-----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, E9bAim023KqUuxQCmd30U/zgM555xKB2Dkkvg4KWWWWWKCeAHp7HAG41/nzKnenZ UX3BxxDAN3OWDrtlHTKdRQ== 0000950115-99-001007.txt : 19990713 0000950115-99-001007.hdr.sgml : 19990713 ACCESSION NUMBER: 0000950115-99-001007 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 13 FILED AS OF DATE: 19990712 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENEREX BIOTECHNOLOGY CORP CENTRAL INDEX KEY: 0001059784 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 820490211 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-82667 FILM NUMBER: 99662821 BUSINESS ADDRESS: STREET 1: 33 HARBOUR SQ STREET 2: STE 202 CITY: TORONTO ONTARIO CANA STATE: A1 BUSINESS PHONE: 4163642551 MAIL ADDRESS: STREET 1: 33 HARBOUR SQ STREET 2: STE 202 CITY: TORONTO ONTARIO M5J STATE: A1 S-1 1 INITIAL STATEMENT AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY __, 1999 REGISTRATION NO. ____________ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------- FORM S-1 Registration Statement Under The Securities Act of 1933 ------------------------- GENEREX BIOTECHNOLOGY CORPORATION (Name of Issuer in Its Charter) Delaware 2834 82-0490211 (State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification No.)
33 Harbour Square, Suite 202 Toronto, Ontario CANADA M5J 2G2 Telephone: 416/364-2551 Facsimile: 416/364-9363 Anna E. Gluskin, CEO and President 33 Harbour Square, Suite 202 Toronto, Ontario CANADA M5J 2G2 Telephone: 416/364-2551 Facsimile: 416/364-9363 (Name, address and telephone number of agent for service) ------------------------- Copies to: Joseph Chicco, Esquire Eckert Seamans Cherin & Mellott, LLC 1515 Market Street - 9th Floor Philadelphia, PA 19102 Telephone: 215/851-8410 Facsimile: 215/851-8383 ------------------------- Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the box. [x] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] --------------------------- CALCULATION OF REGISTRATION FEE
======================================================================================================================== Title of Each Class of Amount to be Proposed Maximum Proposed Maximum Amount of Securities to Registered Offering Price Aggregate Offer Registration be Registered Per Share ing Price Fee - ------------------------------------------------------------------------------------------------------------------------ Common Stock, 150,000 shares $ 6.00 900,000 $ 250. $.001 par value (1) 50,000 shares 7.50 375,000 104. 63,638 shares 5.50 350,009 97. - ------------------------------------------------------------------------------------------------------------------------ Common Stock, 636,365 shares $7.875(3) $5,011,374(3) $1,393(3) $.001 par value (2) - ------------------------------------------------------------------------------------------------------------------------ 900,003 shares $5.50 to $6,636,374 $1,845 Total $7.875 ========================================================================================================================
- --------------------- (1) These shares are issuable upon the exercise of outstanding Common Stock Purchase Warrants issued in connection with a private placement and pursuant to an investment banking agreement ("Warrants"), as follows: 50,000 warrants expiring February 16, 2004, exercisable at $6.00 100,000 warrants expiring April 6, 2004, exercisable at $6.00 50,000 warrants expiring April 6, 2004, exercisable at $7.50 63,638 warrants expiring April 26, 2004, exercisable at $5.50 (2) These shares are being offered by certain shareholders of the Company. (3) Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457. Pursuant to Rule 457(c), the proposed maximum offering price per share and registration fee are based on the average of the bid ($7-11/16) and the asked ($8-1/16) prices of the registrant's common stock on July 9, 1999 as reported on the NASDAQ OTC Bulletin Board. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTILE THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. CROSS REFERENCE SHEET Pursuant to Item 501(b)(4) of Regulation S-K
Item Number and Heading Caption in Prospectus ----------------------- --------------------- 1. Forepart of Registration Statement and Outside Front Cover of Prospectus.................................................... Outside Front Cover of Prospectus 2. Inside Front and Outside Back Cover Pages of Prospectus............................................................. Inside Front and Outside Back Cover Pages of Prospectus 3. Summary Information and Risk Factors................................... Prospectus Summary; Risk Factors 4. Use of Proceeds........................................................ Use of Proceeds 5. Determination of Offering Price........................................ Selling Shareholders; Plan of Distribution 6. Dilution............................................................... Dilution 7. Selling Security Holders............................................... Selling Shareholders 8. Plan of Distribution................................................... Plan of Distribution 9. Disclosure of Commission Position on Indemnification................... Description of Securities 10. Interests of Named Experts and Counsel................................. Not Applicable 11. Information with Respect to the Registrant............................. Outside Front Cover of Prospectus; Prospectus Summary; Risk Factors; Capitalization; Selected Financial Data; Management's Discussion and Analysis of Financial Condition and Results of Operations; Business; Management; Principal Shareholders; Certain Transactions; Available Information; Financial Statements 12. Disclosure of Commission Position on Indemnification For Securities Act of 1933, As amended, Liabilities.................... Disclosure of Commission Position on Indemnification for Securities Act Liabilities
The information in this prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. PROSPECTUS - SUBJECT TO COMPLETION, DATED JULY __, 1998 GENEREX BIOTECHNOLOGY CORPORATION Common Stock 900,003 Shares Generex is a development stage company and has not received any revenues from operations to date. This prospectus relates to an offering of 900,003 shares of Generex common stock, as follows: o We are offering 263,638 shares for sale at prices ranging from $5.50 to $7.50 per share to holders of certain of our outstanding warrants upon exercise of the warrants. o Certain of our existing shareholders are offering a total of 636,365 outstanding shares for sale for their own accounts. Generex will not receive any proceeds from shares sold by the selling shareholders. Neither we nor the selling shareholders have engaged any underwriter or selling agent to assist us in the sale of the shares covered by this prospectus. Inter-dealer "bid" and "asked" price for Generex common stock are quoted on the NASDAQ OTC Electronic Bulletin Board under the symbol GNBT. The OTC Electronic Bulletin Board also reports prices at which shares are sold, and daily sales volume. The closing inter-dealer "bid" and "asked" prices reported for our common stock on July __, 1999, were $______ and $______. Investing in our common stock involves a high degree of risk. See "Risk Factors" beginning on page 2 of this prospectus. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities, or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. The date of this Prospectus is ________________, 1999. TABLE OF CONTENTS SUMMARY.................................................................... 1 FORWARD LOOKING STATEMENTS................................................. 2 RISK FACTORS............................................................... 2 CAPITALIZATION............................................................. 7 DILUTION................................................................... 8 USE OF PROCEEDS............................................................ 8 SELECTED FINANCIAL DATA.................................................... 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................................ 10 OUR BUSINESS............................................................... 14 MANAGEMENT................................................................. 23 PRINCIPAL SHAREHOLDERS..................................................... 28 SELLING SHAREHOLDERS....................................................... 32 PLAN OF DISTRIBUTION....................................................... 35 MARKET INFORMATION......................................................... 35 CERTAIN TRANSACTIONS....................................................... 37 DESCRIPTION OF SECURITIES.................................................. 39 DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION....................... 43 LEGAL MATTERS.............................................................. 43 EXPERTS.................................................................... 43 ADDITIONAL INFORMATION..................................................... 44 FINANCIAL STATEMENTS.............................................. F-1 to F-29 We are offering to sell, and seeking offers to buy, shares of common stock only in jurisdictions where offers and sales are permitted. In making a decision whether or not to buy any shares offered by this prospectus, you should rely only on the information contained in the prospectus. We have not authorized anyone to provide you with information different from that which is contained in the prospectus. The information contained in the prospectus is accurate only as of the date of the prospectus, regardless of the time the prospectus is delivered or any shares are sold. In this prospectus, unless the context indicates otherwise, the terms "Generex", "we", "us" and "our" refer to Generex Biotechnology Corporation. For investors outside the United States: Neither we nor, to our knowledge, any other person has done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus. UNTIL 1999 (__ DAYS AFTER COMMENCEMENT OF THIS OFFERING), ALL DEALERS THAT BUY, SELL OR TRADE OUR COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. ii PROSPECTUS SUMMARY The following is only a summary of detailed information appearing elsewhere in this prospectus. Generex and its Products Generex is a Delaware corporation engaged in the research and development of drug delivery systems and technology. Our executive offices are located at 33 Harbour Square, Suite 202, Toronto, Canada M5J 2G2, and our telephone number is 416/364-2551. We have devoted a substantial majority of our efforts and resources to date to developing a technology to orally administer "large molecule" drugs, including proteins, hormones, peptides, vaccines and other pharmaceutical products. Large molecule drugs, such as synthetic insulin, are now administered almost exclusively by injection because their molecular size makes it difficult or impossible for the body to absorb them if they are administered by other means. Oral Insulin Formulation: The initial application of our large molecule drug delivery technology is an oral insulin formulation for use in the treatment of diabetes. The formulation is sprayed into the mouth using a hand-held aerosol applicator. Absorption occurs through the mucous membranes in the mouth and upper gastro-intestinal tract. We presently are conducting clinical trials of our oral insulin formulation in the United States and Canada. We have not received regulatory approval to market the product in any country, and do not expect to receive such clearance in the United States or Canada until the fourth quarter of 2000 at the earliest. There are numerous risks and uncertainties that we must overcome before we will be able to market this or any other product. We expect to market our oral insulin product through distribution and other agreements with pharmaceutical and/or biotechnology companies. We have not yet entered into any such agreements. Other Large Molecule Pharmaceuticals: We believe that the technology upon which our oral insulin formulation is based can be used successfully with other large molecule pharmaceuticals. We have engaged in pre-clinical research and development work on two other applications. The Offering Shares offered by Generex...................................... 263,638 shares Outstanding shares offered by selling shareholders............. 636,365 shares Total........................................ 900,003 shares
The shares offered by Generex are being offered only to the holders of certain of our outstanding warrants. We will refer to these warrants as the "Placement Warrants" to distinguish them from other warrants that we have issued. We will refer to the shares which would be issued upon exercise of the Placement Warrants as the "Placement Warrant Shares." We will refer to the Generex shareholders who are selling shares covered by this prospectus for their own accounts as the "Selling Shareholders". Common stock outstanding before the offering.................. 14,746,074 shares Common stock to be outstanding after the offering............. 15,006,712 shares
The number of shares of common stock to be outstanding after the offering is based on shares outstanding on June 30, 1999, plus the Placement Warrant Shares. The holders of the Placement Warrants are not committed to exercise the Placement Warrants, however, and we may not sell all or any Placement Warrant Shares. FORWARD-LOOKING STATEMENTS We have made statements under the captions "Risk Factors", Use of Proceeds", "Management's Discussion and Analysis of Financial Condition and Results of Operations,", "Business" and elsewhere in this prospectus that are forward-looking statements. You can identify these statements by forward-looking words such as "may", "will", "expect", "anticipate", "believe," "estimate," and similar terminology. Forward-looking statements address, among other things: o implementing our clinical programs and other aspects of our business plans; o financing goals and plans; and o our expectations of when regulatory approvals will be received or other actions will be taken by parties other than us. We believe it is important to communicate our expectations to our investors. However, there may be events in the future that we are not able to accurately predict or which we do not fully control that will cause actual results to differ materially from those expressed or implied by our forward-looking statements. These include the factors listed under "Risk Factors" and elsewhere in this prospectus. Although we believe that our expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Our forward looking statements are made as of the date of this prospectus, and we assume we are under no duty to update them or to explain why actual results may differ. RISK FACTORS You should carefully consider the following risks and other information in this prospectus before deciding to purchase our common stock. The market price of our common stock could decline due to any of these risks, and you could lose all or part of your investment. This statement of risks is not intended to be exhaustive, i.e., these are not the only risks relating to our common stock, this offering or our business. We Have Not Yet Sold Any Products Or Received Regulatory Approval To Sell Our Products. We are a development stage company. We have engaged primarily in research and development activities since our inception, and have not received any revenues from operations. We have no products approved for commercial sale by drug regulatory authorities and only one product, our oral insulin formulation, for which we have begun the regulatory approval process. 2 We May Not Achieve Commercial Success Even If Our Products Are Approved for Sale. Even if we obtain the required regulatory approvals to market our oral insulin product, there are many factors which may prevent us from ever successfully selling the product in commercial quantities. Some factors are beyond our control, such as: o acceptance of the formulation by health care professionals and diabetic patients; and o the availability, effectiveness and relative cost of alternative diabetes treatments which may be developed by competitors. We Have No Arrangements To Obtain Insulin In Commercial Quantities. We will need to obtain synthetic insulin to produce our oral insulin formulation. There are a limited number of suppliers of synthetic insulin, with two companies controlling a substantial majority of the world's supply. At the present time, we have no agreement or other understanding with any company to supply insulin to us. We Cannot Succeed Unless We Obtain Additional Capital. We have incurred substantial losses from operations from our inception, and expect to continue to incur substantial losses for at least another 12 to 18 months. During this 12 to 18 month period, we do not expect to obtain significant revenues from operations but will need substantial funds, primarily for the following purposes: o to conduct clinical trials of our oral insulin product and otherwise pursue regulatory approvals for this product; o to begin to develop new products based on our oral delivery technology, and to conduct the clinical tests necessary to develop and refine new products; and o to establish and expand our manufacturing capabilities. To finance our operations to date, we have relied almost entirely on private offerings of common stock at prices below the current market price of our common stock. The terms on which we obtain additional financing may dilute the investment of existing shareholders, or otherwise adversely affect their position. It is also possible that we will be unable to obtain the additional funding we need as and when we need it. If we were unable to obtain additional funding as and when needed it, we could be forced to delay the progress of our development efforts. These delays would delay our ability to bring a product to market and obtain revenues, and could result in competitors developing products ahead of us, and/or in our being forced to relinquish rights to technologies, products or potential products. Because of the uncertainties in our ability to satisfy our future financing needs, our auditors' report on our financial statements for the year ended July 31, 1998 contains an explanatory paragraph regarding our ability to continue as a going concern. We Will Depend Upon Others For Marketing And Distributing Our Products. Since we currently lack marketing and sales experience and personnel, distribution channels and other infrastructure needed to successfully commercialize a product, we intend to rely on collaborative arrangements with one or more other companies which possess strong marketing and distribution 3 resources. We do not, however, have any agreements with other companies for marketing or distributing our products. We may be forced to enter into contracts for the marketing and distribution of our products which substantially limit the potential benefits to us from commercializing our products. In addition, we will not have the same control over marketing and distribution that we would have if we conducted those functions ourselves. We Have No Experience In Manufacturing and Insufficient Capacity to Produce Product In Large Quantities. To date, we have produced our oral insulin formulation only under laboratory conditions on a small scale. We have established a pilot manufacturing facility that we believe is capable of producing the product at levels necessary to supply our needs for late stage human clinical trials of the product, and for initial commercial sales outside the United States. However, we have not yet actually produced product at those levels. In any event, we will need to significantly increase our manufacturing capability to manufacture our product in commercial quantities. We have no experience in resolving the staffing, manufacturing, regulatory and quality control problems that are likely to come up in developing and running a large scale manufacturing operation. Our failure to solve problems of this nature could delay or prevent our ability to bring the product to market, and inhibit sales after the product comes to market. We Are Dependent On Our Executive Management And Other Personnel. We believe that the continuing availability and dedication of our limited scientific and management staff is very important. Our business could be materially harmed if one or more members of our executive management team were unable or unwilling to continue their association with us. We do not have fixed term agreements with any of our principal officers, other than Dr. Pankaj Modi. The fact that we have a fixed term contract with Dr. Modi, however, does not guarantee his continued availability. We depend upon non-employee consultants to assist us in formulating research and development strategy, in preparing regulatory submissions, in developing protocols for clinical trials, and in designing, equipping and staffing our manufacturing facilities. These consultants and advisors usually have the right to terminate their relationship with us on short notice. Loss of some of these key advisors could interrupt or delay our business plan. We will continue to need qualified scientific personnel and personnel with experience in clinical testing, government regulation and manufacturing. We may have difficulty in obtaining qualified scientific and technical personnel as there is strong competition for these people from other pharmaceutical and biotechnology companies as well as universities and research institutions. Our Reliance On Patents And Other Proprietary Technologies Exposes Us To Significant Risks. Our long-term success will substantially depend upon protecting our technology from infringement, misappropriation, duplication and discovery. We own two U.S. patent applications that cover our basic drug delivery technology. One of these has been allowed although not formally issued by the U.S. patent office. We also own an indirect interest in three patents held by another company which is fifty (50%) percent owned by us, and we have five other patent applications pending, two of which are pending only in Canada. We cannot be sure that any of our pending patent applications will be granted. Our patent position may not fully protect our competitive position. Our patent rights, and the patent rights of biotechnology and pharmaceutical companies in general, are highly uncertain and include complex legal and factual issues. We believe that our existing technology and the patents which we hold or have applied for do not infringe any one else's patent rights, and that they 4 will provide meaningful protection against others duplicating our proprietary technologies. We cannot be sure of this because of the complexity of the legal and scientific issues that could rise in litigation over these issues. Since patent applications in the United States are maintained in secrecy until the patents are approved, we cannot be sure that any technology we are currently developing is not covered by any pending patent applications. We also rely on trade secrets and other unpatented proprietary information. We seek to protect this information, in part, by confidentiality agreements with our employees, consultants, advisors and collaborators. These agreements may be breached, however, in which case we may not have adequate remedies for any breach. Our trade secrets may become known or independently developed by competitors. Trade secrets do not protect against a competitor's independent development of the same technology. Our Ability To Respond To Business Opportunities And Introduce New Products Is Subject To Extensive Government Regulation Of Our Business. Our research and development activities, and the eventual manufacture and marketing of our products, are subject to extensive regulation by the Food and Drug Administration in the United States, and comparable regulatory authorities in other countries. Among other things, extensive regulation puts a burden on our ability to bring products to market. These regulations apply to all competitors in our industry. However, many of our competitors have extensive experience in dealing with FDA and other regulators, while we do not. Also, other companies in our industry do not depend completely on products which still need to be approved by government regulators, as we do. If we do not obtain regulatory approvals for our products, or fail to comply with these government regulations in the future, our business will be substantially harmed. We May Not Be Able to Compete with Other Diabetes Treatments Marketed By Other Companies. Our oral insulin product will compete with existing and new therapies for treating diabetes, including administration of insulin by injection. We are aware of a number of companies currently seeking to develop alternative means of delivering of insulin, as well as new drugs intended to replace insulin therapy, at least in part. Most of our potential competitors are established firms that have substantially greater financial resources than we do. In addition, several competitors that are not themselves major companies have arrangements with major pharmaceutical companies for financial, technical and marketing assistance. Our product may not be technically competitive with other products. Even if our product is technically superior, we may be unable to successfully compete due to our limited resources. Pending Litigation Could Result In Dilution To Stockholders. Sands Brothers and Co. Ltd., a New York City based investment banking and brokerage firm, initiated an arbitration against us claiming that it has the right to purchase, for nominal consideration, approximately 1.6 million shares of our common stock. If Sands should win the arbitration and receive shares of our common stock for little or no consideration our existing shareholders' investment would be proportionately diluted. We Have Substantial Exposure To Product Liability. The use of our products in clinical trials and the commercial sale of our products exposes us to liability claims by consumers and pharmaceutical companies. We have obtained limited product liability insurance of two million dollar per occurrence and total coverage. We cannot be sure that this would be sufficient coverage in the case of any substantial liability claim. 5 The Price Of Our Shares May Be Volatile. There may be wide fluctuation in the price of our shares. Because of this potential volatility, our shares may be an unsuitable investment for investors who might be required to sell the shares at a time when the market price of the shares is depressed. These fluctuations may be caused by several factors including: o announcements of research activities and technology innovations or new products by us or our competitors; o changes in market valuation of companies in our industry generally; o variations in operating results; o changes in governmental regulations; o results of clinical trials of our products or our competitors' products; and o regulatory action or inaction on our products or our competitors' products. Our Outstanding Special Voting Rights Preferred Stock And Provisions of Our Certificate of Incorporation Could Delay Or Prevent The Acquisition Or Sale Of Generex. Holders of our Special Voting Rights Preferred Stock have the ability to prevent any change of control of Generex. Our Vice President of Research and Development, Dr. Pankaj Modi, owns all of our Special Voting Rights Preferred Stock. In addition, our Certificate of Incorporation permits our Board of Directors to designate new series of preferred stock and issue those shares without any vote or action by the shareholders. Such newly authorized and issued shares of preferred stock could contain terms which grant special voting rights to the holders of such shares which make it more difficult to obtain shareholder approval for an acquisition of Generex or increase the cost of any such acquisition. Future Sales Of Shares By Current Shareholders May Adversely Affect The Price Of Our Stock. The market price of our common stock could decline as a result of sales of a large number of shares in the market by Selling Shareholders or other existing shareholders, as well as Placement Warrant holders after this offering. The shares being sold by Selling Shareholders could not be sold prior to this offering because they had not been registered with the SEC, and did not qualify for an exemption from registration requirements. No Placement Warrant Shares have been issued prior to this offering. We Have Engaged In Numerous Transactions With Our Affiliates. We have engaged in numerous transactions with our affiliates which are not the result of arms-length negotiations. For that reason, institutional investors and other potential purchasers of our shares may be less willing to do so due to a belief that the terms of these transactions may not be as favorable to Generex as could have been obtained through arms-length negotiations with nonaffiliated parties. 6 CAPITALIZATION The following table sets forth our capitalization as of April 30, 1999 under the caption "Actual". The "Pro Forma" information reflects the following post-April 30, 1999, events: o sale of 273,002 shares of common stock at a price of $5.50 per share in May 1999; o exercise of 1,002,672 Series A Common Stock Purchase Warrants and redemption of 323,920 Series A Warrants in May and June 1999; and o payment of expenses of approximately $300,000 in connection with these transactions, including the issuance of 6,300 shares valued for this purpose at $5.50 per share. The "Pro Forma As Adjusted" information reflects all pro forma adjustments described above, plus the sale for cash of the Placement Warrant Shares offered by this prospectus and payment of estimated expenses of $100,000 related to this offering. As set forth under the caption "Use of Proceeds", Placement Warrants may also be exercised using a "cashless" method, in which case the number of Placement Warrants Shares issued and our capital will be reduced.
