and has full power and authority to execute and deliver this subscription and to perform the obligations of Investor hereunder. 6. In addition to the investment representations and agreements set forth in paragraphs 4 and 5 above, to induce the Company to accept this subscription and as additional consideration for the Shares, the Investor agrees as follows: (a) For a period of five (5) years from the date the Shares are issued by the Company (the "Restricted Period"), Investor agrees to vote, or to authorize a person designated by the Company's Board of Directors to vote, as Investor's proxy, all Shares over which Investor has voting power as of the record date of any meeting of shareholders of the Company in proportion to the votes of all other shareholders of the Company cast at such meeting. Investor further agrees that Investor will not authorize any other person to vote such Shares in a manner inconsistent with Investor's agreements herein, provided that nothing herein shall prevent Investor 2 from selling or otherwise disposing of any Shares, subject to the terms of paragraph (b) and (c) below. (b) During the first year of the Restricted Period, Investor will not sell or otherwise transfer any Shares without the Company's prior written approval. Thereafter, for the remainder of the Restricted Period, and provided that a public market exists for the Company's Common Stock, Investor will not sell any Shares without first offering to sell such Shares to the Company at a price equal to seventy (70%) percent of the then current Market Price of the Company's publicly-traded shares of Common Stock. For this purpose, the Market Price of shares of the Company's publicly-traded Common Stock shall be (i) the average closing sale price during a period of twenty days immediately preceding the date of such offer on which the New York Stock Exchange was open for trading (the "Valuation Period")(or, if no sales are reported on any given day, the closing "bid" price reported) for the Common Stock on NASDAQ/NMS or, (ii) if the Common Stock is not listed on NASDAQ/NMS, such closing sale or "bid" price as reported on any comparable automated quotation system or exchange on which the Common Stock is then listed, or (iii) any combination thereof. (c) Any offer by Investor to sell Shares to the Company pursuant to paragraph (b) above shall be in writing, shall set forth the proposed manner in which Investor intends to sell the Shares if the offer to the Company is not accepted (including the identity of the proposed buyer if the proposed manner of sale is other than in routine "brokers' transactions", within the meaning of that term as used in Rule 144 under the 1933 Act), and shall be delivered to the Company at its address as set forth above, or at such other address that the Company may hereafter designate for notice purposes (the "Company Notice Address"). The Company shall have fifteen (15) calendar days after receipt of such offer to accept the offer by delivering written notice of its acceptance to Investor personally by hand or by Federal Express courier to Investor at the address specified for this purpose by Investor in Investor's offer to the Company or, if no address is so specified, at the address for notice purposes as set forth below Investor's signature hereon. The Company's acceptance shall be effective upon delivery. (d) If the Company timely accepts the offer, Investor shall tender the Shares to the Company at office of the Company to which Investor's offer was delivered, against payment for such Shares by certified check, bank check or wire transfer funds to an account designated by Investor. If the Company fails to timely accept the offer, Investor shall be free to sell the Shares but only in the manner (and to the buyer identified in the offer if the proposed manner of sale is not in routine brokers' transactions) set forth in Investor's offer to the Company. If the Company accepts the offer but fails to pay for the Shares specified in the offer in the manner provided herein, all restrictions on resale of the Shares pursuant to paragraph (b) above shall terminate. (e) Certificates representing the Shares shall be legended to reflect the above restrictions, as well as the securities laws restrictions referred to in Section 4 above. 7. Investor recognizes that the sale of the Shares to Investor is being made in reliance upon Investor's agreements, representations and warranties set forth in paragraphs 4, 5 and 6 hereof. Investor agrees to indemnify the Company, its agents and controlling persons for, and to hold each of them harmless against, any liability, loss, damage cost or expense (including reasonable attorneys' fees) arising from any breach thereof by Investor. 3 8. Acceptance of this subscription by the Company shall be effected by the Company's signing (by its duly authorized officer) a copy of this subscription in the space provided below, and by delivering that signed copy to Investor personally by hand, or by delivering such signed copy via Federal Express courier to Investor at the address for notice purposes set forth below Investor's signature(s) hereon. The Company's acceptance shall be effective upon delivery to Investor in accordance with this Section 8. 