As of April 30, 1999 -------------------------------------------------------- Pro Forma Actual Pro Forma As Adjusted --------- --------- ------------ (In thousands except share and per share information) Notes receivable, less current $ -0- $424 $424 portion............................... Long-term obligations, less current portion....... $635 $635 $635 Common stock, $.001 par value; 50,000,000 shares authorized; 13,727,937 shares issued and outstanding, actual; 14,685,991 shares issued and outstanding, pro forma; 14,949,629 shares issued and outstanding, pro forma as adjusted..... $16,338 $20,106 $21,631 Preferred Stock, $.001 par value, 1,000 shares issued and outstanding actual, pro forma and pro forma as adjusted................... -- -- -- Accumulated deficit............................... $10,679 $10,679 $10,679 Total stockholders' equity........................ $ 5,533 $ 9,251 $10,776 Total capitalization.............................. $ 6,294 $10,062 $11,587 ======= ======= =======
Outstanding share information excludes 857,937 shares of common stock issuable upon exercise of outstanding options and warrants other than the Placement Warrants as of April 30, 1999, at an average exercise price of $5.62 per share. It also excludes all other transactions after April 30, 1999, except as expressly stated above. Common Stock, "Pro Forma" and "pro forma" As Adjusted includes Notes Receivable of $473,701 received in partial payment of shares issued on the exercise of Series A Warrants. 7 DILUTION On April 30, 1999, our net tangible book value was approximately $5,532,772, or $.40 per share of common stock. Our pro forma net tangible book value per share at that date, which is determined by taking our actual net tangible book value on April 30, 1999, adding to it the proceeds from sale of the Placement Warrant Shares (less estimated expenses of this offering of $100,000), then dividing by the number of shares outstanding at April 30, 1999, plus Placement Warrants Shares. Assuming all Placement Warrants are exercised, the holders of Placement Warrants will incur dilution in their investment that is approximately equal to the difference between the price which they pay for Placement Warrant Shares ($5.50 to $7.50) and the pro forma net tangible book value of our common stock. Purchasers of shares from the Selling Shareholders will incur dilution in the net tangible book value of their investment equal to the difference between the price paid for the shares and the net tangible book value of our common stock. For example, if such shares are purchased at the "asked" price quoted for our common stock on , 1999, which was $___________, the purchaser's investment would be diluted by approximately $___________ per share, assuming no change in the net tangible book value of our shares after April 30, 1999. USE OF PROCEEDS We will not receive any proceeds from the sale of shares by the Selling Shareholders. The net proceeds from the sale of Placement Warrant Shares, if all such Shares are sold for cash, will be approximately $1,525,000, after deducting expenses of this offering which we estimate will be approximately $100,000. Placement Warrant holders also may exercise their Warrants using a "cashless" exercise method. Under this method, a holder may use the "equity value" of his Placement Warrants to exercise other Warrants without paying additional money. The equity value of a Placement Warrant for this purpose is the difference between the market value of our common stock and the exercise price of the Placement Warrant. To illustrate this method, if the market price of our common stock were $7.50 and the exercise price of a Placement Warrant is $6.00, the equity value of the Warrant would be $1.50. In such a case, a holder of such Placement Warrants could use four Warrants to pay the exercise price of a fifth Warrant, i.e., the holder would deliver five Warrants to us for cancellation, and we would issue one fully paid share of common stock to the holder. Thus, to the extent that holders of Placement Warrants use the cashless exercise method to exercise their Warrants, cash proceeds and the number of Placement Warrant Shares issued upon exercise of the Placement Warrants would be reduced. Proceeds from any sales of the Placement Warrant Shares will be added to the funds that we now have on hand, and used primarily to continue the clinical trials of our oral insulin formulation, in the research and development of other products, and for general and administrative expenses. The proceeds from the sale of the Placement Warrant Shares will not materially change our needs for additional financing even if all Placement Warrants are exercised. 8 SELECTED FINANCIAL DATA The following selected financial data is derived from and should be read in conjunction with our financial statements and related notes which appear elsewhere in this prospectus. Our financial statements as of and for the fiscal year ended July 31, 1998, have been audited by Withum, Smith & Brown, independent auditors. The financial statements as of and for the fiscal year ended July 31, 1997, and for the period November 2, 1995 (date of inception) to July 31, 1996, have been audited jointly by Withum, Smith & Brown and Mintz & Partners, independent auditors. The interim financial statements as of and for the nine month periods ended April 30, 1998 and 1999 have not been audited. In the opinion of management, the interim financial statements have been prepared on the same basis as the audited financial statements and include all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the results of these periods. The "As Adjusted" balance sheet data at April 30, 1999, gives effect to the proposed sale of 263,638 Placement Warrant Shares, and the payment of expenses of this offering estimated at $100,000.
For the Cumulative Period From November 2, November 2, 1995 1995 Years (Date of (Date of Nine Months Ended July 31 Inception) Inception) Ended April 30 ------------------------ to July 31, to July 31, --------------------- 1998 1997 1996 1998 1999 1998 ------ ------ ----------- ----------- ------ ------- STATEMENT OF OPERATIONS DATA (In thousands, except per share data): Revenues $ -- $ -- $ $ -- $ $ -- Net Loss $(4,614) $(1,356) $(363) $(6,333) $(4,347) $(2,026) Basic and diluted net loss per common share $(.46) $(.25) $(.40) -- $ (.34) $(.21) Weighted average number of common shares outstanding 10,079 5,513 904 -- 12,891 9,583 Cash dividends per share -- -- -- -- -- --
July 31, April 30, 1999 ------------------------ ------------------------------ 1998 1997 Actual As Adjusted ------ ------ ------ ----------- BALANCE SHEET DATA (In thousands): Working capital $ 873 $ 290 $3,213 $4,938 Total assets $5,456 $3,673 $7,267 $7,267 Total long-term debt (less current maturities) $ 913 -- $ 635 $ 635 Total stockholders' equity $2,642 $3,449 $5,533 $7,357
9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General Generex Biotechnology Corporation was incorporated in 1983 as Green Mt. P.S., Inc. In January 1998, we acquired all of the outstanding capital stock of Generex Pharmaceuticals, Inc. ("Generex Pharmaceuticals"), a Canadian corporation formed in November 1995 to engage in pharmaceutical and biotechnological research and other activities, and changed our corporate name to Generex Biotechnology Corporation. The acquisition of Generex Pharmaceuticals was effected by the merger of a recently formed Delaware corporation ("Generex Delaware"), which had acquired all of the outstanding capital stock of Generex Pharmaceuticals in October 1997, with a wholly-owned subsidiary which we formed for this transaction (the "Reverse Acquisition"). As a result of the Reverse Acquisition, the former shareholders of Generex Delaware acquired a majority of our outstanding capital stock and, for accounting purposes, Generex Delaware was treated as the acquiring corporation. Thus, the historical financial statements of Generex Delaware, which essentially represent the historical financial statements of Generex Pharmaceuticals, are deemed to be the historical financial statements of Generex Biotechnology Corporation. On April 30, 1999, we completed a reorganization in which we merged into Generex Delaware to change our state of incorporation from Idaho to Delaware. This reorganization did not result in any material change in our historical financial statements or current financial reporting. As part of the reorganization, Generex Delaware changed its corporate name to "Generex Biotechnology Corporation". We are engaged in developing drug delivery systems. Our principal business focus has been to develop a technology to administer large molecule drugs (i.e., drugs composed of molecules above a specified molecular weight) by the oral route. Historically, large molecule drugs have been administered only by injection because their size inhibits or precludes absorption if administered by oral, transdermal, transnasal or other means. The first product based on our large molecule drug delivery technology is a liquid insulin formulation that is administered using a hand-held aerosol spray applicator. The formulation, which includes insulin and various excipients (i.e., non-active pharmaceutical ingredients) to facilitate the absorption of insulin molecules through the mucous membranes in the mouth and upper gastro-intestinal tract, is sprayed into the mouth and back of the throat, where absorption occurs. This product is presently undergoing clinical trials in the United States and Canada. We do not expect to receive significant revenue from product sales in the current fiscal year or in the next fiscal year. We do expect, however, to receive licensing income, or income in the nature of licensing income (e.g., "signing bonuses" or "advance royalties"), next year in connection with our entering into marketing and distribution agreements. Income from such sources, if received, is likely to be material relative to our total cash needs. We do not have any commitments to receive such payments at the present time. Results of Operations - Nine months ended April 30, 1999 and 1998 We had a net loss of $4,346,886 for the nine months ended April 30, 1999, compared to a loss of $2,025,698 in the corresponding period of the preceding fiscal year. The principal reasons for the increase in our net loss in the nine month period ended April 30, 1999, were an increase in research and development expenses (to $1,787,203 from $500,756) and an increase in general and administrative expenses (to $2,532,692 from $1,524,942). 10 The principal reasons for the increase in our research and development expense in the nine months ended April 30, 1999, were: o commencement of clinical trials of our oral insulin formulation in Canada and the United States during the second and third quarters; o preparations for our clinical program during the first quarter, including preparation of our IND application to FDA; o development work associated with our oral insulin applicator; and o personnel costs associated with starting up our pilot manufacturing facility in Toronto which supports our clinical programs. The principal reasons for the increase in our general and administrative expense in the nine months ended April 30, 1999, were: o the addition of new administrative personnel; o increased legal and accounting expenses related in part to our registration of common stock under Section 12(g) of the Securities Exchange Act and compliance with the reporting requirements of that Act; o participation in industry seminars and exhibitions; o increases in executive compensation; and o a one time expense associated with the severance of a former executive. Results of Operations - Years Ended July 31, 1998, 1997 and 1996 Through July 31, 1998, we have accumulated a substantial operating deficit as a result of research, development and general and administrative expenses incurred at a time when we have had no revenues from operations. 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 our general and administrative expenses in the fiscal year ended July 31, 1998, was attributable primarily to: o increase in salaries ($570,230 in the year ended July 31, 1998, versus $77,806 in the prior fiscal year); o professional fees ($527,941 versus $98,078); o consulting services paid for through the issuance of securities valued at $110,000, versus zero in the prior year; and o settlement of a liquidated damage claim by a former lender ($738,000) based upon our failure to become a "public company" prior to December 7, 1997. 11 Certain of these expenses were nonrecurring expenses related to our becoming a public company and to financing transactions. We expect the potential decrease in general and administrative expenses in the current fiscal year, however, to be offset by increases in personnel expenses, legal and accounting expenses, and increases in expenses related to promotional activities, primarily industry seminars and exhibitions. Liquidity and Capital Resources To date we have financed our development stage activities primarily through private placements of common stock. In the nine months ended April 30, 1999, we received cash proceeds of approximately $5.5 million in additional equity capital, net of expenses relating to the issuance of such shares and $140,873 to redeem certain outstanding shares. As a result, at April 30, 1999, our stockholders' equity had increased to approximately $5.53 million versus approximately $2.64 million at July 31, 1998, notwithstanding our net loss during the nine months ended April 30, 1999. At April 30, 1999, we had cash on hand of approximately $3.86 million. Based on our projections of our cash needs at that time, cash on hand was sufficient to fund development activities over the remainder of the current fiscal year at the levels then planned. In the current fiscal quarter, which began May 1, we have received approximately $3.7 in additional equity capital from an institutional private placement completed in May 1999, and from the exercise of outstanding warrants in May and June 1999. Implementing our business plan will require the availability of sufficient funds to complete development of our oral insulin formulation and to carry on other research and development activities. While we have been able to raise capital for our development activities in the past, we do not have any commitments for future financing. Thus, we face the risk that unforeseen problems with our clinical program or materially negative developments in general economic conditions could interfere with our ability to raise the capital we need, or materially adversely affect the terms upon which such capital is available. If we were unable to raise additional capital as needed, we could be required to "scale back" or otherwise revise our business plan. Any significant scale back of operations or modification of our business plan due to a lack of funding could be expected to materially and adversely affect our prospects. We believe that our cash on hand is sufficient to complete the Phase II clinical programs for our oral insulin formulation in the United States and Canada. Additional funds will be required, however, to carry out a Phase III clinical program. The differences between Phase II and Phase III clinical programs are described below under the caption "Business - Government Regulation". We expect that a substantial portion of our Phase III clinical program costs will be obtained through licensing income and future marketing partners' contributions to clinical program costs and/or equity investments. We do not, however, have any licensing agreements or contractual arrangements for other funding at the present time. Transactions with Affiliates A portion of our research and development and administrative expenses in the current year and in prior periods have resulted from transactions with affiliated persons. "Research and development - related party" and "General and administrative - related party" expenses as reported in our financial statements represent compensation and expense reimbursements paid to management or consulting companies owned by officers and directors of Generex and through which such officers and directors provide their services to us. A number of our capital transactions also have involved affiliated persons. Although these transactions are not the result of "arms-length" negotiations, we do not believe that this fact has had a material impact on our results of operations or financial position. 12 Year 2000 Issues 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. We have completed our assessment of year 2000 issues and believe that the consequences of such issues will not have a material effect on our business, results of operations or financial condition, without taking into account any efforts by us to avoid such consequences. 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. 130 is effective for fiscal years beginning after December 15, 1997. We began the adoption of SFAS No. 130 in our first fiscal quarter ending October 31, 1998. 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. We believe that the adoption of SFAS No. 131 will not have a material impact on our 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. We believe that the adoption of SFAS No. 133 will not have a material impact on our 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". We believe that the adoption of SOP 98-1 will not have a material impact on our financial reporting. 13 OUR BUSINESS Generex Biotechnology Corporation is engaged in the research and development of proprietary drug delivery technology. Our activities to date have been focused on formulations to administer large molecule drugs by mouth. Large molecule drugs ordinarily are not effective unless they are administered by injection. The initial product based upon our large molecule drug delivery technology is a liquid insulin formulation that can be administered by a spray to the oral cavity. We believe that the drug delivery technology upon which this product is based also can be used for other large molecule drugs. Oral Insulin Formulation. Background - Insulin Therapy for Diabetes: The term diabetes refers to a group of disorders that are characterized by abnormally high levels of glucose in the blood. The disorders that characterize diabetes involve defects in the relationship between glucose, a type of sugar, and insulin secretion. When glucose is abundant, it is converted into fat and stored for use when food is not available. When glucose is not available from food, these fats 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 by stimulating the use of glucose as fuel and by inhibiting the production of glucose in the liver. In a healthy individual, a balance is maintained between insulin secretion and glucose metabolism. There are two types of diabetes. In Type 1 diabetes (juvenile onset diabetes or insulin dependent diabetes), the pancreas produces no insulin, and patients typically inject insulin three to five times per day to regulate blood glucose levels. In Type 2 diabetes (adult onset or non-insulin dependent diabetes mellitus), the body is resistant to the effect of insulin and the insulin produced by the body is insufficient to properly regulate glucose levels in the blood. In addition to insulin therapy, Type 2 diabetics take oral drugs that stimulate the production of insulin by the pancreas or enable the body to more effectively use insulin. Complications of diabetes include damage to the walls of blood vessels, blindness, loss of circulation in arms and legs, coronary artery disease and kidney failure. In addition, many diabetics are obese and this obesity leads to cardiovascular disease and stroke. There is no known cure for diabetes. The World Health Organization has identified diabetes as the second largest cause of death by disease in North America. In North America, total diabetes treatment costs in 1998 exceeded $130 billion, of which 50% represented direct costs such as medication, supplies and medical care, with the balance being indirect costs such as lost wages. Oral Insulin Research & Development. Insulin taken by mouth is usually not absorbed because the insulin molecule is too large. As a result, substantially all insulin used today in the treatment of diabetes is injected. Our research and development effort has focused on finding an insulin formulation that will be absorbed when administered by mouth. We began with studies involving rats and dogs which showed favorable results. Beginning in January 1998, we conducted a number of studies in Ecuador with human subjects. Each of these studies involved a selection of between 8 and 10 patients. The principal purpose of these studies was to evaluate the effectiveness of our oral insulin formulation in humans compared with injected insulin and placebos. The studies were conducted over periods of from 4 to 5 days. In these studies, oral formulations containing 30, 40 and 50 units of insulin provided glucose lowering results similar to 10 units of injected insulin. The oral insulin formulations also provided average insulin absorption equivalent to the injected insulin. 14 Concurrently with these studies, we also experimented with a number of devices and techniques to orally "administer" our formulation. In our earliest studies in Ecuador, the formulation was administered using a calibrated dropper. The formulation was "swished" in the mouth and either spit out or swallowed. We eventually decided to use a hand held aerosol sprayer to administer the formulations. On the basis of the test results in Ecuador and other pre-clinical data, we made an Investigatory New Drug submission to the Health Protection Branch in Canada (Canada's equivalent to the United States' Food and Drug Administration) in July 1998, and received permission from the Canadian regulators to proceed with clinical trials in September 1998. We started these trials in November 1998, and they are now in process. We filed an Investigative New Drug Submission with the Food and Drug Administration in October, 1998. In November 1998 we received FDA approval to proceed with human trials. We began clinical trials in the United States in February 1999, and they are now in process. We expect to complete Phase II clinical trials of our oral insulin formulation in 1999, and to begin Phase III clinical trials of the formulation in 2000. We also expect to enter into one or more licensing or other collaborations with a major pharmaceutical or biotechnology company before commencing Phase III trials. The distinctions between Phase II and Phase III trials are described in "Government Regulation" below. Other Large Molecule Drug Projects. We believe that the large molecule drug delivery system used in our insulin product is appropriate for a variety of other drugs. We have had numerous and extensive discussions of possible research collaborations with pharmaceutical companies concerning the use of our large molecule drug delivery technology with the prospective partner's products. These products include monoclonal antibodies, human growth hormone, fertility hormone, and others. We have not aggressively pursued these relationships, however, because we believed it was more advantageous to concentrate our resources on developing our oral insulin formulation. We have, however, engaged in preclinical trials of two non-insulin applications. Government Regulation United States: All aspects of our research, development and foreseeable commercial activities are subject to extensive regulation by the FDA and other regulatory authorities in the United States. United States federal and state statutes and regulations govern, among other things, the testing, manufacture, safety, efficacy, labeling, storage, record keeping, approval, advertising and promotion of pharmaceutical products. Preclinical studies and clinical trials, and the regulatory approval process usually take several years and require the expenditure of substantial resources. If regulatory approval of a product is granted, the approval may include significant limitations on the uses for which the product may be marketed. The steps required before a pharmaceutical product may be marketed in the United States include: o preclinical tests; o the submission to FDA of an Investigational New Drug application, which must become effective before human clinical trials commence; o human clinical trials to establish the safety and efficacy of the drug; o the submission of a New Drug Application to FDA; 15 o FDA approval of the New Drug Application, 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 the Investigational New Drug Application and are reviewed by FDA before the commencement of human clinical trials. Unless FDA objects to the Investigatory New Application Drug, the Investigational New Drug Application becomes effective 30 days following its receipt by FDA. The Investigational New Drug Application for our oral insulin formulation became effective in November 1998. Clinical trials involve the administration of the new drug to humans under the supervision of a qualified investigator. The protocols for the trials must be submitted to FDA as part of the Investigational New Drug Application. Also, each clinical trial must be approved and conducted under the auspices of an Institutional Review Board, which considers, among other things, ethical factors, the safety of human subjects, and the possible liability of the institution conducting the clinical trials. Clinical trials are typically conducted in three sequential phases (Phase I, Phase II, and Phase III), but the phases may overlap. Phase I clinical trials test the drug on healthy human subjects for safety and other aspects, but not effectiveness. Phase II clinical trials are conducted in a limited patient population to gather evidence about the efficacy of the drug for specific purposes to determine dosage tolerance and optimal dosages, and to identify possible adverse effects and safety risks. We began Phase II clinical tests of our oral insulin formulation in the United States in February 1999, and these tests are now in progress. When a compound has shown evidence of efficacy and acceptable safety in Phase II evaluations, Phase III clinical trials are undertaken to evaluate clinical efficacy and to test for safety in an expanded patient population at clinical trial sites in different geographical locations. FDA and other regulatory authorities require that the safety and efficacy of therapeutic product candidates 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 a New Drug Application to seek approval to market and commercialize the drug product for a specified use. FDA may deny a New Drug Application if it believes that applicable regulatory criteria are not satisfied. FDA also may require additional testing for safety and efficacy of the drug. We cannot be sure that any of our proposed products will receive required regulatory approvals. Even if we receive regulatory approval, our products and the facilities used to manufacture our products will remain subject to continual review and periodic inspection by FDA. To supply drug products for use in the United States, foreign and domestic manufacturing facilities must comply with FDA's Good Manufacturing Practices. Domestic facilities are subject to periodic inspection by FDA. Products manufactured outside the United States are inspected by regulatory authorities in those countries under agreements with FDA. To comply with Good Manufacturing Practices, manufacturers must expend substantial funds, time and effort in the area of production and quality control. FDA stringently applies its regulatory standards for manufacturing. Discovery of previously unknown problems with respect to a product, manufacturer or facility may result in consequences with commercial significance. These include restrictions on the product, manufacturer or facility, suspensions of regulatory approvals, operating restrictions, delays 16 in obtaining new product approvals, withdrawals of the product from the market, product recalls, fines, injunctions and criminal prosecution. Foreign Countries: Before we are permitted to market any of our products outside of the United States, those products will be subject to regulatory approval by foreign government agencies similar to FDA. These requirements vary widely from country to country. Generally, however, no action can be taken to market any drug product in a country until an appropriate application has been approved by the regulatory authorities in that country. FDA approval does not assure approval by other regulatory authorities. The current approval process varies from country to country, and the time spent in gaining approval varies from that required for FDA approval. In Canada, we obtained regulatory approval from the Health Protection Branch, the Canadian equivalent of the FDA, in September 1998, and began clinical tests in Canada in November 1998. In Ecuador, we conducted early clinical and other studies in 1997 and the first half of 1998. Regulatory authorities in Ecuador approved the limited non-commercial distribution of our oral insulin formulation in September 1998. Marketing We have several options for marketing our products. These include selling our drug delivery technology outright (for all applications or certain applications only), licensing one or more companies to market products based on our technology, or marketing directly through a sales force comprised of our own staff and independent distributors. Our present intent is to establish joint ventures or licensing arrangements for marketing our products. We have discussed licensing and other terms with several potential marketing and distribution partners for our oral insulin formulation, but have not yet reached any formal commitments or agreements. We plan to market oral insulin formulation in the United States under the name Oralgen(TM), and in Canada and elsewhere under the name Oralin(TM). We expect that the convenient size of our applicator, the stability of our oral insulin formulation at room temperature, and the ease and pain-free nature of self-administration of the product by patients will be the principal strengths for marketing our formulation to patients who require insulin therapy, if and when we obtain the necessary approvals to market the product. We also expect that these same factors will improve patients' compliance with their prescribed therapy, and that this improvement in patient compliance would be a significant factor in motivating physicians to prescribe our product for insulin therapy. Manufacturing. We plan to manufacture our oral insulin formulation in company-owned or controlled facilities. Initially, we produced the formulation needed for our clinical studies in a laboratory setting. We now have equipped a company-owned pilot facility in Toronto, that is capable of preparing enough formulation for approximately 500 applicators daily, and filling and shipping that number of applicators. We believe that our pilot facility, with the addition of a second production line, will be able to produce sufficient product for our clinical program in the United States, Canada and South America. The cost to duplicate the initial production line will be less than the cost for the initial line since we will not have new design costs and the same testing and quality assurance equipment will be used by both lines. We also plan to equip and start up full scale manufacturing facilities in Brampton, Ontario, and Mississauga, Ontario, both of which are company-owned and within 25 miles from downtown Toronto. We believe that these facilities can be placed into production in calendar year 2000. We do not foresee a need to place these facilities into production before then. 17 Our present business plan is to establish a manufacturing capability in South America to serve that market, and eventually to add additional manufacturing capacity as and where required. We have acquired a building site in a "duty free" zone in Ecuador for a South American manufacturing facility, but have taken no other steps to establish any manufacturing capability outside Canada. Our manufacturing facilities must comply with regulatory requirements of the country in which they are located and of countries to which product produced at the facility is exported. We believe that our pilot facility will be in compliance with Good Manufacturing Practices before the end of calendar 1999, and we expect to seek approval of the facility from Canada's Health Protection Branch at that time. Raw Material Supplies All materials other than synthetic insulin which are required to make our oral insulin formulation can be easily obtained. The excipients used in our formulation are available from numerous sources. We expect to obtain the aerosol spray applicator used to administer the product from a third party contractor that presently is developing the device in cooperation with us. We expect that this contractor will be a sole source of supply. We intend, however, to obtain all necessary licenses and technical information to establish alternative sources of supply if this proves necessary. The propellant used in our aerosol spray applicator is a proprietary product, but is available from several suppliers. We do not anticipate any supply difficulties in obtaining the propellant. There are limited sources of supply of the synthetic insulin we need. We believe that Eli Lilly & Company and Novo Nordisk A/S together produce approximately 90% to 95% of the world's synthetic insulin supply, and are the only sources of the type of insulin we need that is approved for sale in the United States. The only other company which has a significant share of the world market for synthetic insulin is Hoescht Marion Roussel, which has approximately 40% of the German market, and limited sales elsewhere, but presently does not have an insulin product approved for sale in the United States. At the present time, we are using insulin obtained from retail supply sources in our clinical trials. We have also 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 our oral insulin product, we will be required to secure a direct supply of insulin in commercial quantities. We have discussed insulin supply with the leading suppliers and certain 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. We do not now have a supply agreement for commercial quantities of insulin. Intellectual Property Our large molecule drug delivery technology is covered by one or more of six US patent applications pending as of June 30, 1999. One of these patents has been allowed but is not yet issued. We have three other patent applications pending, two of which are pending only in Canada, which cover other drug delivery technology. At the present time, however, we are not devoting significant resources to develop these other technologies. Our technology is the result of original research and discoveries by Pankaj Modi, our Vice President, Research and Development. Under an October 1996 Consulting Agreement, Dr. Modi assigned to us his entire interest in all inventions, ideas, designs and discoveries made by him during the term of the Agreement which relate to our actual or demonstrably anticipated business, work, undertakings or research and development. At that time, Dr. Modi also entered into an Assignment and Assumption Agreement with us under which he assigned to us his interests in specific drug delivery systems and technology patents 18 invented/discovered/conceived by him prior to the execution of the Agreement. This included all of his interests in three patents which he previously had assigned to Centrum Biotechnologies, Inc., a Canadian company which was then 50% owned by Dr. Modi. Generex Pharmaceuticals has since acquired Dr. Modi's interest in Centrum Biotechnologies for no additional consideration. In consideration for his assignment of intellectual property to us, Dr. Modi received a portion of the shares of Generex Pharmaceuticals, Inc. common stock which were received by the founders of Generex Pharmaceuticals upon the organization of that company. These shares subsequently were converted into 1,100,000 shares of our common stock when we acquired Generex Pharmaceuticals. In addition, Generex Pharmaceuticals agreed to reimburse to Dr. Modi approximately $100,000 for expenses incurred by him in connection with his research activities prior to October 1, 1996. Since joining us, Dr. Modi has developed formulations and procedures, including our oral insulin formulation, that we believe are outside the scope of the patents and other rights previously assigned to us and to Centrum by Dr. Modi. At this time, however, we have not obtained any formal legal opinions that Dr. Modi's inventions and discoveries after joining us do not infringe his earlier patents or other patents owned by third parties. Competition Any product that we may develop will compete directly with products developed and marketed by other companies. In addition, other institutions, including pharmaceutical companies, universities, government agencies and public and private research organizations attempt to develop and patent products which could compete with our products. These companies and institutions also compete with us in recruiting and retaining qualified scientific personnel. Many of our competitors and potential competitors have substantially greater scientific research and product development capabilities, as well as financial, marketing and human resources, than we do. Many pharmaceutical and biotechnology companies are engaged in various stages of research, development and testing of alternatives to insulin therapy for the treatment of diabetes, as well as new means of administering insulin The potential competitive technologies include the following: o 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. In November 1998, Inhale announced that it had "kicked off" Phase III trials. The announcement did not disclose when actual dosing of patients was expected to begin. o 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-company which has been making insulin for approximately 75 years. o Cortecs International announced in late 1997 the results of two insulin studies with its proprietary product 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 in the future. 19 o 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. Aradigm began Phase II testing in the second half of 1998. Novo Nordisk is one of the two leading manufacturers of insulin in the world, the other being Eli Lilly & Company. o 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 Spiros Development Corporation. o 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. According to that announcement, the patent covers a vaccine delivery system which Endorex is developing through a joint venture with Elan Pharmaceutical Technologies, a company which specializes in drug delivery technologies and systems. In addition to other 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: o Glucophage(R) is a proprietary product of Bristol-Myers Squibb Company that is used to improve diabetic patients' ability to control glucose without increasing serum insulin levels. It is believed to work, at least in part, by reducing glucose output from the liver. o 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. o Rezulin(R) is a proprietary product sold by Warner Lambert for use as the sole therapy or part of a combination therapy for Type 2 diabetes. The product is believed to work in part by increasing the body's sensitivity to insulin. o Prandin(TM) is a proprietary product sold by Novo Nordisk and Schering-Plough Corporation which has been approved by the FDA for certain diabetic patients. The product is believed to act via calcium channels to stimulate insulin secretion. Virtually all of our competitors and potential competitors have greater research and development capabilities, experience, manufacturing, marketing, sales, financial and managerial resources than we now have. Our competitors may develop competing technologies, and obtain regulatory approval for products more rapidly than we do. This may allow them to obtain greater market acceptance of their products. Developments by others may render some or all of our proposed products or technologies uncompetitive or obsolete. We expect that competition among products approved for sale to treat diabetes will be based, among other things, on product safety, efficacy, ease of use, availability, price, marketing and distribution. We believe that the principal advantage of our oral insulin formulation will be ease of use which will result in greater patient compliance. Our product, however, may be more expensive and more difficult to obtain than other diabetes treatments. 20 Environmental Compliance Our manufacturing, research and development activities involve the controlled use of hazardous materials and chemicals. We believe that our procedures for handling and disposing of these materials comply with all applicable government regulations. However, we cannot eliminate the risk of accidental contamination or injury from these materials. If an accident occurred, we could be held liable for damages, and these damages could severely impact our financial condition. We are also subject to many environmental, health and workplace safety laws and regulations, particularly those governing laboratory procedures, exposure to blood-borne pathogens, and the handling of hazardous biological materials. Violations and the cost of compliance with these laws and regulations could adversely affect us. However, we do not believe that compliance with the United States, Canadian or other environmental laws will have a material effect on us in the foreseeable future. Research and Development Expenditures A substantial portion of our activities to date have been in research and development. In the period from inception to April 30, 1999, our expenditures on research and development were $3,458,228. These included $1,787,203 in the nine months ended April 30, 1999, $876,404 in the year ended July 31, 1998, and $727,479 in the year ended July 31, 1997. Facilities Our executive and principal administrative officers occupy approximately 5,000 square feet of office space in the Business Centre at 33 Harbour Square in downtown Toronto, Ontario, Canada. We own the Business Centre, which comprises approximately 9100 square feet of usable space. The space in the Centre that is not used by us is leased to third parties. Under the terms of our purchase of this space, however, net rental income from third parties' leases was retained by the seller through January 31, 1999. We also have commenced limited production of our oral insulin formulation for clinical purposes at a pilot manufacturing facility in Toronto. This facility, which we own, consists of approximately 3600 square feet of laboratory, manufacturing and storage space. At this time, we are using approximately two-thirds of the usable space. On a single shift, we believe the facility has the capacity to prepare the oral insulin formulation for approximately 500 applicators per day, and to fill and ship those applications. We are not producing at those levels at this time, however, because there is no need to do so. We also believe that we can increase production at this facility to approximately 1000 applicators per day by outfitting and equipping the remaining space at this facility, and installing a second production line, at a cost of approximately $300,000. We have a purchase money mortgage on our executive facility in Toronto. The amount of this mortgage is $800,000 CAD (approximately $550,000 US) and is payable in full in March 2000. We have a mortgage of $125,000 CAD (approximately $86,000 US) on our pilot manufacturing facility which is due in September, 1999. Both of these mortgages require only the payment of interest prior to their due date. We also own an 11,625 square foot building in Brampton, Ontario, which is approximately 25 miles outside Toronto; a 13,500 square foot building in Mississauga, Ontario, which is about 20 miles from downtown Toronto; and a commercial building site in Ecuador. We have begun the preliminary work to equip and start-up the Brampton and Mississauga facilities to produce our oral insulin formulation. We believe that we can place these facilities in operation by the end of calendar year 2000. At this time, we do not expect to need manufacturing capabilities beyond our pilot facility before the end of the year 2000. 21 Employees On June 30, 1999, We had 22 full-time employees, including our executive officers and other individuals who work for us full time but are employed by management companies that provide their services. Eleven of these employees are executive and administrative, six are scientific and technical personnel who engage primarily in development activities and in preparing formulations for testing and clinical trials. Five of our employees are engaged in corporate and product promotion, public relations and investor relations. We believe our employee relations are good. None of our employees is covered by a collective bargaining agreement. Legal Proceedings and Insurance Sands Brothers & Co. Ltd., a New York City-based investment banking and brokerage firm, initiated an arbitration against us under New York Stock Exchange rules on October 2, 1998. Sands has alleged that it has the right to receive, for nominal consideration, approximately 1.6 to 2.5 million shares of our common stock. This claim is based upon an October 1997 letter agreement which purports to confirm an agreement appointing Sands Brothers as the exclusive financial advisor to Generex Pharmaceuticals, Inc., our subsidiary. In exchange for agreeing to act in that capacity, the letter agreement purports to grant Sands the right to acquire 17% of Generex Pharmaceuticals common stock for nominal consideration. Following our acquisition of Generex Pharmaceuticals, Sands' claimed right to receive shares of Generex Pharmaceuticals common stock applies to our common stock since outstanding shares of Generex Pharmaceuticals were converted into our shares in the acquisition. Sands' claims include additional shares as a fee related to that acquisition, and $144,000 in monthly fees due under the terms of the purported agreement. Sands has never performed any services for us, and we have denied that the individual who is alleged to have signed the purported agreement had the authority to act on Generex Pharmaceutical's behalf. Hearings were held before a NYSE arbitration panel the week of June 7, 1999, and on July 6, 1999. Additional hearings are expected to be held in July 1999. We are unable to predict the outcome of the arbitration at this time. We are also involved in the following proceedings: o In February 1997, a claim of wrongful dismissal by a former employee seeking damages of $450,000 (CAD) was brought in Ontario Court in Toronto, Ontario (Lorne Taylor v. Generex Pharmaceuticals, Inc.). We believe that the claim is without merit, and no reserve or other provision has been made for any loss that may result from the litigation. o In June 1996, "Generex Inc." was named as an additional defendant in a pending action in The Court of Queen's Bench of Alberta, in Calgary, Alberta (Elbourne, et al. v. Acepharm, Inc., et al.). In this action the plaintiffs seek injunctive relief relating to the ownership and control of Acepharm, damages for an alleged reduction in the value of their shares in Acepharm, Inc. (approximately $680,000 U.S.), and punitive damages (approximately $3.4 million U.S.). In one paragraph, plaintiff's amended Statement of Claim identifies Generex Pharmaceuticals and mis-identifies it as a subsidiary of another corporation. Except for this paragraph, there is no reference to us in the amended Statement of Claim. The specific acts alleged in the amended Statement of Claim to have violated plaintiffs' interests and caused it injury are ascribed to other defendants, and occurred prior to Generex Pharmaceuticals' incorporation in November 1995. We believe that we were made a party to this case because Generex Pharmaceuticals had expressed interest in acquiring certain assets of Acepharm, and the plaintiffs wished to prevent the sale. Because of the dispute over management, ownership and 22 control of Acepharm, Inc., and because Acepharm's assets are unrelated to its business plans and goals, Generex Pharmaceuticals has long since abandoned any interest in purchasing such assets. We deny any wrongdoing relative to any of the matters upon which plaintiff's claims in this action are based. We failed, however, to file a Statement of Defense to those claims on a timely basis, and plaintiffs have caused a notice of default to be entered against us. We have applied to the court to have the notice of default set aside, and to permit us to file a Statement of Defense. This application should be heard this summer. We may not succeed in setting aside the notice of default, however, in which case we would be precluded from contesting liability, but would be permitted to contest the amount of damages, if any, which plaintiffs incurred as a result of our actions or of actions for which we are legally responsible. We believe that plaintiffs have suffered no loss or injury based on any action of ours or for which we were responsible, and have made no provision in our financial statements for any loss which might be incurred in this litigation. o In February 1999, MQS, Inc., a former consultant, commenced a civil action against us in the United States District Court for the District of New Jersey claiming that 242,168 shares of our Common Stock and $243,065.50 are due to it for services which it rendered through December 22, 1998. MQS also claims that we have used proprietary technology of MQS in developing our aerosol applicator and in formulating our oral insulin product for aerosol application. We filed our answer to MQS's claims in May 1998, in which we deny that MQS is entitled to the relief that it seeks, or that MQS supplied any proprietary technology to us in the course of its engagement or otherwise. We also have filed a counterclaim against MQS for breach of contract. We are unable to predict the outcome of this litigation at this time. We maintain product liability coverage for claims arising from the use of our products in clinical trials, etc., but do not have any insurance which covers our potential liability in any of the legal proceedings described above. MANAGEMENT Executive Officers and Directors The current executive officers and directors of are as follows:
Name Age Position - ---- --- -------- E. Mark 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
23 Mark Perri and Rose Perri are siblings. There are no other family relationships among our officers and directors. E. Mark Perri - Mr. Perri has served as the our Chairman and Chief Financial Officer since the acquisition of Generex Pharmaceuticals in January 1998. He has held comparable positions with Generex Pharmaceuticals since its organization in 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 our officer and director, other members of the Perri family and, in some cases, Anna Gluskin, who also is our officer and director. 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. They also include Angara Investments, Inc., Angara Equities, Inc. and Ching Chew An Breweries, Inc. which are engaged in the distribution of chemicals, generic prescription and non-prescription drugs, beer, vodka and other products in Central America, South America, China and republics of the former Soviet Union. Mr. Perri's interests also include Perri International, Inc., which holds interest in biotechnological 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. Between February 1994 and the organization of Generex Pharmaceuticals in November 1995, Mr. Perri devoted one hundred percent (100%) of his time to the investments and business interests described in this paragraph, as well as to pre-incorporation activities on behalf of Generex Pharmaceuticals. 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. Gluskin has served as our President and Chief Executive Officer since the acquisition of Generex Pharmaceuticals. Prior to that time, she held comparable positions with Generex Pharmaceuticals. Prior to her association with Generex Pharmaceuticals, Ms. Gluskin was engaged in the real estate business in the Toronto area as an independent real estate broker, and in pre-incorporation activities on behalf of Generex Pharmaceuticals. Ms. Gluskin has, since August 1997, served as Chairman and Chief Executive Officer 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., Angara Investments, Inc., Angara Equities, Inc. and Ching Chew An Breweries, Inc., 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 served as our Vice President, Research and Development, since December 1997. Prior that time, Dr. Modi was Director of Insulin Research for Generex Pharmaceuticals, a position he assumed in October 1996. Prior to joining Generex Pharmaceuticals, Dr. Modi was engaged in independent research and was employed as a senior research assistant at McMaster University from February 1994 through October 1996. Dr. Modi is our chief scientific officer and substantially all of the Company's intellectual property is based upon discoveries and other work product by Dr. Modi. Dr. Modi was educated at the University of Bombay, India and 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, U.S.A., 1978) and a Doctorate in Biomedical Sciences/Biopolymeric Materials (University of Toronto, 1992). 24 Rose C. Perri - Ms. Perri has served as our Secretary and Treasurer since January, 1998, and as our Chief Operating Officer since August, 1998. She was secretary of Generex Pharmaceutical since its inception. Ms. Perri devotes less than ten percent (10%) of her time to business interests controlled by the Perri family, principally Perri Rentals, Inc. Between February, 1994 and the organization of Generex Pharmaceuticals in November, 1995, Ms. Perri devoted one hundred percent (100%) of her time to business interests controlled by the Perri family as well as pre-incorporation activities on behalf of Generex Pharmaceuticals. 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. Other Key Employees and Consultants Slava Jarnitskii is our Financial Controller. He began his employment with Generex Pharmaceuticals in September, 1996. Before his employment with Generex Pharmaceuticals, Mr. Jarnitskii was a graduate student at York University. He received an MBA degree from York University in September, 1996. Scientific Advisory Board and Consultants We have established a Scientific Advisory Board to provide us with advice regarding research direction, product development, analysis of data and general scientific, medical and business counseling. We consult with individual members of this Board on a non-scheduled basis. Brief descriptions of the backgrounds of our Scientific 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 of that Institute. 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-Aguirre was the principal investigator who conducted our 1998 clinical work in Ecuador. Dr. Guevara-Aguirre was a professor of Endocrinology for the Department of Internal Medicine, Central University in Quito between 1980-1994. He also serves as a director of Centro Medico de Neuro-Endocrinologia in Quito. Gerald Bernstein, M.D., Director, Diabetes Management Program, Beth Israel Health Care Systems, New York City. Dr. Bernstein was the 1998-1999 President of the American Diabetes Association, and has served on the Board of Directors of that organization since 1993. Dr. Bernstein has also served on the Board of Directors and as President of state and local chapters of the American Diabetes Association. He received his medical degree form Tufts University School of Medicine, and after his internships and residency, completed a Postdoctoral fellowship at the Endocrine Research Laboratory, Montefiore Hospital, Bronx, New York. Dr. Bernstein has been an Associate Clinical Professor of Medicine at Albert Einstein College of Medicine, Bronx, New York since 1996. Edward C. Keystone, M.D., F.R.C.P.(C), Chief, Rheumatic Disease Unit, Wellesley Hospital and 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 25 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. 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 Chairman of our Scientific Advisory Board, and also is acting as an investigator in our initial Phase II clinical trials in the United States. 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 26 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 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 was the principal investigator for the initial Canadian clinical trials of our 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. Compensation of Executive Officers We compensate Mark Perri, Rose Perri, and Anna Gluskin indirectly through a Management Services Agreement with The Great Tao, Inc. The Great Tao, Inc., is a management firm of which Mr. Perri, Ms. Perri and Ms. Gluskin are equal owners. The Agreement does not have a definite term. Their current combined yearly compensation through this Agreement is $420,000 CAD (approximately $277,500 US). The following table sets forth information concerning compensation paid to Anna E. Gluskin, as President and Chief Executive Officer of , in the fiscal year ended July 31, 1998. No officer of our received compensation in excess of $100,000 in that year. Mark Perri, Rose Perri and Anna Gluskin all received substantial benefits from us through non-interest bearing loans. These are discussed later in this prospectus under the heading "Certain Relationships and Related Transactions." Summary Compensation Table
- ----------------------------------------------------------------------------------------------------------------------- Annual Compensation Long-Term Compensation ----------------------------- ------------------------------------ Awards Payouts Securities Other Under- Annual Restricted lying All Other Name and Year Compen- Stock Options/ LTIP Compen- Principal Ended Salary Bonus sation Award(s) SARs Payouts sati Position July 31 ($) ($) ($) ($) (#) ($) ($) (a) (b) (c) (d) (e) (f) (g) (h) (i) - ------------------------------------------------------------------------------------------------------------------------ Anna E. Gluskin, 1998 92,488 -0- Less than -0- -0- -0- -0- Chief Executive $50,000 Officer - ------------------------------------------------------------------------------------------------------------------------
27 Ms. Gluskin's salary is stated in the table in U.S. dollars and is based on the Canadian/U.S. dollar exchange rate on July 31, 1998. This amount represents compensation which Ms. Gluskin received through The Great Tao, Inc., as discussed above. Directors' Compensation, Other Compensation None of our directors received compensation in the past fiscal year for their services as directors. None of our officers or directors received any options or stock appreciation rights during the year, or owned any options or stock appreciation rights at year end. We have no long term incentive plans or defined benefit or actuarial pension plans. Corporate Governance Standards We have applied to have our Common Stock approved for quotation on The Nasdaq Stock Market, Inc. National Market System under the symbol "GNBT". Companies that are quoted on Nasdaq NMS must have at least two independent directors, and an audit committee of which a majority of the members are independent directors. We do not now have any independent directors, but expect to add a minimum of two independent directors to our Board of Directors within the next 60 days. Limitation of Directors' Liability Our Certificate of Incorporation provides that no director of Generex will be personally liable to us or any of our stockholders for monetary damages arising from the director's breach of fiduciary duty as a director. This limitation does not apply to: o Liability from a director's breach of his duty of loyalty; o Liability from a director's acts or failures to act which were not done in good faith or involved intentional misconduct or knowing violation of law; o Liability for unlawful dividends or distributions; o Liability in the event of a transaction in which the director derived an improper personal benefit. We believe that these provisions will assist us in attracting and retaining qualified individuals to serve as directors. PRINCIPAL SHAREHOLDERS The following table sets forth information regarding the beneficial ownership of our common stock by: o Our executive officers and directors; o All directors and executive officers as a group; and 28 o Each person known to us to beneficially own more than five percent (5%) of our outstanding shares of common stock. The information contained in this table is as of June 30, 1999. At that date, we had 14,746,074 shares outstanding. In addition to our common stock, we have outstanding 1,000 shares of our Special Voting Rights Preferred Stock. All of these shares are owned by Dr. Pankaj Modi. A person is deemed to be a beneficial owner of shares if he has the power to vote or dispose of the shares. This power can be exclusive or shared, direct or indirect. In addition, a person is considered by SEC rules to beneficially own shares underlying options or warrants that are presently exercisable or that will become exercisable within sixty (60) days. None of the persons listed in the following table owns any options or warrants. In computing the percentage ownership of shares after this offering, we have assumed that all Placement Warrants will be exercised. None of the persons named below owns any Placement Warrants. Accordingly, the number of shares owned by such persons is the same before and after the offering, and only their percentage ownership will change. 29
- ---------------------------------------------------------------------------------------------------------------- Name and Address of Beneficial Owner Beneficial Ownership - ---------------------------------------------------------------------------------------------------------------- Number of Percent of Class Shares - ---------------------------------------------------------------------------------------------------------------- Before Offering After Offering(1) - ---------------------------------------------------------------------------------------------------------------- (i) Directors and Executive Officers - ---------------------------------------------------------------------------------------------------------------- E. Mark Perri 33 Harbour Square, Ste. 3502 Toronto, Ontario 4,330,086(2) 29.4% 28.9% M5J 2G2 - ---------------------------------------------------------------------------------------------------------------- Anna E. Gluskin 33 Harbour Square, Ste. 2409 1,188,179(3) 8.1% 7.9% Toronto, Ontario M5J 2G2 - ---------------------------------------------------------------------------------------------------------------- Rose C. Perri 33 Harbour Square, Ste. 2409 Toronto, Ontario 1,188,100(3) 8.1% 7.9% M5J 2G2 - ---------------------------------------------------------------------------------------------------------------- Pankaj Modi, Ph.D.(3) 519 Golf Links Road Ancaster, Ontario 1,100,200(4) 7.5% 7.3% L9G 4X6 - ---------------------------------------------------------------------------------------------------------------- Officers and directors as a group 7,806,565 53.0% 52.0% (4 persons) - ---------------------------------------------------------------------------------------------------------------- (ii) Other Beneficial Owners - ---------------------------------------------------------------------------------------------------------------- EBI, Inc. In Trust c/o Miller & Simons First Floor, Butterfield Square P.O. Box 260 1,501,496(5) 10.2% 10.0% Providencials Turks and Calcos Islands British West Indies - ---------------------------------------------------------------------------------------------------------------- GHI, Inc. In Trust c/o Miller & Simons First Floor, Butterfield Square P.O. Box 260 2,500,050(6) 17.0% 16.7% Providencials Turks and Calcos Islands British West Indies - ----------------------------------------------------------------------------------------------------------------
30 - ---------------------- (1) Assuming all Placement Warrant Shares are sold. (2) Includes 45,888 shares owned of record by Mr. Perri, and a total of 1,529,382 shares beneficially owned by Mr. Perri but owned of record by EBI, Inc. (1,100,000 shares), GHI, Inc. (124,050 shares) and First Marathon Securities Corp (305,332 shares). Also includes 2,376,000 shares owned of record by GHI, Inc. and 401,496 shares owned of record by EBI, Inc., which Mr. Perri may be deemed to beneficially own because of his power to vote the shares, but which are beneficially owned by other shareholders because they are entitled to the economic benefits of the shares. (3) Includes 1,188,000 shares owned of record by GHI, Inc. (4) Dr. Modi also owns all the outstanding shares of our Special Voting Rights Preferred Stock. This stock is not convertible into common stock. (5) These shares also are deemed to be beneficially owned by Mark Perri because he has the sole power to vote the shares. Mr. Perri also has investment power and otherwise is entitled to the economic benefits of ownership of 1,100,000 of the shares owned of record by EBI, Inc. (6) These shares also are deemed to be beneficially owned by Mark Perri because he has the sole power to vote the shares. Mr. Perri also has investment power and is otherwise entitled to the economic benefits of ownership of 124,050 of the shares owned of record by GHI, Inc. Anna Gluskin and Rose Perri each own beneficially 1, 188,000 of the shares owned of record by GHI, Inc. by reason of their ownership of investment power and other economic benefits of the ownership of such shares. 31 SELLING SHAREHOLDERS The following table lists each Selling Shareholder and: o the number of shares owned by each Selling Shareholders prior to the offering; o the number of shares each is registering for sale in the offering; and o the percentage of common stock owned by each after the offering, assuming each sells all of the shares registered for his/her/its benefit. None of the Selling Shareholders now or within the past three years has held any office or position with us, or had any material relationship with us other than as an investor.