9. After December 31, 1999, the Company agrees to repurchase from Investor such portion or all of the Shares as Investor may wish to resell to the Company at a price equal to seventy (70%) percent of the then current Market Price of the Company's publicly-traded shares of Common Stock, as determined in accordance with paragraph 6(b) above. If Investor wishes to resell any Shares to the Company pursuant to this paragraph, he will deliver to the Company, at the Company Notice Address, the certificate(s) representing the Shares to be resold, endorsed for transfer to the Company, and a demand that the Company repurchase the Shares pursuant hereto. The Company shall effect the repurchase of the Shares and remit payment to the Investor within five (5) business days following its receipt of such notice and demand. If the Company fails to make timely payment for the Shares, it will, in addition to the repurchase price, be required to pay interest on the repurchase price at the rate of 18% per annum until the repurchase price is paid in full. In addition, if the Company fails to pay for such Shares within ten (10) days after payment is due, all restrictions of resale of Shares by the Investor pursuant to paragraph 6 hereof shall terminate. IN WITNESS WHEREOF, and intending to be legally bound hereby, the Investor has executed this Subscription Agreement this ____ day of __________________, 1998. ________________________________________________________________________________ (Print name(s) of Investor) ________________________________________________________________________________ (Signature of Investor(s) or Authorized Person. If signing in a representative, please print name and title below signature.) Investor's address for notice purposes is: ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ******************************************************************************** This Subscription is hereby accepted by Generex Biotechnology Corporation this ____ day of ______________________, 1998. GENEREX BIOTECHNOLOGY CORPORATION By: _________________________________________ 4 EX-4.5.2 12 SUBSCRIPTION FOR SHARES OF COMMON STOCK Generex Biotechnology Corporation Attn: Anna E. Gluskin, President 33 Harbour Square, Suite 202 Toronto, Ontario CANADA M5J 2G2 RE: Subscription for Shares of Common Stock --------------------------------------- Gentlemen/Ladies: The undersigned (hereinafter referred to as "Investor") hereby subscribes for and agrees to purchase __________________________________________________ (US$________ ) SHARES of Common Stock of Generex Biotechnology Corporation (hereinafter referred to as the "Company"), an Idaho corporation, at a price of FOUR and 10/100 (US$4.10) DOLLARS per share, for a total purchase price ________________________________ (US$____________ ) DOLLARS, on and subject to the following terms and conditions: 1. Investor is making this subscription in the expectation that the Company will accept this subscription and deliver its acceptance promptly following receipt of the subscription from Investor. If this subscription is not accepted by the Company before the close of business on the third business day following the date of delivery to the Company of the within subscription, the subscription shall expire and have no further force or effect, and Investor shall have no further obligation hereunder. The Investor acknowledges and agrees that this subscription is irrevocable, Investor is not entitled to cancel, terminate or revoke the subscription or any agreements of Investor hereunder, and that the subscription shall survive the death or disability of the Investor. 2. Payment for the aforementioned shares (the "Shares") will be delivered to the Company at the above address by bank cashier's or certified check payable to the Company, or by wire transfer of funds to the Company's account no. 400-764-7 in the name of the Company at Royal Bank of Canada located at 200 Bay Street, Toronto, Ontario, routing number 00002, on the following dates in the amounts indicated: Date Due Payment Amount -------- -------------- -- -------- -------------- 3. Unless Investor otherwise advises the Company, the Shares, when issued, should be registered on the Company's books as follows: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 4. Investor understands and agrees that: (a) This subscription may be accepted or rejected, in whole or in part, by the Company within the three business day period referred to in Section 1 in its sole and absolute discretion. (b) No federal, state or provincial authority in Canada or the United States of America (the "US") has made any finding or determination as to the merits of an investment in the Company. (c) Investor is an "accredited investor" as that term is defined in Rule 501(a), Regulation D, promulgated under the US Securities Act of 1933, as amended (the "1933 Act"), and has conducted Investor's own investigation of the Company, its business and financial position. Investor has requested and received from the Company all information deemed necessary by Investor in order to evaluate an investment in the Company. The Shares are being acquired for Investor's own account and/or for the account of a limited number of friends, family and/or close business associates of Investor, all of whom also are accredited investors. Investor shall promptly advise the Company if anyone other than the Investor is the beneficial owner of any Shares registered in Investor's name, and shall furnish to the Company the name and residence address of such beneficial owner(s). (d) Because the Shares have not been registered under the 1933 Act or the securities laws of any other country, state or province, and are being sold to Investor in reliance upon an exemption from such registration requirements for non-public offerings pursuant to Rule 506 of Regulation D under the 1933 Act and from the prospectus requirements of Section 72(1)(d) of the Ontario Securities Act, the Shares shall be subject to restrictions on resale and/or other transfers to comply with and to assure future compliance with such laws. Investor will not resell or otherwise transfer any Shares except in compliance with such laws, and certificates for the Shares will bear a legend to the effect that transfer of the Shares is subject to restrictions to insure that any such transfer is in compliance with such laws. In addition, stop transfer instructions will be placed with the transfer agent for the Company's Common Stock to enforce such restrictions. 2 5. Investor understands that Investor must bear the economic risk of an investment in the Shares for an indefinite period of time, and represents and warrants to the Company that, except as indicated in paragraph 4(c) above, Investor: is purchasing the Shares for Investor's own account and not for the purpose of resale or otherwise effecting a distribution of the Shares; has no contract, undertaking, agreement or arrangement with any person to sell, transfer or pledge any Shares to such person or anyone else; has no present plans to enter into any such contract, undertaking, agreement or arrangement; and has full power and authority to execute and deliver this subscription and to perform the obligations of Investor hereunder. 6. In addition to the investment representations and agreements set forth in paragraphs 4 and 5 above, to induce the Company to accept this subscription and as additional consideration for the Shares, the Investor agrees as follows: (a) For a period of five (5) years from the date the Shares are issued by the Company (the "Restricted Period"), Investor agrees to vote, or to authorize a person designated by the Company's Board of Directors to vote, as Investor's proxy, all Shares over which Investor has voting power as of the record date of any meeting of shareholders of the Company in proportion to the votes of all other shareholders of the Company cast at such meeting. Investor further agrees that Investor will not authorize any other person to vote such Shares in a manner inconsistent with Investor's agreements herein, provided that nothing herein shall prevent Investor from selling or otherwise disposing of any Shares, subject to the terms of paragraph (b) and (c) below. (b) During the first year of the Restricted Period, Investor will not sell or otherwise transfer any Shares without the Company's prior written approval. Thereafter, for the remainder of the Restricted Period, and provided that a public market exists for the Company's Common Stock, Investor will not sell any Shares without first offering to sell such Shares to the Company at the then current Market Price of the Company's publicly-traded shares of Common Stock. For this purpose, the Market Price of shares of the Company's publicly-traded Common Stock shall be (i) the average closing sale price during a period of twenty days immediately preceding the date of such offer on which the New York Stock Exchange was open for trading (the "Valuation Period")(or, if no sales are reported on any given day, the closing "bid" price reported) for the Common Stock on NASDAQ/NMS or, (ii) if the Common Stock is not listed on NASDAQ/NMS, such closing sale or "bid" price as reported on any comparable automated quotation system or exchange on which the Common Stock is then listed, or (iii) any combination thereof. (c) Any offer by Investor to sell Shares to the Company pursuant to paragraph (b) above shall be in writing, shall set forth the proposed manner in which Investor intends to sell the Shares if the offer to the Company is not accepted (including the identity of the proposed buyer if the proposed manner of sale is other than in routine "brokers' transactions", within the meaning of that term as used in Rule 144 under the 1933 Act), and shall be delivered to the Company at its address as set 3 forth above, or at such other address that the Company may hereafter designate for notice purposes. The Company shall have fifteen (15) calendar days after receipt of such offer to accept the offer by delivering written notice of its acceptance to Investor personally by hand or by Federal Express courier to Investor at the address specified for this purpose by Investor in Investor's offer to the Company or, if no address is so specified, at the address for notice purposes as set forth below Investor's signature hereon. The Company's acceptance shall be effective upon delivery. (d) If the Company timely accepts the offer, Investor shall tender the Shares to the Company at office of the Company to which Investor's offer was delivered, against payment for such Shares by certified check, bank check or wire transfer funds to an account designated by Investor. If the Company fails to timely accept the offer, Investor shall be free to sell the Shares but only in the manner (and to the buyer identified in the offer if the proposed manner of sale is not in routine brokers' transactions) set forth in Investor's offer to the Company. If the Company accepts the offer but fails to pay for the Shares specified in the offer in the manner provided herein, all restrictions on resale of the Shares pursuant to paragraph (b) above shall terminate. (e) Notwithstanding anything to the contrary in paragraphs (b) and (c) above, Investor may transfer record ownership of the Shares to any other person who was the beneficial owner thereof at the time the Shares were issued, subject to compliance with applicable securities laws and provided that such person first enters into a separate agreement with the Company to be bound by the provisions of this subscription relating to the voting and transfer of Shares. In addition, after the first year of the Restricted Period, Investor may sell in routine brokers' transactions during any continuous ninety day period a number of Shares equal (in the aggregate) to one (1%) percent of the total number of shares of the Common Stock of the Company outstanding at the time of such sale. (f) Certificates representing the Shares shall be legended to reflect the above restrictions, as well as the securities laws restrictions referred to in Section 4 above. 7. Investor recognizes that the sale of the Shares to Investor is being made in reliance upon Investor's agreements, representations and warranties set forth in paragraphs 4, 5 and 6 hereof. Investor agrees to indemnify the Company, its agents and controlling persons for, and to hold each of them harmless against, any liability, loss, damage cost or expense (including reasonable attorneys' fees) arising from any breach thereof by Investor. 