- --------------------------------------------------------------------------------------------------------------------- Shares Owned, Shares Bene- Shares After the Name ficially Owned Registered Offering Prior to Offering for Sale (percentage of class) - --------------------------------------------------------------------------------------------------------------------- Cranshire Capital, L.P. 177,274 177,274 -0- - --------------------------------------------------------------------------------------------------------------------- Keyway Investments Ltd. 154,545 154,545 -0- - --------------------------------------------------------------------------------------------------------------------- Headwaters Capital 90,909 90,909 -0- - --------------------------------------------------------------------------------------------------------------------- The Aries Master Fund 63,637 63,637 -0- - --------------------------------------------------------------------------------------------------------------------- ICN Capital Ltd. 59,092 59,092 -0- - --------------------------------------------------------------------------------------------------------------------- Aries Domestic Fund, L.P. 27,000 27,000 -0- - ---------------------------------------------------------------------------------------------------------------------
32
- --------------------------------------------------------------------------------------------------------------------- Shares Owned, Shares Bene- Shares After the Name and Address ficially Owned Registered Offering Prior to Offering for Sale (percentage of class) - --------------------------------------------------------------------------------------------------------------------- Howard Todd Horberg 27,727 22,727 5,000(*) - --------------------------------------------------------------------------------------------------------------------- Steve Levy 27,727 22,727 5,000(*) - --------------------------------------------------------------------------------------------------------------------- Gilford Partners, L.P. 18,182 18,182 -0- - --------------------------------------------------------------------------------------------------------------------- Aries Domestic Fund II, L.P. 272 272 -0- - ---------------------------------------------------------------------------------------------------------------------
*Less than one percent The next table lists each holder of Placement Warrants and: o the number of shares of common stock beneficially owned by each Placement Warrant holder at , 1999; o the number of Placement Warrant Shares which each holder has the right to purchase upon exercise of the Placement Warrants; and o the number of shares owned beneficially by such holders and percentage ownership of our common stock after the offering, assuming all Placement Warrant Shares are resold. This prospectus covers our potential sale of all of the Placement Warrant Shares to such holders, and resales by them of the Shares which they are entitled to purchase from us. Coleman & Company Securities, Inc. has an investment banking relationship with us, and GIA Securities, Inc. acted as a broker in connection with a private placement that Coleman managed for us. Messrs. Puccio, Pellegrino, Ishak and Port are employees of Coleman. James Baxter and Barbara Brooks-Baxter are employees of GIA. Zazoff Associates, L.L.C. and Patrick Nolan introduced us to an investor in the private placement managed by Coleman, and received Placement Warrants from us as compensation for this service. 33
- -------------------------------------------------------------------------------------------------------------- Shares Number of Beneficially Shares Bene- Placement Owned After the ficially Owned Warrant Shares Offering Prior to Offering(1) Registered (percentage of Name For Sale class) - -------------------------------------------------------------------------------------------------------------- Coleman & Company Securities, Inc. 79,091(2) --* - -------------------------------------------------------------------------------------------------------------- Philip C. Puccio, Sr. 65,591(3) --* - -------------------------------------------------------------------------------------------------------------- Ernest G. Pellegrino 65,591(3) --* - -------------------------------------------------------------------------------------------------------------- Teddy Ishak 22,000(4) --* - -------------------------------------------------------------------------------------------------------------- James E. Port 15,000(5) --* - -------------------------------------------------------------------------------------------------------------- James N. Baxter 8,182(6) --* - -------------------------------------------------------------------------------------------------------------- Zazoff Associates, L.L.C. 3,637(6) --* - -------------------------------------------------------------------------------------------------------------- Patrick G. Nolan 3,637(6) --* - -------------------------------------------------------------------------------------------------------------- Barbara Brooks-Baxter 909(6) --* - --------------------------------------------------------------------------------------------------------------
*Less than one percent. (1) Includes, in each case, the Placement Warrant Shares issuable upon exercise of the Placement Warrants. (2) Includes 50,000 Placement Warrants exercisable at a price of $7.50 per share, and 29,091 Placement Warrants exercisable at a price of $5.50 per share. (3) Includes 57,500 Placement Warrants exercisable at a price of $6.00 per share, and 8,091 Placement Warrants exercisable at a price of $5.50 per share. (4) Includes 20,000 Placement Warrants exercisable at a price of $6.00 per share, and 2,000 Placement Warrants exercisable at a price of $5.50 per share. (5) Represents Placement Warrants exercisable at a price of $6.00 per share. (6) Represents Placement Warrants exercisable at a price of $5.50 per share. 34 PLAN OF DISTRIBUTION We will sell the Placement Warrant Shares to holders of the Placement Warrants only upon the exercise of such Warrants. If all outstanding Placement Warrants were exercised for cash, we would issue 263,638 Placement Warrant Shares, and would receive $1,625,000 in payment for such Shares. As described above under the caption "Use of Proceeds", holders of Placement Warrants may use the equity value of their warrants in lieu of cash to exercise Warrants. To the extent that holders of Placement Warrants use the cashless exercise method, cash proceeds and the number of Placement Warrant Shares issued upon exercise of the Placement Warrants would be reduced. Shares of common stock which have been registered for sale by the Selling Shareholders will be sold by them for their own accounts and we will not receive proceeds from any of these sales. Shares sold by the Selling Shareholders may be offered and sold from time to time as market conditions permit. Similarly, shares that we sell to holders of Placement Warrants upon the exercise of their Warrants may be resold by them from time to time as market conditions permit. These sales and resale transactions may take place in privately negotiated transactions or in the over the counter market, and may include large block transactions and ordinary brokers' transactions. These transactions may also include sales through one or more broker dealers who acquire and sell these shares as principals. Sales may be at the prevailing market price at the time of the sale, at prices relating to the prevailing market prices, such as at a specified discount from or premium over the market price, or at a negotiated price. Ordinary brokerage commissions may be paid by the sellers in connection with the sales, or the sellers may specifically negotiate brokerage fees or commissions in connection with the sales. We are paying all expenses in connection with the registration of the shares to be sold by the Selling Shareholders and the shares to be sold to the Placement Warrant Holders except that we will not pay any underwriting discounts or selling commissions for any sales by holders of the Selling Shareholders or resales by the Placement Warrants. We also will not pay any transfer taxes or fees or expenses of counsel or other advisors to the Selling Stockholders or the Placement Warrants. MARKET INFORMATION "Bid" and "asked" prices for our common stock have been quoted on the Nasdaq OTC Electronic Bulletin Board since February, 1998. The OTC Bulletin Board also publishes prices at which shares are actually sold, as reported to it by brokerage firms. Prior to February 1998, there was no public market for the 35 common stock. The table below sets forth the high and low inter-dealer bid quotations for our common stock for certain periods, as furnished by the NASDAQ OTC Bulletin Board from the beginning of trading on February 5, 1998. The high and low bid price quotations for our common stock on ______________, 1999, were $______ and $______, respectively. These are "inter-dealer" quotations, without retail mark-up, mark-down or commissions, and may not represent actual transactions. High Low ------- ----- 1998 ---- First quarter $6.50 $6.375 Second quarter $9.375 $6.125 Third quarter $8.125 $6.50 Fourth quarter $16.650 $7.50 1999 ---- First Quarter $__.__ $__.__ Second Quarter $__.__ $__.__ Third Quarter (through ________, $__.__ $__.__ 1999) At July 7, 1999, there were 954 holders of record of our common stock. Outstanding Warrants and Options Placement Warrants to purchase 256,364 shares were issued as compensation to two broker dealers, Coleman & Company Securities, Inc. and GIA Securities, Inc., and certain of their employees in connection with our entering into an investment banking relationship with Coleman Securities and a private placement of common stock managed by Coleman Securities in April and May 1999. We also issued 7,274 Placement Warrants to two finders who introduced us to one of the investors who participated in this private placement. The Placement Warrants are exercisable at prices ranging from $5.50 to $7.50 per share. The weighted average exercise price is $6.16 per share. The Placement Warrants expire in February and April 2004. We have other outstanding warrants and options which are exercisable for the number of shares and prices indicated below: o 7,937 shares at a price of $21.82 per share expiring September 6, 2002. o 500,000 shares at a price of $2.50 per share expiring March 21, 2003. o 50,000 shares at a price of $8.00 per share expiring November 13, 2003. o 300,000 shares at a price of $10.00 per share expiring November 17, 2003. 36 Shares Saleable Under Rule 144 At __, 1999, we had outstanding ________ shares that were "restricted securities" as defined in SEC Rule 144. Of these shares, 636,364 shares have been registered for sale in this offering. Of the remaining restricted shares, ________ shares currently are saleable under Rule 144 upon the seller's compliance with the manner of sale and other conditions and limitations of that Rule. Rule 144 also requires that specified information concerning Generex must be available at the time any such sale is made. Generex is subject to the reporting requirements of the Securities Exchange Act of 1934 and, so long as it complies with those reporting requirements, it satisfies Rule 144 "public information" requirements. CERTAIN TRANSACTIONS We were incorporated in 1983 as Green MT. P.S., Inc., but we were inactive for a number of years prior to January 1998, when we acquired Generex Pharmaceuticals, Inc. When we acquired Generex Pharmaceuticals, Inc., we changed our corporate name to "Generex Biotechnology Corporation". In that transaction, the former shareholders of Generex Pharmaceutical acquired approximately 89% of our common stock, and our pre-transaction shareholders retained approximately 11% of our common stock. Prior to our acquisition of Generex Pharmaceuticals in January 1998, Generex Pharmaceuticals was a private company. Unless otherwise indicated, the transactions described below occurred prior to our acquisition of Generex Pharmaceuticals or pursuant to contractual arrangements entered into prior to that time. We presently have a policy requiring approval by stockholders or by a majority of disinterested directors to approve transactions in which one of our directors has a material interest apart from such director's interest in Generex. 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). Generex Pharmaceutical's use of those funds was restricted to acquiring an insulin research facility. Subsequently this restriction was eased to permit use of the funds to acquire properties used for manufacturing our oral insulin product and other proprietary drug delivery products, and related testing, laboratory and administrative services. Under the terms of the investment, Generex Pharmaceuticals was required to lend these funds back to EBI, Inc. until they were needed for the purposes specified. 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 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 Generex Pharmaceuticals, provided they are used for the purchase and/or construction or equipping of oral insulin manufacturing and testing facilities. The amounts repaid by EBI were used primarily to purchase and improve the Generex-owned real estate and buildings described in this prospectus. Real Estate Purchases: Two of the properties purchased by Generex Pharmaceuticals with funds repaid by EBI (the Brampton and Mississauga manufacturing facilities described above under the caption "Business Manufacturing") were purchased from Antonio Perri, Mark Perri's father. The seller had owned these properties for more than two years prior to their sale. We believe 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 us as could have been obtained from an unrelated party through arms-length negotiations. 37 Occupancy of Executive Offices: Prior to December 17, 1997, we occupied executive offices at Harbour Square Business Center under an Occupancy Agreement between Generex Pharmaceuticals, Angara Equities, Inc. and 1097346 Ontario, Inc. Under that agreement, Generex Pharmaceuticals paid Angara a monthly occupancy fee of $4,880 CAD, which represented the rental and other charges allocable to its space under Angara's lease for space with the owner. Angara Equities is owned by Mark Perri, Rose Perri and Anna Gluskin. The arrangement between Angara and Generex Pharmaceuticals was a direct "pass through" of costs from which Angara derived no direct economic benefit. At the time the lease was executed in May 1996, the space was owned by an unrelated party, and the terms of the lease were negotiated at arms length. On December 17, 1997, we acquired 100% of the outstanding capital stock of the owner of the space for $661,769, and our lease with Angara Equities was terminated. Loans To and From Stockholders: Between November 1995 and July 31, 1997, Angara Equities incurred a net indebtedness of $1,127,218 (CAD) to Generex Pharmaceuticals. The indebtedness arose from cash advances and the payment by Generex Pharmaceuticals of expenses incurred by Angara and certain of its affiliates, net of repayments and the payment of Generex Pharmaceuticals expenses by Angara. The highest amount outstanding at any time during this period was $1,654,264 CAD (approximately $1,092,860 US). During this period, Generex Pharmaceuticals also made advances to The Great Tao, Inc., a company owned by Mark Perri, Rose Perri and Anna Gluskin, through which they receive compensation for their services to . At July 31, 1997, The Great Tao was indebted to Generex Pharmaceuticals 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, Generex Pharmaceuticals advanced a total of $1,556,250 (CAD) to Angara, The Great Tao 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 $1,855,997 (CAD). These included $420,000 CAD credited to The Great Tao on account of compensation we owed to Mr. Perri, Ms. Perri and Ms. Gluskin during the year. As a result, a total of $952,471 CAD (approximately $629,234 US) was due to Generex Pharmaceuticals from these entities at fiscal year end. The highest amount outstanding at any time during the fiscal year was $1,864,288 CAD (approximately $1,231,610 US). The transactions between Generex Pharmaceuticals 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 Mark Perri, Rose Perri and Anna Gluskin than to Generex Pharmaceuticals. These transactions and financing arrangements were mostly initiated prior to the transaction in which we acquired Generex Pharmaceuticals. All advances from Generex Pharmaceuticals 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, Generex Pharmaceuticals entered into a Consulting Agreement with Dr. Modi. Under this Agreement, Dr. Modi assigned to Generex Pharmaceuticals his rights to all inventions, ideas, designs and discoveries made by him during the term of the Agreement which relate 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 Generex Pharmaceuticals entered into an Assignment and Assumption Agreement. Under this Agreement Dr. Modi assigned to us his interests in specific drug 38 delivery systems, controlled release drug delivery systems and technology patents invented/discovered/conceived by Dr. Modi prior to the execution of the Agreement. These patents include 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 Generex Pharmaceuticals 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 the Consulting Agreement, we pay Dr. Modi an annual compensation of $132,000.00 CAD (approximately $87,200.00 US). We also reimbursed Dr. Modi for $150,000.00 CAD (approximately $99,000.00 US) of expenses incurred by Dr. Modi in research activities prior to his association with Generex Pharmaceuticals. DESCRIPTION OF SECURITIES Our authorized capital stock consists of o 50,000,000 shares of Common Stock, $.001 par value, o 999,000 shares of undesignated Preferred Stock, $.001 par value, and o 1,000 shares of Special Voting Rights Preferred Stock. On June 30, 1999, 14,746,074 shares of common stock and 1,000 shares of Special Voting Rights Preferred Stock were outstanding. Common Stock Holders of Common Stock are entitled to one vote for each share owned of record on all matters on which shareholders may vote. Holders of Common Stock do not have cumulative voting rights in the election of directors. Therefore, the holders of more than 50% of the outstanding shares can elect the entire Board of Directors. The holders of Common Stock are entitled, upon liquidation or dissolution of Generex, to receive pro rata all remaining assets available for distribution to stockholders after payment to any preferred shareholders who may have preferential rights. 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. Special Voting Rights Preferred Stock We have 1,000 shares of Special Voting Rights Preferred Stock outstanding. Dr. Modi, our Vice President - Research, is the owner of all of these shares. The Special Voting Rights Preferred Stock does not generally have the right to vote but does have the following special voting rights: o the Special Voting Rights Preferred Stock has the right to elect a majority of our Board of Directors if a change in control occurs; o the Special Voting Rights Preferred Stock has the right to approve any transaction that would result in a change of control; 39 o the Special Voting Rights Preferred Stock has the right to vote whenever specifically required by Delaware law. A "Change of Control" is deemed to occur if our founders (Anna E. Gluskin, E. Mark Perri, Rose C. Perri and Pankaj Modi) should cease to constitute at least sixty percent (60%) of our directors, or if any person becomes either our Chairman of the Board of Directors or Chief Executive Officer without the prior approval of these founders. If a Change of Control were to occur, Dr. Modi would thereafter be able to elect a majority of the directors of so long as shares of the Special Voting Rights Preferred Stock were outstanding. The Special Voting Rights Preferred Stock is entitled to share in dividends paid on the common stock. We have the right to redeem the Special Voting Rights Preferred Stock at any time after December 31, 2000, for $.10(cent) per share. Undesignated Preferred Stock Our Board of Directors has the authority to issue up to 999,000 shares of 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 our Certificate of Incorporation or on any other proposed corporate action, including business combinations and other transactions. 1998 Stock Option Plan On July 29, 1998, our Board of Directors approved our 1998 Stock Option Plan. 1,500,000 shares of common stock have been reserved for issuance upon the exercise of options granted under the Plan. We adopted this Plan: o to provide incentives and rewards to our employees who are in a position to contribute to our long term growth and profitability; o to assist us in attracting, retaining and motivating personnel with experience and ability we need; and o to make our compensation program more competitive with those of other employers. We also anticipate that we will benefit from the added interest which personnel who receive options will have in our success as a result of their proprietary interest. The Plan is administered by our Board of Directors. However, the Board may establish a stock option committee of at least three (3) directors to administer the Plan. The Board or committee is authorized to select from among eligible employees, directors, advisors and consultants those individuals to whom options are to be granted. The Board or committee also will to determine the number of 40 shares each person may acquire and the terms and conditions of the options. The Board or committee also is authorized to prescribe, amend and rescind terms relating to options granted under the plan. Generally, the interpretation and construction of any provision of the Plan or any options granted thereunder is within the discretion of the Board or 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. Only persons classified as employees are eligible to receive incentive stock options. Non-employee directors, advisors and consultants are eligible to receive options which do not qualify as incentive stock options under applicable Internal Revenue Code. The options granted by the Board in connection with its adoption of the Plan are not incentive stock options. The terms of options granted under the Plan are determined by the Board or committee at the time the option is granted. Each option is evidenced by a written option document. The option documents, together with the provisions of the Plan, determine such terms as: o when options under the Plan become exercisable; o the exercise price of options, which, for incentive stock options, may not be less than 100% of the fair market value of our common stock on the date the option is granted (110% in the case of optionees who own 10% or more of our common stock); o the term of the option; o vesting provisions; and o special termination provisions. An option may not be transferred, other than to the heirs of the option holder and is exercisable only by the original option holder during his lifetime or, in the event of his death, by his heirs. As of June 30, 1999, we had issued options for 50,000 shares under the Plan, exercisable at a price of $8.00 per share until November 13, 2002. Placement Warrants The Placement Warrants were issued to two broker dealers and their employees and to two finders in connection with an investment banking agreement and private placement of securities between February and May 1999. These Warrants are exercisable at prices ranging from $5.50 to $7.50 per share, and expire in February and April, 2004. Among other terms, the Placement Warrants required that we register the Placement Warrant Shares at such time as we registered any other shares for sale under the Securities Act. Other Warrants We also have outstanding warrants to purchase shares of common stock as follows: o to purchase 7,937 shares at a price of $21.82 per share until September 6, 2002. o to 500,000 shares at a price of $2.50 per share until March 31, 2003. o to purchase 300,000 shares at a price of $10.00 per share until November 17, 2003. 41 Anti-Takeover Provisions We are not aware of any pending takeover attempt or interest in making such an attempt. Our Certificate of Incorporation and Bylaws and the Delaware Corporation Law contain certain provisions which may be deemed to be "anti-takeover" in that they may deter, discourage or make more difficult the assumption of control of Generex by another corporation or person through a tender offer, merger, proxy contest or similar transaction or series of transactions. Special Voting Rights Preferred Stock: As indicated above, our outstanding Special Voting Rights Preferred Stock prevents a "change of control" of Generex without the consent of the holders of those shares. At the present time, all of these shares are owned by Pankaj Modi, a Generex officer and director. Authorized but Unissued Shares: Our authorized capital stock is 50,000,000 shares of common stock, 999,000 shares of preferred stock and 1,000 shares of Special Voting Rights preferred stock. The Board of Directors may set the rights, preferences and terms of new preferred stock, without shareholder approval. Shares of preferred stock could be issued quickly without shareholder approval, with terms calculated to delay or prevent a change in control of Generex. Our stockholders 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. No shares of preferred stock other than the Special Voting Rights Preferred Stock have been issued, and we have no present plan to issue any preferred stock. Delaware Anti-Takeover Statute. Section 203 of the Delaware corporations statute is applicable to publicly held corporations organized under the laws of Delaware, including Generex. Subject to various exceptions, Section 203 provides that a corporation may not engage in any "business combination" with any "interested stockholder" of the corporation for a three-year period after such stockholder becomes an interested stockholder unless the interested stockholder attained that status with the approval of the board of directors of the corporation or the business combination is approved in a manner described in the statute. A "business combination" includes mergers, asset sales and other transactions which result in a financial benefit to the interested stockholder. Subject to various exceptions, an interested stockholder is a person who, together with affiliates and associates, owns 15% or more of the corporation's outstanding voting stock or was the owner of 15% or more of the outstanding voting stock within the previous three years. Under certain circumstances, Section 203 makes it more difficult for an interested stockholder to effect various business combinations with a corporation for a three-year period. The stockholders may elect not to be governed by Section 203, by adopting an amendment to the corporation's certificate of incorporation or by-laws which becomes effective twelve months after adoption. Our Certificate of Incorporation and by-laws do not exclude Generex from the restrictions imposed by Section 203. It is anticipated that the provisions of Section 203 may encourage companies interested in acquiring Generex to negotiate in advance with our Board of Directors. General Effect of Anti-Takeover Provisions: The overall effect of these provisions may be to deter a future tender offer or other takeover attempt that some stockholders might view to be in their best interests at that time. In addition, these provisions may have the effect of assisting our current management in retaining its position and place it in a better position to resist changes which some stockholders may want to make if dissatisfied with the conduct of our business. 