8. Acceptance of this subscription by the Company shall be effected by the Company's signing (by its duly authorized officer) a copy of this subscription in the space provided below, and by delivering that signed copy to Investor personally by hand, or by delivering such signed copy via Federal Express courier to Investor at the address for notice purposes set forth below Investor's signature(s) hereon. The Company's acceptance shall be effective upon delivery to Investor in accordance with this Section 8. 4 9. Whenever a time for performance is specified herein, time shall be of the essence of the parties' agreements herein and this subscription shall be interpreted accordingly. IN WITNESS WHEREOF, and intending to be legally bound hereby, the Investor has executed this Subscription Agreement this ________ day of,_________________1998. - -------------------------------------------------------------------------------- (Print name(s) of Investor) - -------------------------------------------------------------------------------- (Signature of Investor(s) or Authorized Person. If signing in a representative, please print name and title below signature.) Investor's address for notice purposes is: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ******************************************************************************* This Subscription is hereby accepted by Generex Biotechnology Corporation this ___ day of __________, 1998. GENEREX BIOTECHNOLOGY CORPORATION By: ---------------------------------- 5 EX-10.1.1 13 MEMORANDUM OF AGREEMENT MEMORANDUM OF AGREEMENT THIS AGREEMENT made as of the 7th day of January, 1998, between GENEREX PHARMACEUTICALS INC., an Ontario corporation, GHI, INC. ("GHI"), a Turks and Cacos corporation, GENEREX BIOTECHNOLOGY CORPORATION, a Delaware corporation, DR. PANKAJ MODI ("Modi"), an individual, and GALAXY TECHNOLOGY, CANADA ("Galaxy"), a proprietorship of Modi's. WHEREAS, Modi was engaged by Generex Pharmaceuticals, Inc. ("GPI") to provide certain services to GPI in connection with its research and development initiatives pursuant to a Consulting Agreement made as of the 1st day of October, 1996 (the "Consulting Agreement") between CPI and Modi; and WHEREAS, pursuant to an Assignment and Assumption Agreement made as of the 1st day of October, 1997 (the "Assignment and Assumption Agreement"), Modi assigned to GPI all of his rights, title and interests in and to certain drug delivery systems and the intellectual property associated therewith (collectively, the "Technology") and, in that regard, has executed and delivered to GPI a number of related specific assignments (the "Specific Assignments"); and WHEREAS, in connection with the execution of the Consulting Agreement and Assignment of certain technology to GPI, Modi received shares of GPI common stock, which shares were held of record by GHI for Modi's benefit, and subsequently exchanged by GHI for shares of Generex Biotechnology corporation ("GBC"); and WHEREAS, GBC now owns 100% of the outstanding capital stock of GPI; and WHEREAS, Modi owns and controls Galaxy; and WHEREAS, Modi has approached management of GPI and GBC, and indicated that he executed and delivered the Consulting Agreement, Assignment and Assumption Agreement and the Specific Assignments because he had satisfied himself that E. Mark Perri, the current Chairman of the Board of GPI, Anna E. Gluskin, the current President of GPI, and Rose C. Perri (collectively, the "Management Group"), the founders and directing mind and will of GPI and the individuals who currently manage or supervise the management of the business and affairs of GPI, had the requisite skills, motivation and vision to make the Technology a medical and commercial success on a worldwide basis, and in reliance upon their representations to him that he would have a central role in the ongoing research and development of the Technology; and WHEREAS, Modi considers that his and the Management Group's continued involvement is crucial to the successful development of the Technology and the successful commercial marketing and sale of products employing the Technology ("Technology Products"); and WHEREAS, Modi has advised GPI that he intends to exercise his right to terminate the Consulting Agreement in the absence of agreements and procedures that will assure the continued involvement of Modi and the Management Group in the development of the Technology and, ultimately, the manufacture of Technology Products; and WHEREAS, GPI and GBC consider that the continued involvement and dedication of Modi is crucial to the successful creation and implementation of the research and development initiatives required to create commercially viable Technology Products; NOW, THEREFORE, in consideration of Modi's continued support of GPI and the Technology pursuant to the Consulting Agreement and for other good and valuable consideration, the parties agree as follows: 1. Extension of Terms of Consulting Agreement. The Consulting Agreement is hereby extended to and including December 31, 2004, and paragraph 5 of the Consulting Agreement is amended accordingly. During the term of the Consulting Agreement, Modi shall have the title of Vice President, Research and Development of GPI and of GBC. 2. Compensation. Modi's annual fee for services is increased to $132,000 (CDN) per year, payable in equal monthly installments of $11,000, effective as of the earlier of (a) first day of the first month following the date that GPI and GBC, collectively, receive additional equity capital of $2,000,000 (US) or more, or (b) April 1, 1998. 