42 Dividend Policy Holders of our common stock are entitled to receive such dividends as the Board of Directors may from time to time declare. The Board may declare dividends only when dividends are legally available. Under the Delaware General Corporation Law, the Board may only declare dividends out of our capital surplus (generally the amount of its paid-in capital above the par value of the outstanding stock) or out of net profits for the fiscal year with respect to which the dividends are paid. Holders of our Special Voting Rights Preferred Stock are entitled to receive a dividend per share equal to the dividends paid on share of common stock when and if such dividends are declared and paid. We have never paid any dividends on our common stock and do not anticipate paying dividends in the foreseeable future. Transfer Agent StockTrans, Inc., 7 East Lancaster Avenue, Ardmore, PA 19003, is the transfer agent and registrar for our common stock. DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES Our by-laws require us to indemnify any of our officers or directors, and certain other persons, under certain circumstances against all expenses and liabilities incurred or suffered by such persons because of a lawsuit or similar proceeding to which the person is made a party by reason of a his being a director or officer of Generex or our subsidiaries, unless that indemnification is prohibited by law. We may also purchase and maintain insurance for the benefit of any officer which may cover claims for which we could not indemnify a director or officer. We have been advised that in the opinion of the Securities and Exchange Commission, indemnification of our officers, directors and controlling persons under these provisions, or otherwise, is against public policy and is unenforceable. LEGAL MATTERS The validity of the issuance of the shares of common stock offered in this prospectus will be passed upon for us by Eckert Seamans Cherin & Mellott, LLC, 1515 Market Street, 9th Floor, Philadelphia, PA 19102. The firm of Eckert Seamans owns 158,172 shares of common stock which it received in payment of legal fees and expenses in 1998 (60,000 shares) and the exercise of warrants in June 1999 (98,172 shares). Members of the firm own additional shares (less than one percent in total) that they purchased from time to time for cash, either from us or in the public market. EXPERTS Our financial statement as of and for the year ended July 31, 1998, appearing in this prospectus and the registration statement of which it is a part have been audited by Withum Smith & Brown, independent accountants, as set forth in their report on such financial statements. This report contains an explanatory paragraph describing conditions that raise doubt about our ability to continue as a going concern as described in Note 2 to the financial statements. Our financial statements as of and for the fiscal year ended July 31, 1997, and for the period November 2,1995 (inception) to July 31, 1996, appearing in this prospectus and the registration statement have been audited jointly by Withum, Smith & Brown and Mintz & Partners, independent auditors, as set forth in their report on such financial statements. 43 Our financial statements are included in this prospectus in reliance upon the reports of Withum, Smith & Brown and Mintz & Partners on such financial statements and on the authority of such firms as experts in accounting and auditing. ADDITIONAL INFORMATION We have filed a registration statement under the Securities Act of 1933, covering the shares offered by this prospectus, with the United States Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, DC 20549. This prospectus, which is a part of the registration statement, does not contain all of the information contained in the registration statement and exhibits and schedules to the registration statement. For further information with regard to Generex and the shares offered by this Prospectus, you should review the registration statement. We are required to file annual, quarterly and current reports, proxy statements and other information (annual and quarterly) with the SEC. Copies of materials we file with the SEC may be read and copied at the SEC's public reference room at 450 Fifth Street, N.W., Washington, DC 20549. You may obtain information on the operation of the public reference room by calling the SEC at 1-800-SEC-0300. The SEC maintains an Internet site which contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of the SEC's Internet site is http:\\www.sec.gov. You may also obtain copies of these reports directly from us by sending a written request to us at our principal offices located at 33 Harbor Square, Suite 202, Toronto, Canada M5J2G. 44 GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Independent Auditors' Reports F-2 to F-3 Consolidated Balance Sheets July 31, 1998 and 1997, and April 30, 1999 (unaudited) F-4 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, for the Nine Months Ended April 30, 1999 and 1998 (unaudited) and Cumulative From Inception to April 30, 1999 (unaudited) F-5 Consolidated Statements of Changes in Stockholders' Equity For the Period November 2, 1995 (Date of Inception) to July 31, 1998, and for the Nine Month Periods Ended April 30, 1999 (unaudited) F-6 to F-9 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, for the Nine Months Ended April 30, 1999 and 1998 (unaudited) and Cumulative From Inception to April 30, 1999 (unaudited) F-10 Notes to Consolidated Financial Statements F-11 to F-29
F-1 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 (United States). 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-2 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 consolidated 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 (United States). Withum, Smith & Brown Mintz & Partners New Brunswick, New Jersey Toronto, Ontario October 15, 1998 October 3, 1997 F-3 GENEREX BIOTECHNOLOGY CORPORATION (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED BALANCE SHEETS
July 31 April 30 ---------------------------- ------------ 1998 1997 1999 ----------- ----------- ------------ (Unaudited) ASSETS Current Assets: Cash and cash equivalents $ 2,090,827 $ 196,004 $ 3,859,362 Restricted cash 106,527 -- -- Miscellaneous receivables 209,090 168,234 159,629 Notes receivable -- 102,750 -- Other current assets 131,340 46,790 132,924 ----------- ----------- ------------ Total Current Assets 2,537,784 513,778 4,151,915 Property and Equipment, Net 1,634,447 45,959 2,222,257 Deposits 82,509 -- 68,434 Due From Related Parties 1,200,968 3,113,038 824,437 ----------- ----------- ------------ TOTAL ASSETS $ 5,455,708 $ 3,672,775 $ 7,267,043 =========== =========== ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued expenses $ 1,253,004 $ 223,939 $ 520,541 Current maturities of long-term debt 411,565 -- 417,919 ----------- ----------- ------------ Total Current Liabilities 1,664,569 223,939 938,460 Long-Term Debt, Less Current Maturities 912,817 -- 635,084 Due to Related Parties 236,024 -- 160,727 Commitments and Contingencies Stockholders' Equity: Preferred stock, $.001 par value; authorized 1,000,000 shares, issued and outstanding 1,000, -0- and 1,000 shares at July 31, 1998 and 1997 and April 30, 1999, respectively 1 -- 1 Common stock, $.001 par value; authorized 50,000,000 shares, issued and outstanding 11,971,272, 9,000,118 and 13,727,937 shares at July 31, 1998 and 1997 and April 30, 1999, respectively 11,971 9,000 13,728 Additional paid-in capital 9,162,329 5,159,276 16,324,510 Deficit accumulated during the development stage (6,332,570) (1,718,966) (10,679,456) Accumulated other comprehensive income (loss) (199,433) (474) (126,011) ----------- ----------- ------------ Total Stockholders' Equity 2,642,298 3,448,836 5,532,772 ----------- ----------- ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,455,708 $ 3,672,775 $ 7,267,043 =========== =========== ============
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 OPERATIONS
For the Period Cumulative November 2, from 1995 November 2, (Date of (Date of For the Years Ended Inception) For the Nine Months Ended Inception) July 31, to April 30, to -------------------------- July 31, -------------------------- April 30, 1998 1997 1996 1999 1998 1999 ----------- ----------- ---------- ----------- ----------- ------------ (Unaudited) (Unaudited) (Unaudited) Revenues $ -- $ -- $ -- $ -- $ -- $ -- Operating Expenses: Research and development 707,520 676,145 67,142 1,716,514 335,304 3,167,321 Research and development - related party 168,884 51,334 -- 70,689 165,452 290,907 General and administrative 3,359,581 628,064 296,281 2,333,875 1,305,644 6,617,801 General and administrative - related party 314,328 -- -- 198,817 219,298 513,145 ----------- ----------- --------- ----------- ----------- ------------ Total Operating Expenses 4,550,313 1,355,543 363,423 4,319,895 2,025,698 10,589,174 ----------- ----------- --------- ----------- ----------- ------------ Operating Loss (4,550,313) (1,355,543) (363,423) (4,319,895) (2,025,698) (10,589,174) Other Expense: Interest income -- -- -- (6,934) -- (6,934) Interest expense 63,291 -- -- 33,925 -- 97,216 ----------- ----------- --------- ----------- ----------- ------------ Net Loss $(4,613,604) $(1,355,543) $(363,423) $(4,346,886) $(2,025,698) $(10,679,456) =========== =========== ========= =========== =========== ============ Basic and Diluted Net Loss Per Common Share $ (.46) $ (.25) $ (.40) $ (.34) $ (.21) =========== =========== ========= =========== =========== Weighted Average Number of Shares of Common Stock Outstanding 10,078,875 5,512,840 903,972 12,890,760 9,583,302 =========== =========== ========= =========== ===========
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 APRIL 30, 1999
Common Stock Preferred Stock -------------------- ------------------ Shares Amount Shares Amount --------- ------ ------ ------ Balance - November 2, 1995 (Inception) -- $ -- -- $ -- Issuance of common stock for cash, February 1996, $.0254 321,429 321 -- -- Issuance of common stock for cash, February 1996, $.0510 35,142 35 -- -- Issuance of common stock for cash, February 1996, $.5099 216,428 216 -- -- Issuance of common stock for cash, March 1996, $10.2428 2,500 3 -- -- Issuance of common stock for cash, April 1996, $.0516 489,850 490 -- -- Issuance of common stock for cash, May 1996, $.0512 115,571 116 -- -- Issuance of common stock for cash, May 1996, $.5115 428,072 428 -- -- Issuance of common stock for cash, May 1996, $10.2302 129,818 130 -- -- Issuance of common stock for cash, July 1996, $.0051 2,606,528 2,606 -- -- Issuance of common stock for cash, July 1996, $.0255 142,857 143 -- -- Issuance of common stock for cash, July 1996, $.0513 35,714 36 -- -- Issuance of common stock for cash, July 1996, $10.1847 63,855 64 -- -- Costs related to issuance of common stock -- -- -- -- Equity adjustment for foreign currency translation -- -- -- -- Net loss -- -- -- -- --------- ------ -- ----- Balance - July 31, 1996 4,587,764 $4,588 -- $ -- ========= ====== == ===== Equity Adjustment Deficit for Accumulated Additional Foreign During the Total Paid-In Currency Development Shareholders' Capital Translation Stage Equity ---------- ----------- ----------- ------------- Balance - November 2, 1995 (Inception) $ -- $ -- $ -- $ -- Issuance of common stock for cash, February 1996, $.0254 7,838 -- -- 8,159 Issuance of common stock for cash, February 1996, $.0510 1,757 -- -- 1,792 Issuance of common stock for cash, February 1996, $.5099 110,142 -- -- 110,358 Issuance of common stock for cash, March 1996, $10.2428 25,604 -- -- 25,607 Issuance of common stock for cash, April 1996, $.0516 24,773 -- -- 25,263 Issuance of common stock for cash, May 1996, $.0512 5,796 -- -- 5,912 Issuance of common stock for cash, May 1996, $.5115 218,534 -- -- 218,962 Issuance of common stock for cash, May 1996, $10.2302 1,327,934 -- -- 1,328,064 Issuance of common stock for cash, July 1996, $.0051 10,777 -- -- 13,383 Issuance of common stock for cash, July 1996, $.0255 3,494 -- -- 3,637 Issuance of common stock for cash, July 1996, $.0513 1,797 -- -- 1,833 Issuance of common stock for cash, July 1996, $10.1847 650,282 -- -- 650,346 Costs related to issuance of common stock (10,252) -- -- (10,252) Equity adjustment for foreign currency translation -- (4,017) -- (4,017) Net loss -- -- (363,423) (363,423) ---------- ------- --------- ---------- Balance - July 31, 1996 $2,378,476 $(4,017) $(363,423) $2,015,624 ========== ======= ========= ==========
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 APRIL 30, 1999
Common Stock Preferred Stock -------------------- ----------------- Shares Amount Shares Amount --------- ------ ------ ------ Balance - August 1, 1996 4,587,764 $4,588 -- $ -- Issuance of common stock for cash, September 1996, $.0509 2,143 2 -- -- Issuance of common stock for cash, December 1996, $10.2421 1,429 1 -- -- Issuance of common stock for cash, January 1997, $.0518 1,466 1 -- -- Issuance of common stock for cash, March 1997, $10.0833 12 -- -- -- Issuance of common stock for cash, May 1997, $.0513 4,233 4 -- -- Issuance of common stock for cash, May 1997, $.5060 4,285,714 4,286 -- -- Costs related to issuance of common stock, May 1997 -- -- -- -- Issuance of common stock for cash, May 1997, $10.1194 18,214 18 -- -- Issuance of common stock for cash, June 1997, $.0504 10,714 11 -- -- Issuance of common stock for cash, June 1997, $.5047 32,143 32 -- -- Issuance of common stock for cash, June 1997, $8.9810 29,579 30 -- -- Issuance of common stock for cash, June 1997, $10.0980 714 1 -- -- Issuance of common stock for cash, July 1997, $10.1214 25,993 26 -- -- Costs related to issuance of common stock -- -- -- -- Equity adjustment for foreign currency translation -- -- -- -- Net loss -- -- -- -- --------- ------ -- ----- Balance - July 31, 1997 9,000,118 $9,000 -- $ -- ========= ====== == ===== Equity Adjustment Deficit for Accumulated Additional Foreign During the Total Paid-In Currency Development Shareholders' Capital Translation Stage Equity ---------- ----------- ----------- ------------- Balance - August 1, 1996 $2,378,476 $(4,017) $ (363,423) $2,015,624 Issuance of common stock for cash, September 1996, $.0509 107 -- -- 109 Issuance of common stock for cash, December 1996, $10.2421 14,635 -- -- 14,636 Issuance of common stock for cash, January 1997, $.0518 75 -- -- 76 Issuance of common stock for cash, March 1997, $10.0833 121 -- -- 121 Issuance of common stock for cash, May 1997, $.0513 213 -- -- 217 Issuance of common stock for cash, May 1997, $.5060 2,164,127 -- -- 2,168,413 Costs related to issuance of common stock, May 1997 (108,421) -- -- (108,421) Issuance of common stock for cash, May 1997, $10.1194 184,297 -- -- 184,315 Issuance of common stock for cash, June 1997, $.0504 529 -- -- 540 Issuance of common stock for cash, June 1997, $.5047 16,190 -- -- 16,222 Issuance of common stock for cash, June 1997, $8.9810 265,618 -- -- 265,648 Issuance of common stock for cash, June 1997, $10.0980 7,209 -- -- 7,210 Issuance of common stock for cash, July 1997, $10.1214 263,060 -- -- 263,086 Costs related to issuance of common stock (26,960) -- -- (26,960) Equity adjustment for foreign currency translation -- 3,543 -- 3,543 Net loss -- -- (1,355,543) (1,355,543) ---------- ------- ----------- ---------- Balance - July 31, 1997 $5,159,276 $ (474) $(1,718,966) $3,448,836 ========== ======= =========== ==========
The Notes to Consolidated Financial Statements are an integral part of these statements. F-7 GENEREX BIOTECHNOLOGY CORPORATION (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE PERIOD NOVEMBER 2, 1995 (DATE OF INCEPTION) TO APRIL 30, 1999
Common Stock Preferred Stock ---------------------- ----------------- Shares Amount Shares Amount ---------- ------- ------ ------ Balance - August 1, 1997 9,000,118 $ 9,000 -- $-- Issuance of warrants in exchange for services rendered, October 1997, $.50 -- -- -- -- Exercise of warrants for cash, December 1997, $0.0467 234,000 234 -- -- Shares issued pursuant to the January 9, 1998 reverse merger between GBT-Delaware, Inc. and Generex Biotechnology Corporation 1,105,000 1,105 -- -- Issuance of preferred stock for services rendered, January 1998, $.001 -- -- 1,000 1 Issuance of common stock for cash, March 1998, $2.50 70,753 71 -- -- Issuance of common stock for cash, April 1998, $2.50 60,000 60 -- -- Issuance of common stock in exchange for services rendered, April 1998, $2.50 38,172 38 -- -- Issuance of common stock for cash, May 1998, $2.50 756,500 757 -- -- Issuance of warrants in exchange for services rendered, May 1998, $.50 -- -- -- -- Issuance of common stock in exchange for services rendered, May 1998, $2.50 162,000 162 -- -- Issuance of common stock for cash, June 1998, $2.50 286,000 286 -- -- Exercise of warrants for cash, June 1998, $.0667 234,000 234 -- -- Issuance of common stock in exchange for services rendered, June 1998, $2.50 24,729 24 -- -- Equity adjustment for foreign currency translation -- -- -- -- Net loss -- -- -- -- ---------- ------- ----- --- Balance - July 31, 1998 11,971,272 $11,971 1,000 $ 1 ========== ======= ===== === Equity Adjustment Deficit for Accumulated Additional Foreign During the Total Paid-In Currency Development Shareholders' Capital Translation Stage Equity ---------- ----------- ------------ ------------- Balance - August 1, 1997 $5,159,276 $ (474) $(1,718,966) $3,448,836 Issuance of warrants in exchange for services rendered, October 1997, $.50 234,000 -- -- 234,000 Exercise of warrants for cash, December 1997, $0.0467 10,698 -- -- 10,932 Shares issued pursuant to the January 9, 1998 reverse merger between GBT-Delaware, Inc. and Generex Biotechnology Corporation (1,105) -- -- -- Issuance of preferred stock for services rendered, January 1998, $.001 99 -- -- 100 Issuance of common stock for cash, March 1998, $2.50 176,812 -- -- 176,883 Issuance of common stock for cash, April 1998, $2.50 149,940 -- -- 150,000 Issuance of common stock in exchange for services rendered, April 1998, $2.50 95,392 -- -- 95,430 Issuance of common stock for cash, May 1998, $2.50 1,890,493 -- -- 1,891,250 Issuance of warrants in exchange for services rendered, May 1998, $.50 250,000 -- -- 250,000 Issuance of common stock in exchange for services rendered, May 1998, $2.50 404,838 -- -- 405,000 Issuance of common stock for cash, June 1998, $2.50 714,714 -- -- 715,000 Exercise of warrants for cash, June 1998, $.0667 15,373 -- -- 15,607 Issuance of common stock in exchange for services rendered, June 1998, $2.50 61,799 -- -- 61,823 Equity adjustment for foreign currency translation -- (198,959) -- (198,959) Net loss -- -- (4,613,604) (4,613,604) ---------- --------- ----------- ---------- Balance - July 31, 1998 $9,162,329 $(199,433) $(6,332,570) $2,642,298 ========== ========= =========== ==========
The Notes to Consolidated Financial Statements are an integral part of these statements. F-8 GENEREX BIOTECHNOLOGY CORPORATION (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE PERIOD NOVEMBER 2, 1995 (DATE OF INCEPTION) TO APRIL 30, 1999
Common Stock Preferred Stock ---------------------- ----------------- Shares Amount Shares Amount ---------- ------- ------ ------ Balance - August 1, 1998 11,971,272 $11,971 1,000 $ 1 Issuance of common stock for cash, August 1998, $3.00 100,000 100 -- -- Issuance of common stock for cash, August 1998, $3.50 19,482 19 -- -- Redemption of common stock for cash, September 1998, $9.1732 (15,357) (15) -- -- Issuance of common stock for cash, September - October 1998, $3.00 220,297 220 -- -- Issuance of common stock for cash, August - October 1998, $4.10 210,818 211 -- -- Issuance of common stock in exchange for services rendered, August - October 1998, $2.50 21,439 21 -- -- Issuance of common stock in exchange for services rendered, August - October 1998, $4.10 18,065 18 -- -- Issuance of common stock to satisfy accrued liability, September 1998, $4.10 180,000 180 -- -- Issuance of common stock for cash, November 1998 - January 1999, $3.50 180,000 180 -- -- Issuance of common stock for cash, November 1998 - January 1999, $4.00 275,000 275 -- -- Issuance of common stock for cash, November 1998 - January 1999, $4.10 96,852 97 -- -- Issuance of common stock in exchange for services rendered, November 1998 - January 1999, $4.10 28,718 29 -- -- Issuance of common stock for cash, November 1998 - January 1999, $5.00 20,000 20 -- -- Issuance of common stock for cash, November 1998 - January 1999, $5.50 15,000 15 -- -- Issuance of stock options in exchange for services rendered November 1998, $1.00 -- -- -- -- Issuance of warrants in exchange for services rendered November 1998, $1.00 -- -- -- -- Issuance of common stock for cash, February 1999, $5.00 6,000 6 -- -- Issuance of common stock in exchange for services rendered February 1999, $6.00 5,000 5 -- -- Issuance of common stock for cash, March 1999, $6.00 11,000 11 -- -- Issuance of common stock for cash, April 1999, $5.50 363,637 364 -- -- Issuance of warrants in exchange for services rendered April 1999, $2.00 -- -- -- -- Stock adjustment 714 1 -- -- Cost related to issuance of common stock -- -- -- -- Equity adjustment for foreign currency translation -- -- -- -- Net loss -- -- -- -- ---------- ------- ----- ---- Balance - April 30, 1999 (Unaudited) 13,727,937 $13,728 1,000 $ 1 ========== ======= ===== ==== Equity Adjustment Deficit for Accumulated Additional Foreign During the Total Paid-In Currency Development Shareholders' Capital Translation Stage Equity ---------- ----------- ------------- ------------- Balance - August 1, 1998 $ 9,162,329 (199,433) $ (6,332,570) $2,642,298 Issuance of common stock for cash, August 1998, $3.00 299,900 -- -- 300,000 Issuance of common stock for cash, August 1998, $3.50 68,168 -- -- 68,187 Redemption of common stock for cash, September 1998, $9.1732 (140,858) -- -- (140,873) Issuance of common stock for cash, September - October 1998, $3.00 660,671 -- -- 660,891 Issuance of common stock for cash, August - October 1998, $4.10 864,142 -- -- 864,353 Issuance of common stock in exchange for services rendered, August - October 1998, $2.50 53,577 -- -- 53,598 Issuance of common stock in exchange for services rendered, August - October 1998, $4.10 74,048 -- -- 74,066 Issuance of common stock to satisfy accrued liability, September 1998, $4.10 737,820 -- -- 738,000 Issuance of common stock for cash, November 1998 - January 1999, $3.50 629,820 -- -- 630,000 Issuance of common stock for cash, November 1998 - January 1999, $4.00 1,099,725 -- -- 1,100,000 Issuance of common stock for cash, November 1998 - January 1999, $4.10 397,003 -- -- 397,100 Issuance of common stock in exchange for services rendered, November 1998 - January 1999, $4.10 117,715 -- -- 117,744 Issuance of common stock for cash, November 1998 - January 1999, $5.00 99,980 -- -- 100,000 Issuance of common stock for cash, November 1998 - January 1999, $5.50 82,485 -- -- 82,500 Issuance of stock options in exchange for services rendered November 1998, $1.00 50,000 -- -- 50,000 Issuance of warrants in exchange for services rendered November 1998, $1.00 150,000 -- -- 150,000 Issuance of common stock for cash, February 1999, $5.00 29,994 -- -- 30,000 Issuance of common stock in exchange for services rendered February 1999, $6.00 29,995 -- -- 30,000 Issuance of common stock for cash, March 1999, $6.00 65,989 -- -- 66,000 Issuance of common stock for cash, April 1999, $5.50 1,999,640 -- -- 2,000,004 Issuance of warrants in exchange for services rendered April 1999, $2.00 400,000 -- -- 400,000 Stock adjustment (1) -- -- -- Cost related to issuance of common stock (607,632) -- -- (607,632) Equity adjustment for foreign currency translation -- 73,422 -- 73,422 Net loss -- -- (4,346,886) (4,346,886) ----------- --------- ------------ ---------- Balance - April 30, 1999 (Unaudited) $16,324,510 $(126,011) $(10,679,456) $5,532,772 =========== ========= ============ ==========