3. Revisions of Section 7 of Consulting Agreement. Section 7 of the Consulting Agreement is amended and restated in its entirety to provide the following: "7. Termination This Agreement shall terminate upon the death of the Consultant or declaration by a court of competent jurisdiction that the Consultant is a mentally incompetent person or incapable of handling his affairs due to mental incompetence, and may be terminated: (a) at any time by mutual agreement of the Corporation and the Consultant in writing; (b) by Consultant at any time after January 1, 2001, upon twelve (12) months notice; (c) by the Corporation for just cause at any time by giving thirty (30) days written notice thereof to the Consultant. As used herein, the term "just cause" shall mean and be limited to: (i) a material breach of trust by the Consultant which causes or threatens serious injury to the Corporation; (ii) gross negligence or incompetence on the part of the Consultant; 2 (iii) a material breach of any provision of this Agreement by the Consultant; (iv) inability of the Consultant as a result of a bona fide illness, physical or mental, to attend to his duties hereunder for a period of twenty-four (24) consecutive weeks, which period shall be deemed to commence with such inability and shall continue until the Consultant is once again able to attend to his duties hereunder on a regular basis; (v) disobedience or intentional neglect by the Consultant of any written directive of the Chief Executive Officer of the Corporation which is neither inconsistent with Consultant's duties, authority or rights under this or any other agreement between Consultant and the Corporation, nor outside the scope of his normal duties as Vice President, Research and Development; or (vi) any action by the Consultant taken with the intent to materially and adversely affect a material interest of the Corporation." 4. Consent Required. During the term of the Consultant Agreement, neither GPI nor GBC, without first consulting with Modi and obtaining his express consent or approval, which consent or approval shall not be withheld by Dr. Modi unreasonably, shall do any of the following or suffer or permit any affiliate of theirs or any other person to do any of the following: (a) Publish any papers or otherwise make any public disclosure of previously unpublished research, formulations, test results or other confidential and/or proprietary data relating to the Technology; or (b) Enter into a contract for the manufacture of Technology Products, or components of Technology Products; or (c) License any other person or entity to use the Technology. For purposes hereof, in determining whether or not withholding consent to any of the foregoing actions is unreasonable, among the factors that shall be considered, in the case of (a), are the possible injury to the Corporation and/or the Corporation's research and development program and, in the case of (b) and (c), the commercial and scientific reputation and expertise and financial strength of a prospective manufacturer or licensee. 5. Election of Modi as a Director. So long as the Consulting Agreement is in force, GPI and GBC shall use their best efforts to cause Modi to be nominated for election and elected a director of both GPI and GBC. 6. Issuance of Special Voting Rights Preferred Stock. Simultaneously with the execution and delivery of this Agreement, and in consideration of his execution of this Agreement and the sum of $100.00 (US), receipt of which is 3 acknowledged, GBC shall issue and deliver to Modi one thousand (1,000) shares of GBC's Special Voting Rights Preferred Stock (the "SVR Preferred"), the special voting and other rights of which are set forth in the form of "Designation of Special Voting Rights Preferred Stock" attached hereto as Exhibit "A". So long as the SVR Preferred is outstanding, GBC shall not issue any shares of capital stock or take any other corporate actions which would limit or interfere with the exercise of the voting rights of holders of SVR Preferred. 7. Reimbursement for Prior Costs Incurred. GPI shall pay $150,000 (CDN) to Modi to reimburse Modi for costs previously incurred by him in connection with preparation and filing of patent applications and conducting of tests and clinical trials relating to the Technology. This amount shall be paid in three $50,000 installments on March 31, 1998, June 30, 1998 and September 30, 1998. 8. Counsel for the Transaction. (a) each of the parties hereto has requested Joseph Chicco ("Chicco") of the firm Connolly Epstein Chicco Foxman Engelmyer & Ewing, Philadelphia, PA, to represent him/it in connection with the preparation and execution of this Memorandum of Agreement. Each of the parties understands that Chicco represents GPI and GBC in matters wholly unrelated to this transaction, but that the business of GPI and GPC is materially dependent on Modi's research and inventions. The parties understand that, with respect to the transactions contemplated by this Memorandum of Agreement, no communications to Chicco by a party shall be considered confidential so as to preclude disclosure to other parties, and the parties acknowledge that Chicco has advised them that he may communicate information obtained from one party to one or more other parties, and will communicate all such information received to another party upon its request. The parties understand that, in this capacity, Chicco cannot be an advocate for his or its interest against the interest of one or more of the other parties. Rather, his role shall be to advise each party on the effect and meaning of various terms that may be proposed by one or more of the parties, and to attempt to mediate and facilitate a resolution of any disputed proposals. Chicco's fees and expenses in connection with this representation shall be paid by GBC. (b) Each of the parties waives all real and potential conflicts of interests that arise out of Chicco's multiple representation of the parties in this transaction. 9. GBC Common Stock. GHI presently owns 8,688,427 shares of GBC Common Stock. GHI and each of the other parties hereto acknowledge that 3,095,238 of such shares (the "Modi Shares") are held in trust for Modi. At Modi's request, record ownership of the Modi Shares shall be transferred to Modi or his nominee by GHI. 10. Galaxy. All assignments of Technology heretofore made by Modi are intended to include all rights, title and interest of Galaxy in and to such Technology. 