The Notes to Consolidated Financial Statements are an integral part of these statements. F-9 GENEREX BIOTECHNOLOGY CORPORATION (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Period November 2, 1995 (Date of For the Years Ended Inception) July 31, to ---------------------------- July 31, 1998 1997 1996 ----------- ----------- ---------- Cash Flows From Operating Activities: Net loss $(4,613,604) $(1,355,543) $(363,423) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 31,096 10,411 2,578 Common stock issued for services rendered 562,253 -- -- Stock options and warrants issued for services rendered 484,000 -- -- Preferred stock issued for services rendered 100 -- -- Changes in operating assets and liabilities: Miscellaneous receivables -- (119,967) (50,212) Other current assets (89,268) (37,020) (10,289) Accounts payable and accrued liabilities 1,099,815 226,131 -- Other, net 110,317 -- -- ----------- ----------- ---------- Net Cash Used in Operating Activities (2,415,291) (1,275,988) (421,346) Cash Flows From Investing Activities: Purchase of property and equipment (16,287) (41,987) (17,499) Change in restricted cash (111,250) -- -- Change in deposits (17,601) -- -- Change in notes receivable 104,153 (104,153) -- Increase (decrease) in subscriptions receivable -- 1,527,606 (1,527,606) Change in due from related parties 154,945 (2,740,260) (389,071) Other, net 89,683 -- -- ----------- ----------- ---------- Net Cash Provided By (Used in) Investing Activities 203,643 (1,358,794) (1,934,176) Cash Flows From Financing Activities: Proceeds from issuance of long-term debt 993,149 -- -- Repayment of long-term debt (63,389) -- -- Change in due to related parties 236,024 -- -- Proceeds from issuance of common stock, net 2,959,672 2,785,212 2,383,064 Purchase and retirement of common stock -- -- -- ----------- ----------- ---------- Net Cash Provided By Financing Activities 4,125,456 2,785,212 2,383,064 Effect of Exchange Rates on Cash (18,985) 17,251 781 ----------- ----------- ---------- Net Increase (Decrease) in Cash and Cash Equivalents 1,894,823 167,681 28,323 Cash and Cash Equivalents, Beginning of Period 196,004 28,323 -- ---------- ----------- ---------- Cash and Cash Equivalents, End of Period $ 2,090,827 $ 196,004 $ 28,323 =========== =========== ========== Cumulative From November 2, 1995 (Date of For the Nine Months Ended Inception) April 30, to ---------------------------- April 30, 1999 1998 1999 ------------ ----------- ------------ (Unaudited) (Unaudited) (Unaudited) Cash Flows From Operating Activities: Net loss $(4,346,886) $(2,025,698) $(10,679,456) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 29,161 21,394 73,246 Common stock issued for services rendered 275,408 433,245 837,661 Stock options and warrants issued for services rendered 600,000 234,000 1,084,000 Preferred stock issued for services rendered -- 100 100 Changes in operating assets and liabilities: Miscellaneous receivables 55,227 -- (114,952) Other current assets 146 21,252 (136,431) Accounts payable and accrued liabilities 578 345,864 1,326,524 Other, net 67,836 (8,969) 178,153 ------------ ----------- ------------ Net Cash Used in Operating Activities (3,318,530) (978,812) (7,431,155) Cash Flows From Investing Activities: Purchase of property and equipment (465,358) (15,713) (541,131) Change in restricted cash 105,655 (76,047) (5,595) Change in deposits 16,581 -- (1,020) Change in notes receivable -- 100,453 -- Increase (decrease) in subscriptions receivable -- -- -- Change in due from related parties 405,728 919 (2,568,658) Other, net -- -- 89,683 ------------ ----------- ------------ Net Cash Provided By (Used in) Investing Activities 62,606 9,612 (3,026,721) Cash Flows From Financing Activities: Proceeds from issuance of long-term debt -- 850,365 993,149 Repayment of long-term debt (391,860) -- (455,249) Change in due to related parties (80,981) 62,046 155,043 Proceeds from issuance of common stock, net 5,691,403 -- 13,819,351 Purchase and retirement of common stock (140,873) -- (140,873) ------------ ----------- ------------ Net Cash Provided By Financing Activities 5,077,689 912,411 14,371,421 Effect of Exchange Rates on Cash (53,230) 5,311 (54,183) ------------ ----------- ------------ Net Increase (Decrease) in Cash and Cash Equivalents 1,768,535 (51,478) 3,859,362 Cash and Cash Equivalents, Beginning of Period 2,090,827 196,004 -- ------------ ----------- ------------ Cash and Cash Equivalents, End of Period $ 3,859,362 $ 144,526 $ 3,859,362 ============ =========== ============
F-10 GENEREX BIOTECHNOLOGY CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION RELATING TO THE NINE MONTHS ENDED APRIL 30, 1999 AND 1998 AND CUMULATIVE FROM NOVEMBER 2, 1995 (DATE OF INCEPTION) TO APRIL 30, 1999 IS UNAUDITED) 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 16, 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. On April 30, 1999, the Company reincorporated in the State of Delaware. This was accomplished by a merger of the Company with its wholly owned subsidiary GBC-Delaware, Inc. The reincorporation will not have an effect on the Company's capitalization, management or business operations. 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 obtaining regulatory clearance for the sale of existing or any future products or that any of the Company's products 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 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-11 GENEREX BIOTECHNOLOGY CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION RELATING TO THE NINE MONTHS ENDED APRIL 30, 1999 AND 1998 AND CUMULATIVE FROM NOVEMBER 2, 1995 (DATE OF INCEPTION) TO APRIL 30, 1999 IS UNAUDITED) 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." Cash and Cash Equivalents The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. 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 local governments under research and development tax credit arrangements are offset against the related expenses. Included in miscellaneous receivables is $153,597, $168,234 and $159,629 of such a receivable due from the Canadian government at July 31, 1998 and 1997 and April 30, 1999, 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-12 GENEREX BIOTECHNOLOGY CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION RELATING TO THE NINE MONTHS ENDED APRIL 30, 1999 AND 1998 AND CUMULATIVE FROM NOVEMBER 2, 1995 (DATE OF INCEPTION) TO APRIL 30, 1999 IS UNAUDITED) 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. Comprehensive Income/(Loss) Effective August 1, 1998, the Company adopted the provisions of Statement No. 130, "Reporting Comprehensive Income," which modifies the financial statement presentation of comprehensive income and its components. Adoption of this statement had no effect on the Company's financial position or operating results. Comprehensive loss amounted to $(4,812,563), $(1,352,000) and $(367,440) for the years ended July 31, 1998 and 1997 and for the period November 2, 1995 (date of inception) to July 31, 1996, respectively, and for the nine months ended April 30, 1999 and 1998 amounted to $(4,273,464) and $(2,124,799), respectively. New Accounting Standards The Company will 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, Statement of Financial Accounting Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133) was issued. 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-13 GENEREX BIOTECHNOLOGY CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION RELATING TO THE NINE MONTHS ENDED APRIL 30, 1999 AND 1998 AND CUMULATIVE FROM NOVEMBER 2, 1995 (DATE OF INCEPTION) TO APRIL 30, 1999 IS UNAUDITED) 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 the Company's 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. Interim Financial Data (Unaudited) The unaudited financial data as of and for the nine months ended April 30, 1999 and 1998 have been prepared by management and include all adjustments which, in management's opinion, are necessary to present fairly the Company's financial condition, results of operations and cash flows. The results of operations for the nine months ended April 30, 1999 and are not necessarily indicative of the operating results to be expected for the year ended July 31, 1999. 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 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 are summarized as follows:
July 31, April 30, ----------------------------- ------------- 1998 1997 1999 -------------- ----------- ------------- Land $ 239,810 $ -- $ 269,519 Buildings 1,366,956 -- 1,954,422 Furniture and Fixtures 7,998 5,938 8,312 Office Equipment 60,850 52,869 63,240 -------------- ----------- ------------- Total Property and Equipment 1,675,614 58,807 2,295,493 Less: Accumulated Depreciation 41,167 12,848 73,236 -------------- ----------- ------------- Property and Equipment, Net $ 1,634,447 $ 45,959 $ 2,222,257 ============== =========== =============
F-14 GENEREX BIOTECHNOLOGY CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION RELATING TO THE NINE MONTHS ENDED APRIL 30, 1999 AND 1998 AND CUMULATIVE FROM NOVEMBER 2, 1995 (DATE OF INCEPTION) TO APRIL 30, 1999 IS UNAUDITED) 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, and $29,161 and $21,394 for the nine months ended April 30, 1999 and 1998, 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:
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 $ -- $ -- =============== =============
Note 6 - Accounts Payable and Accrued Expense: Accounts payable and accrued expenses consist of the following:
July 31, April 30, -------------------------------- -------------- 1998 1997 1999 --------------- ------------- -------------- Accounts Payable $ 336,634 $ 223,939 $ 449,055 Penalty Arising from Violation of Financing Agreement (A) 738,000 -- -- Consulting Accruals 151,945 -- 71,486 Building Purchase Liability 26,425 -- -- --------------- ------------- ------------ Total $ 1,253,004 $ 223,939 $ 520,541 =============== ============= =============
(A) See Note 9 for further discussion of underlying debt and penalty amount. F-15 GENEREX BIOTECHNOLOGY CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION RELATING TO THE NINE MONTHS ENDED APRIL 30, 1999 AND 1998 AND CUMULATIVE FROM NOVEMBER 2, 1995 (DATE OF INCEPTION) TO APRIL 30, 1999 IS UNAUDITED) Note 7 - Commitments and Contingent Liabilities: Consulting Services In October 1996, the Company entered into a Consulting Agreement with its 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 actual or demonstratably anticipated business, work, undertaking or research and development of the Company. 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 his interest in 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"). At the time of this assignment, the Existing Patents were owned of record by a Canadian corporation which was 50 percent owned by the V.P. The Company subsequently acquired the V.P.'s interest in this corporation for no additional consideration. Under the terms of the agreement, which expires December 31, 2004, a fee of $93,204 for each year during the term of this agreement, including expense reimbursement. In addition, the Company 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. 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. F-16 GENEREX BIOTECHNOLOGY CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION RELATING TO THE NINE MONTHS ENDED APRIL 30, 1999 AND 1998 AND CUMULATIVE FROM NOVEMBER 2, 1995 (DATE OF INCEPTION) TO APRIL 30, 1999 IS UNAUDITED) Note 7 - Commitments and Contingent Liabilities (Continued): Consulting Services (Continued) 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. In November 1998, the Company entered into a consulting agreement with an individual to assist the Company in testing and evaluating the use of the Company's oral insulin formulation to reduce fibroid tissue and serve on the Company's Scientific Advisory Board. 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 agreement shall terminate on December 31, 2000. On December 1, 1998, the Company entered into a consulting agreement with a consultant 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 Consultant is ordinarily affiliated; to arrange and in some cases to conduct clinical trials of its formulations in the Untied States; and to provide input and assistance with respect to, and evaluate results of, clinical trials in other jurisdictions. The Consultant shall also act as the Principal Investigator in the United States for Phase II and Phase III clinical trials of the Company's oral insulin formulation that are contemplated by the Investigational New Drug application filed by the Company with the Food and Drug Administration on October 31, 1998. The Consultant 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 on January 1, 1999 and an additional retainer of $7,500 on April 30, 1999 and October 31, 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. F-17 GENEREX BIOTECHNOLOGY CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION RELATING TO THE NINE MONTHS ENDED APRIL 30, 1999 AND 1998 AND CUMULATIVE FROM NOVEMBER 2, 1995 (DATE OF INCEPTION) TO APRIL 30, 1999 IS UNAUDITED) Note 7 - Commitments and Contingent Liabilities (Continued): Consulting Services (Continued) In February 1999, the Company entered into an agreement, which was amended and replaced by an April 1999 agreement, with an investment banker. Under the terms of the amended agreement, the investment banker will act as the Company's exclusive investment advisor, exclusive private placement agent and exclusive investment banker for a period of five months. In conjunction with the February agreement, the investment banker received warrants to purchase 100,000 shares of the Company's common stock at an exercise price of $6.00 per share during a five-year period. Under the April 1999 agreement, the investment banker received warrants to purchase 50,000 shares of the Company's common stock at an exercise price of $6.00 per share during a five-year period. The amended agreement also provided for the grant of an additional warrant to purchase 50,000 shares of the Company's common stock at an exercise price of $7.50 per share during a five-year period for assisting in obtaining financing in an agreed upon and stated amount. The warrant was earned in the quarter ended April 30, 1999. In the event of a private placement of the Company's securities, the investment banker is entitled to (i) a transaction fee, (ii) expense allowance and (iii) placement agent warrants equal to 10 percent of the ownership given to any equity raised. Finally in the event that the Company enters into a merger, acquisition, or sale transaction with a party introduced by the investment banker, cash compensation will be paid based on an agreed upon formula. Leases The Company has entered into various lease agreements for the use of vehicles and office equipment. 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 and $12,995 for the nine months ended April 30, 1999. 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. F-18 GENEREX BIOTECHNOLOGY CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION RELATING TO THE NINE MONTHS ENDED APRIL 30, 1999 AND 1998 AND CUMULATIVE FROM NOVEMBER 2, 1995 (DATE OF INCEPTION) TO APRIL 30, 1999 IS UNAUDITED) Note 7 - Commitments and Contingent Liabilities (Continued): 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 Romspen 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 February 28, 1999, 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 ============= Pending Litigation Sands Brothers & Co., Ltd. (Sands), a New York City-based investment banking and brokerage firm, initiated arbitration against the Company under New York Stock Exchange (NYSE) 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 a right to receive shares of GPI common stock that 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 GBT - 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. Hearings were held before an arbitration panel of the NYSE the week of June 7, 1999, and on July 6, 1999. Additional hearings are expected to be held in July 1999. 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. GPI 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. F-19 GENEREX BIOTECHNOLOGY CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION RELATING TO THE NINE MONTHS ENDED APRIL 30, 1999 AND 1998 AND CUMULATIVE FROM NOVEMBER 2, 1995 (DATE OF INCEPTION) TO APRIL 30, 1999 IS UNAUDITED) Note 7 - Commitments and Contingent Liabilities (Continued): An action was also commenced against GPI and other companies and individuals seeking approximately $4,080,000 for allegedly causing certain adverse consequences of a plaintiff's investment in a particular company. The Plantiff's amended Statement of Claim refers to GPI and mis-identifies it as a subsidiary of another corporation. The specific acts alleged in the Statement of Claim are attributed to other defendants and occurred prior to GPI's incorporation in November 1995. GPI's only involvement was that at one time there was interest on its part in buying certain assets from this company. GPI failed to file a Statement of Defense to the Statement of Claim and GPI was noted in default on October 1, 1996. On December 9, 1999 an application was filed to set aside the notice of default an permit the Company to enter a statement of defense. Due to the delay in filing the application there is substantial doubt that the Company will be successful in setting aside the notice of default which would also preclude the Company from contesting the issue of liability. The Company, however, would be permitted to contest the amount of damages, if any, the plaintiff as a result of the Company's actions or the actions for which the Company is legally responsible. In February 1999, MQS, Inc., a former consultant to the Company, commenced a civil action against the Company in the United States District Court for the District of New Jersey claiming that 242,168 shares of the Company's Common Stock, and $243,066 are due to it for services which it rendered through December 22, 1998. MQS also claims compensation on a quantum merit basis for the value of its services, and for punitive damages. On May 11, 1999, the Company responded to the complaint in this action, however, discovery has not begun. The Company has also filed a counterclaim against MQS, Inc. for breach of contract. The Company is unable to predict the outcome of this litigation at this time. However, does not expect that the ultimate resolution of this matter will have a material effect on its results of operations and financial condition. 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). The settlement was concluded in September 1998. F-20 GENEREX BIOTECHNOLOGY CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION RELATING TO THE NINE MONTHS ENDED APRIL 30, 1999 AND 1998 AND CUMULATIVE FROM NOVEMBER 2, 1995 (DATE OF INCEPTION) TO APRIL 30, 1999 IS UNAUDITED) 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. ----------- ---------- ----------- --------- ----------- -------------- Balance, Nov. 2, 1995 (Date of Inception) $ -- $ -- $ -- $ -- $ -- $ -- Company expenses paid by related parties -- (6,946) -- -- -- -- Related party expenses paid by the Company 55,127 340,891 -- -- -- -- Other (570) (3,450) -- -- -- -- ------------ ----------- ----------- --------- ----------- -------------- Ending Balance, July 31, 1996 54,557 330,495 -- -- -- -- Cash advance -- -- -- -- -- 2,182,294 Company expenses paid by related parties -- (9,206) -- -- -- -- Related party expenses paid by the Company 73,067 500,867 -- -- -- -- Other (996) (6,513) -- -- -- (11,527) ------------ ----------- ----------- --------- ----------- ------------- Ending Balance, July 31, 1997 126,628 815,643 -- -- -- 2 ,170,767 Purchase of properties -- -- -- -- -- (1,204,640) Cash collection -- (403,639) -- -- -- (441,548) Company expenses paid by related parties (352,384) (22,171) (277,962) (29,481) (209,637) -- Related party expenses paid by the Company 122,338 293,976 136,644 29,381 468,851 -- Other 1,263 (63,928) 7,543 6 (13,837) (188,869) ------------ ----------- ----------- --------- ----------- ------------- Ending Balance, July 31, 1998 (102,155) 619,881 (133,775) (94) 245,377 335,710 Cash advance -- (82,345) -- -- (16,883) -- Company expenses paid by related parties -- (262,459) (60,434) -- (53,281) -- Related party expenses paid by the Company -- 3,456 141,414 -- -- -- Other (4,012) 9,228 (1,667) (4) 12,569 13,184 ------------ ----------- ----------- --------- ----------- ------------- Ending Balance, April 30, 1999 $ (106,167) $ 287,761 $ (54,462) $ (98) $ 187,782 $ 348,894 ============ =========== =========== ========= =========== =============
F-21 GENEREX BIOTECHNOLOGY CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION RELATING TO THE NINE MONTHS ENDED APRIL 30, 1999 AND 1998 AND CUMULATIVE FROM NOVEMBER 2, 1995 (DATE OF INCEPTION) TO APRIL 30, 1999 IS UNAUDITED) Note 8 - Related Party Transactions (Continued): The above information is summarized and included in the consolidated balance sheets as follows:
Due From Due To Related Related July 31, 1998 Parties Parties ------------- ---------- ---------- The Great Tao, Inc. $ -- $ 102,155 Angara Equities, Inc. 619,881 -- Angara Investments, Inc. -- 133,775 Ching Chew An Breweries -- 94 Golden Bull Estates, Inc. 245,377 -- EBI, Inc. 335,710 -- ---------- ---------- Total $1,200,968 $ 236,024 ========== ========== July 31, 1997 ------------- The Great Tao, Inc. $ 126,628 $ -- Angara Equities, Inc. 815,643 -- Angara Investments, Inc. -- -- Ching Chew An Breweries -- -- Golden Bull Estates, Inc. -- -- EBI, Inc. 2,170,767 -- ---------- ---------- Total $3,113,038 $ -- ========== ========== April 30, 1999 -------------- The Great Tao, Inc. $ -- $ 106,167 Angara Equities, Inc. 287,761 -- Angara Investments, Inc. -- 54,462 Ching Chew An Breweries -- 98 Golden Bull Estates, Inc. 187,782 -- EBI, Inc. 348,894 -- ---------- ---------- Total $ 824,437 $ 160,727 ========== ==========
These amounts are non-interest bearing. There are no fixed terms of repayment. Each of the above 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. F-22 GENEREX BIOTECHNOLOGY CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION RELATING TO THE NINE MONTHS ENDED APRIL 30, 1999 AND 1998 AND CUMULATIVE FROM NOVEMBER 2, 1995 (DATE OF INCEPTION) TO APRIL 30, 1999 IS UNAUDITED) Note 8 - Related Party Transactions (Continued): Management feels that all related party expenses provided by such parties were transacted at terms and amounts that would have been obtained had the transactions been consummated with unrelated third parties. The exception to this is rent expense in 1996 and 1997 and the non-recording of interest income and expense on the balances due to/from related parties. The Company estimates the following additional amounts would have been recorded if such transactions were consummated under arms length agreements:
For the Period For the Years Ended July 31, November 2, 1995 ---------------------------------- (Date of Inception) 1998 1997 to July 31, 1996 ------------- ------------- ------------------- Rental Expense $ -- $ 36,826 $ 27,784 Interest Income $ 273,429 $ 75,488 $ 13,382 Interest Expense $ 113,064 339 132
The interest income/expense amounts were computed at estimated prevailing rates based on the weighted average receivable/payable balance outstanding during the periods reflected. The weighted average receivable amount was $3,621,422, $1,015,783 and $198,679 during the years ended 1998 and 1997 and for the period November 2, 1995 (date of inception) to July 31, 1996. The weighted average amount payable was $1,043,413, $3,932 and $899 during the years ended 1998 and 1997 and for the period November 2, 1995 (date of inception) to July 31, 1996. 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 $4,200 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. See Note 7 for discussion of consulting agreement with the Vice President of Research and Development. 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. F-23 GENEREX BIOTECHNOLOGY CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION RELATING TO THE NINE MONTHS ENDED APRIL 30, 1999 AND 1998 AND CUMULATIVE FROM NOVEMBER 2, 1995 (DATE OF INCEPTION) TO APRIL 30, 1999 IS UNAUDITED) Note 9 - Long-Term Debt: Long-term debt consists of the following:
July 31, April 30, ------------------------- ---------- 1998 1997 1999 ---------- -------- ---------- 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 $ -- $ 549,262 Mortgage payable - Laurential Bank, interest at 9.25 percent per annum, final payment due February 1, 2001, secured by real property located at 98 Stafford Drive, Brampton and 1740 Sismet Road, Mississauga 402,126 -- 417,918 Note payable - Berckeley Investment Group, Ltd., inclusive of interest, balance originally was to be paid in full June 1998 (A) 393,750 -- -- Promissory note payable - Individual, interest at 12 percent per annum, principal together with interest due September 9, 1999 -- -- 85,823 ---------- ------ ---------- Total Debt 1,324,382 -- 1,053,003 Less Current Maturities 411,565 -- 417,919 ---------- ------ ---------- Long-Term Debt, Less Current Maturities $ 912,817 $ -- $ 635,084 ========== ====== ==========
(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 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 $ 411,565 2000 548,006 2001 364,811 2002 -- 2003 -- ---------- $1,324,382 ========== F-24 GENEREX BIOTECHNOLOGY CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION RELATING TO THE NINE MONTHS ENDED APRIL 30, 1999 AND 1998 AND CUMULATIVE FROM NOVEMBER 2, 1995 (DATE OF INCEPTION) TO APRIL 30, 1999 IS UNAUDITED) 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. Warrants The Company has outstanding 1,153,425 Series A Redeemable Common Stock Purchase Warrants, 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. (See Note 15). 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. For consideration of financial consulting services provided, the Company issued warrants to purchase 150,000 shares of common stock at $10 per share, which expire on November 17, 2003. The Company issued warrants to purchase 150,000 shares of common stock at $6.00 per share and 50,000 shares of common stock at $7.50 per share. All warrants expire February through April 2004 and were granted in consideration of financial consulting services received. Preferred Stock The Company has authorized 1,000,000 shares with a par value of one-tenth of a cent ($.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. F-25 GENEREX BIOTECHNOLOGY CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION RELATING TO THE NINE MONTHS ENDED APRIL 30, 1999 AND 1998 AND CUMULATIVE FROM NOVEMBER 2, 1995 (DATE OF INCEPTION) TO APRIL 30, 1999 IS UNAUDITED) Note 10 - Stockholders' Equity (Continued): 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. 1998 Stock Option Plan On January 22, 1998, the Company's Board of Directors approved the 1998 Stock Option Plan (1998 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 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. The 1998 Plan was not submitted for shareholder approval and terminated on February 1, 1999. A new plan, substantially identical to the 1998 Plan, has been adopted. All options granted under the 1998 Plan are not affected by the termination. F-26 GENEREX BIOTECHNOLOGY CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION RELATING TO THE NINE MONTHS ENDED APRIL 30, 1999 AND 1998 AND CUMULATIVE FROM NOVEMBER 2, 1995 (DATE OF INCEPTION) TO APRIL 30, 1999 IS UNAUDITED) Note 11 - Stock Based Compensation (Continued): The following is a summary of the common stock options granted, canceled or exercised under the Plan for the period August 1, 1998 through April 30, 1999.