11. Governing Law. This Memorandum of Agreement shall be governed by the laws of the Province of Ontario and of Canada applicable therein, and the parties hereby irrevocably attorn to the jurisdiction of the courts of the Province of Ontario, except that the parties' rights and obligations with respect to paragraph 6 above shall be governed by the laws of the State of Delaware. 4 12. Assignment. The benefits of this Memorandum of Agreement may not be assigned, in whole or in part, by any party without the prior written consent of the others, but this Agreement nevertheless shall be binding upon the parties, their respective heirs, legal personal representatives, successors and permitted assigns. IN WITNESS WHEREOF, the parties have executive and delivered this Memorandum of Agreement as of the date first written above. Witness: /S/ /S/ Pankaj Modi - -------------------------- ---------------------------------------- Pankaj Modi, individually and on behalf Of Galaxy Technology, Canada GENEREX PHARMACEUTICALS INC. Per: /S/ Anna E. Gluskin ------------------------------------ Anna E. Gluskin, President Per: /S/ E. Mark Perri ------------------------------------ E. Mark Perri, Chairman GENEREX BIOTECHNOLOGY CORP. Per: /S/ Anna E. Gluskin ------------------------------------ Anna E. Gluskin, President Per: /S/ E. Mark Perri ------------------------------------ E. Mark Perri, Chairman GHI, INC. Per: /S/ Anna E. Gluskin ------------------------------------ Anna E. Gluskin, President Per: /S/ E. Mark Perri ------------------------------------ E. Mark Perri, Chairman 5 CONSULTING AGREEMENT THIS AGREEMENT made as of the 1st day of October, 1996. B E T W E E N: GENEREX PHARMACEUTICALS INC., a corporation incorporated under the laws of the Province of Ontario (the "Corporation") - and - DR. PANKAJ MODI, an individual residing in the City of Hamilton in the Province of Ontario, carrying on business as Galaxy Technology Canada (the "Consultant") WHEREAS, the Corporation is engaged in the business of the development, manufacturing, marketing, distribution and sale of generic drug products (the "Business"); AND WHEREAS, the Corporation wishes to engage the Consultant and obtain certain services of the Consulting on and subject to the terms of this Agreement; THE PARTIES AGREE AS FOLLOWS: 1. Appointment The Corporation hereby appoints the Consultant to serve as a consultant to the Corporation to perform such services or such duties as the management of the Corporation may from time to time request, at a remuneration and upon and subject to the terms set forth in this Agreement, which the Consultant accepts. 2. Services Subject to section 1 hereof, the Consultant shall provide the following services to, for and on behalf of the Corporation: (a) the provision of management, administration and supervision in respect of the Corporation's research and development activities in connection with the Business; (b) the determination, establishment and implementation of effective operating procedures for the conduct of the Corporation's research and development activities in an efficient and effective manner; (c) the implementation and achievement of the general corporate goals, plans and objectives of the Corporation in respect of research and development and, in connection therewith, full cooperation with the officers and employees of the Corporation; (d) the preparation and submission to the President of the Corporation of periodic reports in respect of the Corporation's research and development activities; (e) the enhancement of the image and reputation of the Corporation; and (f) the promotion of the best interests and well-being of the Corporation generally, and such other advisory, operational or consultative functions as the Corporation may reasonably require in connection with the Business. During the continuance of this Agreement, the Consultant shall well and faithfully serve the Corporation and shall report to the President of the Corporation. 3. Full Time and Attention Unless prevented by ill health or other sufficient cause, the Consultant shall devote, during the term of this Agreement, his full working time, attention, skill and efforts to the Corporation as required herein, and the Consultant shall not, without the prior written consent of the Corporation, engage in any other activities competitive with the Business or other undertakings from time to time carried on by the Corporation or any affiliate thereof. Notwithstanding the foregoing, the Consultant shall be entitled to an aggregate of three (3) weeks vacation during each of the first three (3) years of the term of this Agreement and an aggregate of four (4) weeks vacation during each year of the term of this Agreement thereafter. 4. Independent Contractor Nothing herein contained shall be construed to be or have effect as a relationship of employer and employee between the Corporation and the Consultant. The Consultant acknowledges that any benefits not specifically listed in this Agreement for his employees providing services under this Agreement shall be for his sole account. 5. Term Unless sooner terminated as provided for herein, this Agreement shall commence on the 1st day of October, 1996, and shall continue until October 31, 2001. 6. Compensation Fee and Benefits For the services to be rendered by the Consultant to the Corporation hereunder, subject to the provisions of this Agreement, the Consultant shall be entitled to receive and the Corporation shall provide during the term of this Agreement: (a) a fee of Eighty Four Thousand Dollars ($84,000) for each year during the term of this Agreement, which shall be paid in equal monthly installments of Seven Thousand Dollars ($7,000) each payable on the 30th day of each month, not in advance; and (b) the sum of Five Hundred Dollars ($500) per month payable on the 30th day of each month, not in advance, to offset the expenses and costs (including expenses and costs incurred in obtaining and operating an automobile) incurred in connection with the performance of the Consultant's services hereunder (for greater certainty, any and all expenses and costs incurred by the Consultant in excess of such offsetting payment shall be the sole responsibility of and borne by the Consultant). 