Exercise Price Per Shares Share -------- ------------------ Outstanding - August 1, 1998 -- Granted 50,000 $ 8.00 Canceled -- Exercised -- -- ------ -------- Outstanding - April 30, 1999 50,000 $ 8.00 ====== ========
The following table summarizes information on stock options outstanding at April 30, 1999:
Options Outstanding Options Exercisable ---------------------------------------------- --------------------------- Weighted Number Number Average Weighted Weighted Outstanding Contractual Average Exercisable Average Range of at Life Exercise at Exercise Exercise Price April 30, 1999 (Years) Price April 30, 1999 Price -------------- -------------- ----------- --------- -------------- -------- $8.00 50,000 5 $8.00 50,000 $8.00
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 and for the nine months ended April 30, 1999 and 1998 have been computed by dividing the net loss for each respective period by the weighted average shares outstanding during that period. All outstanding warrants have been excluded from the computation of Diluted EPS as they are antidilutive. Note 13 - Supplemental Disclosure of Cash Flow Information:
For the Years Ended For the Period For the Nine Months July 31, November 2, 1995 Ended April 30, ---------------------- (Date of Inception) ------------------------ 1998 1997 to July 31,1996 1999 1998 -------- -------- ---------------- ------- ------ Cash paid during the year for: Interest $63,291 $ -- $ -- $33,925 $ -- Income taxes $ -- $ -- $ -- $ -- $ --
F-27 GENEREX BIOTECHNOLOGY CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION RELATING TO THE NINE MONTHS ENDED APRIL 30, 1999 AND 1998 AND CUMULATIVE FROM NOVEMBER 2, 1995 (DATE OF INCEPTION) TO APRIL 30, 1999 IS UNAUDITED) Note 13 - Supplemental Disclosure of Cash Flow Information (Continued): 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 $1,204,640 Acquisition of a deposit on property and equipment with collection of related party receivables $ 68,000 Nine Months Ended April 30, 1999 -------------------------------- Long-term debt was assumed in conjunction with acquisition of property $ 82,183 Settlement of liability arising from the violation of financing agreement with issuance of common stock $ 738,000
Note 14 - Segment Information: The regions to which the Company had identifiable assets and operating losses are presented in the following table. Identifiable assets are those that can be directly associated with a geographic area. Corporate assets include cash, restricted cash, other current assets, and due from related parties. Operating loss by geographic segment does not include an allocation of general corporate expenses. Identifiable Operating Assets Loss ----------- ---------- 1998 ---- United States $ -- $ -- Canada 1,926,046 3,565,378 Corporate 3,529,662 984,935 ---------- ---------- Total $5,455,708 $4,550,313 ========== ========== 1997 ---- United States $ -- $ -- Canada 316,943 1,355,543 Corporate 3,355,832 -- ---------- ---------- Total $3,672,775 $1,355,543 ========== ========== 1996 ---- United States $ -- $ -- Canada 473,251 363,423 Corporate 14,767 -- ---------- ---------- Total $ 488,018 $ 363,423 ========== ========== F-28 GENEREX BIOTECHNOLOGY CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION RELATING TO THE NINE MONTHS ENDED APRIL 30, 1999 AND 1998 AND CUMULATIVE FROM NOVEMBER 2, 1995 (DATE OF INCEPTION) TO APRIL 30, 1999 IS UNAUDITED) Note 15 - Subsequent Events (Unaudited): Subsequent events occurring after April 30, 1999 consist of the following: The Company received a total of $1,500,004 from the sale of 272,728 shares of common stock at $5.50 per share. The Company issued 45,000 shares valued at $5.50 per share in consideration for services received. On May 8, 1999, the Company announced that it exercised its right to redeem all outstanding Series A Redeemable Common Stock Warrants which were exercisable at $5.00 per share. The effective date of the redemption was June 4, 1999. Subsequent to June 4, 1999, the warrants ceased to be exercisable and the sole right of the holder who did not exercise their warrant(s) was to receive $.025 per warrant upon surrender of the warrant certificate to the Company. For 496,547 newly issued shares and the surrender of warrant certificates, the Company received the following: Cash $1,941,875 Services Rendered 67,158 Promissory Notes Receivable 473,702 ---------- $2,482,735 ========== In addition to the above, the Company received 323,920 previously outstanding shares, valued for this purpose at $7.8125 per share, and surrender of warrant certificates in exchange for 506,125 newly issued shares. The Company issued 6,300 shares valued at $5.50 per share plus $43,781 in cash for services rendered in conjunction with the warrant redemption. F-29 PART II - INFORMATION NOT REQUIRED IN PROSPECTUS Item 24. Indemnification of Directors and Officer. Our bylaws require us to indemnify each person who is or was a director or officer of Generex against all expenses, liabilities, and loss actually and reasonably incurred in connection with any civil, criminal, administrative or investigative proceeding brought by reason of the fact that such person is or was a director or executive officer of Generex or is or was serving at our request in certain other capacities, to the extent such person is not otherwise indemnified and such indemnification is not prohibited by law. Under the Delaware General Corporation Law, we may indemnify such persons if they acted in good faith and in a manner which they reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding had no reasonable cause to believe their conduct was unlawful. With respect to a proceeding brought in the right of , we may indemnify such person if such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interest of the corporation, except that we may indemnify a person in that situation only to the extent the Court of Chancery or other court determines that such person is fairly and reasonably entitled to indemnification. Subject to the standards stated in the last two sentences, our by-laws require us to advance the expense (including attorneys' fees) incurred by such person in defending such action. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers, or persons controlling Generex pursuant to the foregoing provisions, we are informed that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. Item 25. Other Expenses of Issuance and Distribution The following table sets forth the estimated amount of various expenses in connection with the sale and distribution of the securities being registered: SEC registration fee $_______ Printing and engraving expenses 25,000 Legal fees and expenses (including blue sky fees and expenses) 50,000 Accounting fees and expenses 15,000 Miscellaneous -- -------- Total $100,000 ======== Item 26. Recent Sales of Unregistered Securities. Sales of unregistered securities by Generex within the past three years which occurred on or prior to February 12, 1998, are set forth in Item 10 of our Registration Statement on Form 10, as amended on February 24, 1999. The information set forth in Item 10 as amended February 24, 1999, is incorporated herein by reference. In the period from February 13, 1999 until June 21, 1999, the Company has offered and sold Common Stock and other securities in the transactions described below in reliance upon exemptions from the registration requirements of the Securities Act pursuant to Section 4(2) thereof, and Rule 506, Regulation D thereunder. No "public solicitation", as that term is defined in Rule 502(c), was employed by or in connection with the sale of securities in reliance upon Section 4(2) and Rule 506. All purchasers were, to the Company's reasonable belief, accredited investors who purchased for investment. All disclosures II-1 required under Rule 502(d) were made by us, and all other conditions to the availability of the Rule 506 exemption were, to our knowledge and belief, complied with by us. In order to assure that resale restrictions applicable to restricted securities are complied with, we have placed a legend evidencing the restrictions on all certificates representing the shares, and has issued "stop transfer" instructions to our transfer agent to prevent unapproved transfers. The transactions were as follows: (a) On February 15, 1999 and March 6, 1999, we issued an aggregate of 22,000 shares of common stock to three purchasers. These were additional sales in the Rule 506, Regulation D offering described in Paragraph (h) of Item 10 of our Registration Statement on Form 10. The purchasers of these shares were: Paul Busch -- 6,000 shares at $5.00 per share cash; Partners of the Toronto law firm of Brans Lehun Baldwin -- 5,000 shares issued for services rendered by the law firm and valued at $6.00 per share; Joseph Chicco -- 11,000 shares at $6.00 per share cash. (b) Between April 27, 1999 and May 24, 1999, we offered and sold a total of 636,365 shares at a price of $5.50 per share. Coleman Securities and GIA Securities acted as our agents in the placement of the shares, and received commissions of 10% and warrants to purchase common stock as described below. The investors in this private placement were as follows: Investor Number of Shares - -------- ---------------- Cranshire Capital, L.P. 177,274 Keyway Investments Ltd. 154,545 ICN Capital Ltd. 59,092 Gilford Partners, L.P. 18,182 Howard Horberg 22,727 Steve Levy 22,727 Headwaters Capital 90,909 Aries Domestic Fund, L.P. 27,000 Aries Domestic Fund II, L.P. 272 Aries Master Fund 63,637 All of these shares have been registered for sale in this Registration Statement. (c) In connection with entering into an investment banking relationship with Coleman & Company Securities, Inc. and as compensation to Coleman Securities and GIA Securities, Inc. in connection with the private placement of common stock described in paragraph (b) above, we issued the following warrants to purchase common stock to these broker dealers and their employees: o 50,000 Warrants at $6.00 per share expiring 02/16/04 o 100,000 Warrants at $6.00 per share expiring 04/06/04 o 50,000 Warrants at $7.50 per share expiring 04/06/04 o 56,364 Warrants at $5.50 per share expiring 04/26/04 We also issued warrants to purchase 7,274 shares at $5.50 per share to two finders who introduced the Company to one of the investors in the private placement. II-2 Shares underlying the warrants have been registered for sale in this Registration Statement, and information pertaining to holders of the warrants which appears under the caption "Selling Shareholders" in the prospectus included in this Registration Statement is incorporated by reference herein. (d) Between May 11, 1999 and June 4, 1999, we sold a total of 1,002,672 shares to holders of previously outstanding Series A Redeemable Common Stock Purchase Warrants (27 holders) at $5.00 per share upon the exercise of such warrants. The warrants had been issued in the "units" offering described in Item 10, Paragraph (c) of our Registration Statement on Form 10, and the holders exercising these warrants were purchasers in the "units" offering. The purchase price of these shares was paid in cash, in previously owned shares of our common stock valued for this purpose at $7.8125 per share, by cancellation of indebtedness or by promissory note, as follows: 388,375 shares were issued for cash ($1,941,875); 506,125 shares were paid for by the surrender of 323,920 previously owned shares ($2,580,625); 98,172 shares were sold partially in consideration of cancellation of indebtedness ($66,978.30) and partially through the issuance of a two-year promissory note ($423,701.70); and 10,000 shares were sold in consideration of a short term promissory note ($50,000). (e) In June 1999, the Company issued 45,000 shares of Common Stock to Monetary Advancement, Inc. as compensation for consulting services, and 6,300 shares to Thompson Kernaghan & Company for services in connection with the warrant redemption described in paragraph (d) above. These shares were valued at $5.50 per share for these purposes. Item 27. Exhibits
Exhibit No. Description - ----------- ----------- 3.1 Restated Certificate of Incorporation of Generex Biotechnology Corporation* 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 4.3.1 1999 Incentive Stock Option Plan of predecessor Idaho corporation** 4.4.1 Forms of Coleman Securities Series A, B, C and D Warrants 4.4.2 Form of GCR Warrant (issued by predecessor Idaho corporation)** 4.4.3 Form of Berckeley Warrant (issued by predecessor Idaho corporation)** 4.4.4 Form of Meyerson Warrant (issued by predecessor Idaho corporation)** 4.5.1 Form of Subscription/Voting/Put Agreement between and Dr. William Steinbrink** 4.5.2 Form of Subscription/Voting Agreement executed by purchasers of 337,670 shares of Common Stock** 4.6 Registration Rights Agreement between the Company and certain purchasers of Common Stock. II-3 5 Opinion of Eckert Seamans Cherin & Mellot, LLC regarding the legality of securities being registered*** 10.1.1 Consulting Agreement with Pankaj Modi** 10.1.2 Assignment and Assumption Agreement with Pankaj Modi** 16.1.1 Letter from former accountant Jack F. Burke, Jr.** 16.1.2 Letter from former accountant Mintz & Partners** 21 Subsidiaries of the Registrant 23.1.1 Consent of Withum, Smith & Brown, independent auditors 23.1.2 Consent of Mintz & Partners, independent auditors 23.1.3 Consent of Eckert Seamans Cherin & Mellot, LLC (included in Exhibit 5)*** 27. Financial Data Schedules
* Exhibit 3.1 to our Quarterly Report on Form 10-Q for the quarter ended is incorporated by reference. ** Incorporated by reference to the identical numbered exhibit contained in our Registration Statement on Form 10 filed with the Commission on December 14, 1998, as amended February 24, 1999. *** To be filed by amendment. Item 27. Undertakings. We undertake to: 1. File, during any period in which we offer or sell securities, a post-effective amendment to this Registration Statement to: (i) Include any prospectus required by Section 10(a)(3) of the Securities Act; (ii) Reflect in the Prospectus any facts or events which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement; and (iii) Include any additional or changed material information on the Plan of Distribution described in the Registration Statement. 2. For the purpose of determining any liability under the Securities Act, treat each post-effective amendment as a new registration of the securities offered, and the offering of the securities at that time to be the initial bona fide offering thereof. 3. To file a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have II-4 been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than our payment of expenses incurred or paid by a director, officer or controlling person in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. We hereby undertake that: For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be a part of this Registration Statement as of the time the Commission declared it effective. For purposes of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus as a new registration statement for the securities offered in this Registration Statement, and the offering of the securities at that time, shall be deemed to be the initial bona fide offering of those securities. II-5 SIGNATURES In accordance with the requirements of the Securities Act of 1933, we certify that we have reasonable grounds to believe that we meet all of the requirements of filing on Form S-1 and have authorized this Registration Statement to be signed on our behalf by the undersigned, our President, on the 8th day of July, 1999. GENEREX BIOTECHNOLOGY CORPORATION By: /s/ Anna E. Gluskin -------------------------- Anna E. Gluskin, President SIGNATURES In accordance with the requirements of the Securities Act of 1933, this Registration Statement was signed by the following persons in the capacities and on the dates stated.