7. Termination This Agreement shall terminate upon the death of the Consultant or declaration by a court of competent jurisdiction that the Consultant is a mentally incompetent person or incapable of handling his affairs due to mental incompetency and may be terminated: (a) at any time by mutual agreement of the Corporation and the Consultant in writing; (b) by either the Consultant or the Corporation without cause at any time upon 12 months written notice; (c) by the Corporation for just cause at any time by giving written notice thereof to the Consultant. Without limiting the generality of the foregoing, "just cause" shall include: (i) any cause which would entitle the Corporation at law to terminate the service of the Consultant without either notice or pay in lieu of notice; (ii) a material breach of trust or duty by the Consultant; (iii) dishonesty on the part of the Consultant; (iv) gross negligence or incompetence on the part of the Consultant; (v) a material breach of any provision of this Agreement; (vi) inability of the Consultant as a result of bona fide illness, physical or mental, to attend on a fully time basis, to his duties hereunder for a period of twenty-four (24) weeks, which period shall be deemed to commence on the first business day that the Consultant does not attend to his duties hereunder on a full time basis, statutory holidays and vacations excepted, and to continue until the Consultant has resumed attendance to his duties hereunder on a full time basis for thirty (30) consecutive business days; (vii) if the Consultant files an assignment in bankruptcy or is adjudicated a bankrupt; (viii) disobedience or neglect by the Consultant of any reasonable directions of the President of the Corporation; or (ix) any action done by the Consultant knowingly or intentionally which is materially detrimental to the welfare or interest of the Corporation, its reputation or the Business. In the event of termination, either with or without cause, the Consultant shall receive: (a) all fees owing until the date of termination; and (b) any benefit to which the Consultant is otherwise entitled to under this Agreement, for services performed to date of termination. The Consultant acknowledges that the amounts received under this section constitute settlement in full of any claims against the Corporation in respect of termination of this Agreement by the Corporation for just cause or otherwise. 8. Confidentiality The Consultant covenants and agrees with the Corporation that he will not, either during the continuance of this Agreement or at any time thereafter, disclose any confidential information or trade secrets or any other information received by him during the continuance of this Agreement with regard to the financial, operational or other affairs of the Corporation to any person, nor shall they use the same for any purpose other than in furtherance of the Business. 9. Assignment and Disclosure of Inventions The Consultant hereby assigns and transfer to the Corporation his entire right, title and interest in and to all Inventions (as used in this Agreement, "Inventions" shall include but not be limited to, ideas, improvements, designs and discoveries), whether or not patentable and whether or not reduced to practice, made or conceived by the Consultant (whether made solely by him or jointly with others) during the term of this Agreement which relate in any manner to the Business or the actual or demonstrably anticipated business, work, undertaking or research and development of the Corporation or its subsidiaries or results from or are suggested by any task assigned to the Consultant or work performed by him for or on behalf of the Corporation or its subsidiaries either alone or jointly with any other employee or agent of the Corporation and acknowledge that all such Inventions are the sole property of the Corporation (including, without limitation, Inventions relating to controlled release drugs, topical insulin, intra-nasal insulin and liposomes creams). The Consultant shall disclose such Inventions promptly in writing to the President of the Corporation in order to permit the Corporation to claim rights to which he may be entitled under this Agreement. The Consultant shall, at the Corporation's request, promptly execute written assignments of title to the Corporation for any Invention required to be assigned by this Agreement (an "Assignable Invention") and will preserve any such Assignable Invention as confidential information of the Corporation. Upon request, the Consultant shall assist the Corporation or its nominee at the Corporation's expense during and at any time subsequent to the termination of this Agreement, in every reasonable way, in obtaining for the Corporation's benefit patents and copyrights for Assignable Inventions in any and all jurisdictions, which Inventions shall be and remain the sole and exclusive property of the Corporation or its nominee whether or not patented or copyrighted and shall execute such papers and perform such lawful acts as the Corporation deems to be necessary to allow him to exercise all rights, title and interest in such patents and copyrights. The request and at its expense all such documents, including applications for patents and copyrights and assignments of Inventions, patents and copyrights to be issued therefor, as the Corporation may determine are necessary or desirable to apply for and obtain patents and copyrights on Assignable Inventions in any and all countries and/or to protect the interests of the Corporation or its nominees in such Inventions, patents and copyrights and to vest title thereto in the Corporation or its nominee. 10. Severability In the event that any covenant or portion of any covenant contained in this Agreement shall be unenforceable or be declared invalid for any reason whatsoever by a court of competent jurisdiction, such unenforceability or invalidity shall not affect the enforceability or validity of the remaining covenants or portion of such covenant, and such unenforceable or invalid covenant or portion shall be severable from the remainder of this Agreement. 11. Non-Transferability Neither the Consultant, nor any person claiming through the Consultant, shall have any right to commute, anticipate, encumber or dispose of any payment hereunder, which payments and rights thereto are expressly declared non-assignable and non-transferable, except as otherwise specifically provided herein. 12. Waiver The failure of either party to insist upon performance of, or the waiver by any party of a breach of, any terms or conditions of this Agreement shall not be construed as a waiver of the future performance of such term or condition, and the rights and obligations of either party with respect thereto shall continue in full force and effect. 13. Notices All notices required or permitted to be given by one party to the other shall be given in writing by personal delivery or by registered mail, postage prepaid, addresses to such other party or delivered to such other party as follows: (a) to the Corporation, addressed to the attention of the President, at: 33 Harbour Square Suite 202 Toronto, Ontario M5J 2G2 (b) to the Consultant at: 1928 Main Street West Suite 609 Hamilton, Ontario L85 1J4 Or at such other address as may be given by either of them to the other in writing from time to time and such notices shall be deemed to have been received when delivered, or, if mailed, five (5) business days following the date of mailing thereof; provided that if regular mail service shall be interrupted, any mailed notice shall be deemed to have been received five (5) business days following the resumption of normal mail service. 14. Governing Law This Agreement shall be governed by and construed in accordance with the laws of the Province of Ontario and the laws of Canada applicable therein. 15. Currency All dollar amounts referred to in this Agreement are in Canadian funds. 16. Binding Effect This Agreement shall enure to the benefit of and be binding upon the parties hereto and their respective legal personal representatives, successors and assigns, save and except as otherwise specifically provided herein. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. GENEREX PHARMACEUTICALS INC. Per: /S/ Anna Gluskin --------------------------------- Name: Anna Gluskin Title: President /S/ Pankaj Modi - -------------------------- --------------------------------- Witness DR. PANKAJ MODI CONSULTING AGREEMENT THIS ADDITION IS MADE TO AGREEMENT made as of the 1st day of October, 1996 BETWEEN: GENEREX PHARMACEUTICALS INC. (the "Corporation") DR. PANKAJ MODI (the "Consultant") Page 4, Clause 9 Further to the clause 9 of this Agreement, in consideration for the assignment of the intellectual properties specified in schedule A, the consultant will be receiving further compensation in the form of financial remuneration and shares, subject to negotiation by separate agreement. IN WITNESS WHEREOF the parties hereto have executed this Agreement as of the date first written above. GENEREX PHARMACEUTICALS INC. Per: /S/ Anna Gluskin --------------------------------- Name: Anna Gluskin Title: President /S/ Pankaj Modi - -------------------------- --------------------------------- Witness DR. PANKAJ MODI EX-21 14 SUBSIDIARIES OF THE COMPANY EXHIBIT 21 SUBSIDIARIES OF THE COMPANY Name Place of Incorporation - ---- ---------------------- Generex Pharmaceuticals, Inc. Ontario, Canada Generex Animal Health Group, Inc. New Jersey GBT Delaware, Inc. Delaware Generex Ecuador SA Ecuador Centrum Biotechnologies Inc. Ontario, Canada 1097346 Ontario, Inc. Ontario, Canada All subsidiaries conduct business only under their respective corporate names. All subsidiaries are 100% owned except for Centrum Biotechnologies, Inc., which is 50% owned. EX-23.1.1 15 CONSENT OF INDEPENDENT AUDITORS Exhibit 23.1.1 CONSENT OF INDEPENDENT AUDITORS We hereby consent to the use in the Registration Statement of Generex Biotechnology Corporation (the "Company") on Form 10 of our report dated October 15, 1998, on the consolidated financial statements of the Company as of July 31, 1998 and for the year then ended, and our joint report with Mintz & Partners dated October 15, 1998, on the consolidated financial statements of the Company as of July 31, 1997 and for the year ended July 31, 1997, and for the period November 2, 1995 (date of inception) to July 31, 1996, which consolidated financial statements appear in the Registration Statement. Withum, Smith & Brown New Brunswick, New Jersey December 14, 1998 EX-23.1.2 16 CONSENT OF INDEPENDENT AUDITORS Exhibit 23.1.2 CONSENT OF INDEPENDENT AUDITORS We hereby consent to the use in the Registration Statement of Generex Biotechnology Corporation (the "Company") on Form 10 of our joint report with Withum, Smith & Brown dated October 3, 1997, on the consolidated financial statements of the Company as of July 31, 1997 and for the year then ended, and for the period November 2, 1995 (date of inception) to July 31, 1996, which consolidated financial statements appear in the Registration Statement. Mintz & Partners Toronto, Ontario December 14, 1998 EX-27 17 FDS
5 12-MOS JUL-31-1998 JUL-31-1998 $2,197,354 0 209,090 0 0 2,537,784 1,675,614 41,167 5,219,684 2,048,880 528,506 0 1 9,174,300 0 5,219,684 0 0 0 0 4,613,604 0 63,291 0 0 0 0 0 0 (4,613,604) (0.46) (0.46)
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