Signatures Title Date /s/ Anna E. Gluskin - ------------------- Anna E. Gluskin President, Chief Executive Officer and July 8, 1999 Director /s/ E. Mark Perri - ------------------- E. Mark Perri Chairman of the Board, Chief Financial July 8, 1999 Officer and Director /s/ Rose C. Perri - ------------------- Rose C. Perri Director July 8, 1999 /s/ Pankaj Modi - ------------------- Pankaj Modi, Ph.D. Director July 8, 1999
II-6 EX-3.2 2 BYLAWS OF THE COMPANY BY-LAWS OF GENEREX BIOTECHNOLOGY CORPORATION ARTICLE I - Stockholders ------------------------ 1.1 Place of Meetings. All meetings of stockholders shall be held at such place within or without the State of Delaware 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. If this date shall fall upon a legal holiday, then such meeting shall be held on the next succeeding business day at the same hour. 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 a majority 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 stockholder shall have one vote for each share of stock entitled to vote and held of record by such stockholder, and a proportionate vote for each fractional share so held, unless otherwise provided in the Certificate 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 2 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 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 3 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 1 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 initial Board of Directors shall have five (5) members. Thereafter, 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 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 4 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. 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: 5 (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. ARTICLE IV - Transfer of Share Certificates ------------------------------------------- 6 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 Certificate 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. 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 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 7 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 Certificate 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 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 8 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. 9 EX-4.1 3 FORM OF COMMON STOCK CERTIFICATE [FRONT SIDE OF CERTIFICATE] NOT VALID UNLESS COUNTERSIGNED BY TRANSFER AGENT INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE - ----------------------- ----------------------- 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 IDENTIFYING 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 4 FORM OF SPECIAL VOTING RIGHTS GENEREX BIOTECHNOLOGY CORPORATION (a corporation organized under the General Corporation Law of the State of Delaware) 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. Dividends. 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 2 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. 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 3 the same rights and privileges as shares of the Corporation's Common Stock. 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 ______________, ____. GENEREX BIOTECHNOLOGY CORPORATION By: ------------------------------ Anna E. Gluskin, President [CORPORATE SEAL] Attest: -------------------------- Rose C. Perri, Secretary 4 EX-4.3 5 1998 INCENTIVE STOCK OPTION PLAN GBC-DELAWARE, INC. 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 GBC-DELAWARE, INC., a Delaware 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 Five Hundred Thousand (1,500,000) 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 shall be effective as of the date it is adopted by the Board of Directors of the Corporation (the "Effective Date"), 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 prior to the first anniversary of the Effective date, 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 -3- 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 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 -5- the Company with or into such other corporation, other than, in either case, a merger or consolidation of the Company in which holders of shares of the Common Stock immediately prior to the merger or consolidation will hold at least a majority of the ownership of common stock of the surviving corporation (and, if one class of common stock is not the only class of voting securities entitled to vote on the election of directors of the surviving corporation, a majority of the voting power of the surviving corporation's voting securities) immediately after the merger or consolidation, which common stock (and, if applicable, voting securities) is to be held in the same proportion as such holders' ownership of Common Stock immediately before the merger or consolidation; (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 two or more classes or series of shares), the Optionee shall have the right -7- 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-4.3.1 6 1999 INCENTIVE STOCK OPTION PLAN [INSERT EX-4.3.1] EX-4.4.1 7 FORMS OF COLEMAN SECURITIES SERIES 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. CCSI-(1)* ______ __________ Shares THIS CERTIFIES THAT, for value received, _______________________________ ________________________________, an Idaho 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 ____________(2)*___________ per Share (the "Exercise Price"), subject to the limitations, terms and conditions set forth herein. Transfer, assignment or hypothecation of this Warrant by the Holder may be made only in accordance with and subject to the terms, conditions and other provisions of this Warrant. The term "Holder", as used herein, shall include the original Holder and only such persons to whom this Warrant is transferred in strict conformity with the terms and conditions set forth or incorporated by reference herein. As used herein, the term "Warrant" shall mean and include this Warrant and any Warrant or Warrants hereafter issued in consequence of the exercise or transfer of this Warrant, in whole or in part. 1. This Warrant shall expire AT 11:59 P.M. Eastern Standard Time on_______(3)*_______ . - ------------ *Series A, B, C and D warrants differ only as follows: (1) The designation A, B, C or D is inserted. (2) The exercise price for the various series is as follows: Series A and B -- $6.00; Series C -- $7.50; and Series D -- $5.50. (3) The expiration date for Series A is February 16, 2004; for Series B and C the expiration date is April 6, 2004; and for Series D the expiration date is April 26, 2004. 2. This Warrant may be exercised during the Exercise Period as to the whole or any lesser number of whole Shares by the surrender of this Warrant (with the form of Election at the end hereof duly completed and executed) to the Company, marked to the attention of its President, 33 Harbor Square, Suite 202, Toronto, Ontario, Canada M5J 2G2, or such other place as is designated in writing and delivered to Holder by the Company, accompanied by a certified or bank cashier's check payable to the order of the Company in an amount equal to the Exercise Price multiplied by the number of Shares covered by such exercise (the "Shares Purchase Price"). 3. Exercise of this Warrant shall be deemed to have been effected as of the close of the business day on which the Company has received the last of this Warrant, a duly executed form of election, the Shares Purchase Price and such further documentation as may be required pursuant to Section 9(c) below. Upon each exercise of this Warrant, the Holder shall be deemed to be the holder of record of the Shares issuable upon such exercise, notwithstanding that the stock transfer books of the Company shall then be closed. As soon as practicable after each such exercise of this Warrant, the Company shall issue and deliver to the Holder a certificate or certificates for the Shares issuable upon such exercise, registered in the name of the Holder or its designee. If this Warrant should be exercised in part only, the Company shall, upon surrender of this Warrant for cancellation, execute and deliver a new Warrant evidencing the right of the Holder to purchase the balance of the Shares subject to purchase hereunder. 4. The Company shall maintain a register (the "Warrant Register") on which the names and addresses of the persons to whom this Warrant is issued and shall be entitled to treat the registered holder of any Warrant on the Warrant Register as the owner in fact thereof for all purposes and shall not be bound to recognize any equitable or other claim to or interest in such Warrant on the part of any other person, and shall not be liable for any registration or transfer of Warrants which are registered or to be registered in the name of a fiduciary or the nominee of a fiduciary unless made with the actual knowledge that a fiduciary or nominee is committing a breach of trust in requesting such registration or transfer, or with the knowledge of such facts that its participation therein amounts to bad faith. Subject to compliance with applicable securities laws and any other restrictions set forth herein, this Warrant shall be transferable on the books of the Company only upon delivery thereof with the form of Assignment at the end hereof duly completed by the Holder or by his duly authorized attorney or representative, or accompanied by proper evidence of succession, assignment or authority to transfer. In all cases of transfer by an attorney, the original power of attorney, duly approved, or an official copy thereof, duly certified, shall be deposited with the Company. In case of transfer by executors, administrators, guardians or other legal representatives, duly authenticated evidence of their authority shall be produced, and may be required to be deposited with the Company in its discretion. Upon any registration of transfer, the Company shall deliver a new Warrant or Warrants exchanged, at the option of the Holder thereof, for another Warrant, or other Warrants of different denominations, of like tenor and representing in the aggregate the right to purchase a like number of shares of Common Stock upon surrender to the Company or its duly authorized agent. Notwithstanding the foregoing, the Company shall have no obligation to cause Warrants to be transferred on its books to any person, unless the Holder of such Warrants shall furnish to the Company evidence of compliance with the Act and applicable state securities law, in accordance with the provisions of Section 9 hereof. 5. The Company shall at all times reserve and keep available out of its authorized and unissued Common Stock, solely for the purpose of providing for the exercise of this Warrant, such number of Shares as shall, from time to time, be sufficient therefor. 6. The Exercise Price shall be subject to adjustment from time to time as follows: -2- (a) In case the Company shall (i) declare a dividend or make a distribution on outstanding shares of its Common Stock in shares of Common Stock, (ii) subdivide or reclassify the outstanding shares of Common Stock into a greater number of shares, or (iii) combine or reclassify the outstanding shares of Common Stock into a lesser number of shares, the Exercise Price in effect at the time of the record date for such dividend or distribution on the effective date of such subdivision, combination or reclassification shall be adjusted so that it shall equal the price determined by multiplying the Exercise Price then in effect by a fraction, the denominator of which shall be the number of shares of Common Stock outstanding immediately after giving effect to such action, and of which the numerator shall be the number of shares of Common Stock outstanding immediately prior to such action. Such adjustment shall be made successively whenever any event specified above shall occur. (b) Whenever the Exercise Price 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. -3- (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. 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 transferable 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. -4- 12. This Warrant shall be governed by and construed in accordance with the laws of the State of Delaware. 13. (a) If the Company proposes to file a Registration Statement under the Securities Act (other than in connection with an exchange offer, a "rights" offering to shareholders, a Registration Statement on Form S-8 or Form S-4 or any successor forms relating to employee benefit plans or an acquisition of another entity, or in connection with a dividend reinvestment plan) with respect to shares of Common Stock (a "Registration Statement"), the Company shall give written notice of such proposed filing to Holder at least thirty (30) calendar days before the anticipated filing date of such Registration Statement or, in the event that the Company has not formulated its intent to file such Registration Statement at least thirty (30) calendar days before the anticipated filing date of such Registration Statement, as soon as practicable upon the formation by the Company of such intent. The notice shall specify the information required to be provided to the Company by Holder pursuant to paragraph 13(c) below and shall offer to Holder the opportunity to include in the Piggy Back Registration Statement such number of Shares as Holder may request. The Company shall not be required to honor any such request if, in the opinion of counsel to the Company reasonably acceptable to Holder, registration under the Act is not required for the transfer of the Shares in the manner proposed by Holder. The Company shall permit, or, in the case of an offering made through an underwriter or group of underwriters on a "firm commitment" basis (an "Underwritten Offering"), shall use its best efforts to cause the managing underwriter of the proposed Underwritten Offering to permit, such Shares to be included in the proposed Underwritten Offering on the same terms and conditions as applicable to the shares of Common Stock Offered by the Company and for the account of any person other than the Company, as the case may be. (b) Notwithstanding the foregoing, if the managing underwriter of an Underwritten Offering shall advise the Company in writing that, in its opinion, the distribution of all or a portion of the Shares requested by Holder to be included in the Registration Statement concurrently with the shares of Common Stock being registered by the Company would materially adversely affect the distribution of such securities by the Company for its own account, or for the account of any person or persons that have asserted demand registration rights under any other agreement with respect to such registration, then such requested Shares shall not be included in the Registration Statement. If the managing underwriter elects to include less than all Shares, then the number of Shares shall be pro rata with other securities properly requested to be included in the Registration Statement by other holders pursuant to "piggy back" registration rights under any other agreement. The Company shall not be required to maintain the Registration Statement in effect as it relates to Shares beyond the period necessary to comply with the Securities Act (otherwise than pursuant to Rule 415 or any similar regulation permitting "shelf registration") with respect to the distribution of the Shares included therein. (c) In connection with any registration of Shares pursuant to paragraphs 13 (a) above, and as a condition to the Company's obligation to register the Shares, Holder shall promptly furnish to the Company such information regarding Holder, the proposed distribution of the Shares by Holder and such other matters as the Company may reasonably request in writing. (d) All expenses incident to the Company's performance of or compliance with the provisions set forth herein (other than underwriting discounts and commissions relating to the sale of the Shares, and the fees and disbursements of Holder's counsel, if any) will be borne by the Company. In addition, the Company shall, without charge to Holder, provide Holder with reasonable quantities of preliminary prospectuses, final prospectuses and other material required to effect sales of the Shares to the -5- 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 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 the lesser of (x) 20,000 shares per trading day, or (y) one (1%) percent of the total number of shares of Common Stock outstanding during the four calendar weeks immediately preceding the exercise of Conversion Rights, the average of the mean between the closing "bid" and "asked" prices reported on the OTC Bulletin Board for the five (5) trading days immediately preceding the date of exercise of Conversion Rights; or (iv), if none of subsections (i), (ii) or (iii) apply, as determined by the Board of Directors of the Company. (c) The Conversion Rights shall be exercised in the same manner as provided in paragraph 2 above, except that payment of the Shares Purchase Price shall not be tendered. 16. The Company warrants the due authorization, execution and delivery of this Warrant this ____ day of _______, _______. GENEREX BIOTECHNOLOGY CORPORATION [SEAL] By: ----------------------------- E. Mark Perri, Chairman -7- ELECTION TO PURCHASE The undersigned Holder hereby irrevocably elects (check one): [ ] to exercise the within Warrant to purchase _____________________________ Shares* of Common Stock issuable upon the exercise thereof; [ ] to convert the within Warrant to shares of Common Stock pursuant to paragraph 15 thereof. The undersigned requests that certificates for such Shares, or, in the case of conversion, the number of Conversion Shares issuable pursuant to paragraph 15 thereof, be issued in his/her/its name and delivered to him/her/it at the following address: _______________________________________________________________________________ Date:__________________ _______________________________________________________________________________ Signature(s)(**) _______________________________________________________________________________ ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers the within Warrant to the extent of _____________ Shares(*) purchasable upon exercise thereof to______________ whose address is__________________________________________________ and hereby irrevocably constitute and appoint _______________________________ his/her/its Attorney to transfer said Warrant on the book of the Company, with full power of substitution. Date:___________________ _______________________________________________________________________________ Signature(s)(**) _______________________________________________________________________________ * If the Warrant is to be exercised or transferred in its entirety, insert the word "All" before "Shares"; otherwise insert the number of shares then purchasable on the exercise thereof as to which transferred or exercised. If such Warrants shall not be transferred or exercised to purchase all shares purchasable upon exercise thereof, that a new Warrant to purchase the balance of such shares be issued in the name of, and delivered to, the Holder at the address stated below. ** Signature(s) must conform exactly to the names(s) of the Holder as set forth on the first page of this Warrant. -8- EX-4.6 8 REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT This REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of April 23, 1999, is entered into by and among Generex Biotechnology Corp., an Idaho corporation, with headquarters located at 33 Harbour Square, Suite 202, Toronto, Canada M5J 2G2 (the "COMPANY"), and the undersigned buyers (each, a "BUYER" and collectively, the "BUYERS"). WHEREAS: A. In connection with the Securities Purchase Agreement by and among the parties dated as of April 23, 1999 (the "SECURITIES PURCHASE AGREEMENT"), the Company has agreed, upon the terms and subject to the conditions of the Securities Purchase Agreement, to issue and sell to the Buyers 363,637 shares of the Company's Common Stock, par value $.001 per share (the "COMMON Shares"); and B. To induce the Buyers to execute and deliver the Securities Purchase Agreement, the Company has agreed to provide certain registration rights under the Securities Act of 1933, as amended, and the rules and regulations thereunder, or any similar successor statute (collectively, the "1933 ACT"), and applicable state securities laws. NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Buyers hereby agree as follows: 1. DEFINITIONS. As used in this Agreement, the following terms shall have the following meanings: a. "INVESTOR" means a Buyer, any transferee or assignee thereof to whom a Buyer assigns its rights under this Agreement and who agrees to become bound by the provisions of this Agreement in accordance with Section 9 and any transferee or assignee thereof to whom a transferee or assignee assigns its rights under this Agreement and who agrees to become bound by the provisions of this Agreement in accordance with Section 9. b. "PERSON" means a corporation, a limited liability company, an association, a partnership, an organization, a business, an individual, a governmental or political subdivision thereof or a governmental agency. c. "REGISTER," "REGISTERED," and "REGISTRATION" refer to a registration effected by preparing and filing one or more Registration Statements (as defined below) in compliance with the 1933 Act and pursuant to Rule 415 under the 1933 Act or any successor rule providing for offering securities on a continuous basis ("RULE 415"), and the declaration or ordering of effectiveness of such Registration Statement(s) by the United States Securities and Exchange Commission (the "SEC"). d. "REGISTRABLE SECURITIES" means the Common Shares purchased pursuant to the Securities Purchase Agreement and any shares of capital stock issued or issuable with respect to the Common Shares as a result of any stock split, stock dividend, recapitalization, exchange, anti-dilution rights or similar event or otherwise. e. "REGISTRATION STATEMENT" means a registration statement of the Company filed under the 1933 Act and pursuant to Rule 415. Capitalized terms used herein and not otherwise defined herein shall have the respective meanings set forth in the Securities Purchase Agreement. 2. REGISTRATION. a. Mandatory Registration. The Company shall prepare, and, as soon as practicable but in no event later than ninety (90) days after the date of issuance of the relevant Common Shares, file with the SEC a Registration Statement or Registration Statements (as is necessary) on Form S-1 covering the resale of all of the Registrable Securities. The initial Registration Statement prepared pursuant hereto shall register for resale at least that number of Company common stock shares equal to the number of Registrable Securities as of the date immediately preceding the date the Registration Statement is initially filed with the SEC, subject to adjustment as provided in Section 3(b). The Company shall use its best efforts to have the Registration Statement declared effective by the SEC as soon as practicable, but in no event later than one-hundred eighty (180) days after the issuance of the relevant Common Shares. b. Piggy-Back Registrations. If at any time prior to the expiration of the Registration Period (as defined in Section 3(a)) the Company proposes to file with the SEC a Registration Statement relating to an offering for its own account or the account of others under the 1933 Act of any of its securities (other than on Form S-4 or Form S-8 (or their equivalents at such time) relating to securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with stock option or other employee benefit plans) the Company shall promptly send to each Investor written notice of the Company's intention to file a Registration Statement and of such Investor's rights under this Section 2(b) and, if within twenty (20) days after receipt of such notice, such Investor shall so request in writing, the Company shall include in such Registration Statement all or any part of the Registrable Securities such Investor requests to be registered, subject to the priorities set forth in Section 2(b) below. No right to registration of Registrable Securities under this Section 2(b) shall be construed to limit any registration required under Section 2(a). The obligations of the Company under this Section 2(b) may be waived by the Buyers. If an offering in connection with which an Investor is entitled to registration under this Section 2(b) is an underwritten offering, then each Investor whose Registrable Securities are included in such Registration Statement shall, unless otherwise agreed by the Company, offer and sell such Registrable Securities in an underwritten offering using the same underwriter or underwriters and, subject to the provisions of this Agreement, on the same terms and conditions as other shares of Company common stock included in such underwritten offering. If a 2 registration pursuant to this Section 2(b) is to be an underwritten public offering and the managing underwriter(s) advise the Company in writing, that in their reasonable good faith opinion, marketing or other factors dictate that a limitation on the number of shares of Company common stock which may be included in the Registration Statement is necessary to facilitate and not adversely affect the proposed offering, then the Company shall include in such registration: (1) first, all securities the Company proposes to sell for its own account, (2) second, up to the full number of securities proposed to be registered for the account of the holders of securities entitled to inclusion of their securities in the Registration Statement by reason of demand registration rights, and (3) third, the securities requested to be registered by the Investors and other holders of securities entitled to participate in the registration, as of the date hereof, drawn from them pro rata based on the number each has requested to be included in such registration. c. Allocation of Registrable Securities. The initial number of Registrable Securities included in any Registration Statement and each increase in the number of Registrable Securities included therein shall be allocated pro rata among the Investors based on the number of Registrable Securities held, or which could be held, by each Investor at the time the Registration Statement covering such initial number of Registrable Securities or increase thereof is declared effective by the SEC. In the event that an Investor sells or otherwise transfers any of such Person's Registrable Securities, each transferee shall be allocated a pro rata portion of the then remaining number of Registrable Securities included in such Registration Statement for such transferor. Any Common Shares included in a Registration Statement and which remain allocated to any Person which ceases to hold any Registrable Securities shall be allocated to the remaining Investors, pro rata based on the number of Registrable Securities then held by such Investors. d. Legal Counsel. Subject to Section 5 hereof, the Buyers shall have the right to select one legal counsel to review and oversee any offering pursuant to this Section 2 ("LEGAL COUNSEL"), which shall be Katten Muchin & Zavis or such other counsel as thereafter designated by the holders of a majority of Registrable Securities. The Company shall reasonably cooperate with Legal Counsel in performing the Company's obligations under this Agreement. e. [Reserved.] f. Rule 416. The Company and the Investors each acknowledge that each Registration Statement prepared in accordance hereunder shall include an indeterminate number of Registrable Securities pursuant to Rule 416 under the 1933 Act so as to cover any and all Registrable Securities which may become issuable (i) to prevent dilution resulting from stock splits, stock dividends or similar transactions and (ii) if permitted by law, by reason of the anti-dilution provisions contained in Section 9 of the Securities Purchase Agreement in accordance with the terms thereof (collectively, the "RULE 416 SECURITIES"). In this regard, the Company agrees to use all reasonable efforts to ensure that the maximum number of Registrable Securities which may be registered pursuant to Rule 416 under the 1933 Act are covered by each Registration Statement and, absent guidance from the SEC or other definitive authority to the contrary, the Company shall use all reasonable efforts to affirmatively support and to not take any position adverse to the position that each Registration Statement filed hereunder covers all of the Rule 416 Securities. If the Company 3 determines that the Registration Statement filed hereunder does not cover all of the Rule 416 Securities, the Company shall immediately (i) provide to each Investor written evidence setting forth the basis for the Company's position and the authority therefor and (ii) prepare and file an amendment to such Registration Statement or a new Registration Statement in accordance with Section 2(g). g. Sufficient Number of Shares Registered. In the event the number of shares available under a Registration Statement filed pursuant to Section 2(a) is insufficient to cover all of the Registrable Securities or an Investor's allocated portion of the Registrable Securities pursuant to Section 2(c) (a "DEFICIT FAILURE"), the Company shall amend the Registration Statement, or file a new Registration Statement (on the short form available therefor, if applicable), or both, so as to cover at least one hundred percent (100%) of such Registrable Securities in each case, as soon as practicable, but in any event not later than fifteen (15) days after the necessity therefor arises. The Company shall use it best efforts to cause such amendment and/or new Registration Statement to become effective as soon as practicable following the filing thereof. For purposes of the foregoing provision, the number of shares available under a Registration Statement shall be deemed "insufficient to cover all of the Registrable Securities" if at any time the number of Registrable Securities is greater than the number of shares of Company common stock available for resale under such Registration Statement. 3. RELATED OBLIGATIONS. Whenever an Investor has requested that any Registrable Securities be registered pursuant to Section 2(b) or at such time as the Company is obligated to file a Registration Statement with the SEC pursuant to Section 2(a) or 2(g), the Company will use its best efforts to effect the registration of the Registrable Securities in accordance with the intended method of disposition thereof and, pursuant thereto, the Company shall have the following obligations: a. The Company shall promptly prepare and file with the SEC a Registration Statement with respect to the Registrable Securities (on or prior to the ninetieth (90th) day after the date of issuance of any Common Shares for the registration of Registrable Securities pursuant to Section 2(a)) and use its best efforts to cause such Registration Statement relating to the Registrable Securities to become effective as soon as possible after such filing (but in no event later than one-hundred eighty (180) days after the issuance of any Common Shares for the registration of Registrable Securities pursuant to Section 2(a)), and keep such Registration Statement effective pursuant to Rule 415 at all times until the earlier of (i) the second (2nd) annual anniversary of the date of this Agreement or (ii) the date on which the Investors shall have sold all the Registrable Securities (the "REGISTRATION PERIOD"), which Registration Statement (including any amendments or supplements thereto and prospectuses contained therein) shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein, or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading. b. The Company shall prepare and file with the SEC such amendments (including post-effective amendments) and supplements to a Registration 4 Statement and the prospectus used in connection with such Registration Statement, which prospectus is to be filed pursuant to Rule 424 promulgated under the 1933 Act, as may be necessary to keep such Registration Statement effective at all times during the Registration Period, and, during such period, comply with the provisions of the 1933 Act with respect to the disposition of all Registrable Securities of the Company covered by such Registration Statement until such time as all of such Registrable Securities shall have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof as set forth in such Registration Statement. c. The Company shall permit Legal Counsel to review and comment upon a Registration Statement and all amendments and supplements thereto at least seven (7) days prior to their filing with the SEC, and not file any document in a form to which Legal Counsel reasonably objects. The Company shall not submit a request for acceleration of the effectiveness of a Registration Statement or any amendment or supplement thereto without the prior approval of Legal Counsel, which consent shall not be unreasonably withheld. The Company shall furnish to Legal Counsel, without charge, (i) any correspondence from the SEC or the staff of the SEC to the Company or its representatives relating to any Registration Statement, (ii) promptly after the same is prepared and filed with the SEC, one copy of any Registration Statement and any amendment(s) thereto, including financial statements and schedules, all documents incorporated therein by reference and all exhibits and (iii) upon the effectiveness of any Registration Statement, one copy of the prospectus included in such Registration Statement and all amendments and supplements thereto. d. The Company shall furnish to each Investor whose Registrable Securities are included in any Registration Statement, without charge, (i) promptly after the same is prepared and filed with the SEC, at least one copy of such Registration Statement and any amendment(s) thereto, including financial statements and schedules, all documents incorporated therein by reference and all exhibits, (ii) upon the effectiveness of any Registration Statement, ten (10) copies of the prospectus included in such Registration Statement and all amendments and supplements thereto (or such other number of copies as such Investor may reasonably request) and (iii) such other documents, including copies of any preliminary or final prospectus, as such Investor may reasonably request from time to time in order to facilitate the disposition of the Registrable Securities owned by such Investor. e. The Company shall use reasonable efforts to (i) register and qualify the Registrable Securities covered by a Registration Statement under such other securities or "blue sky" laws of such jurisdictions in the United States as Legal Counsel or any Investor reasonably requests, (ii) prepare and file in those jurisdictions, such amendments (including post-effective amendments) and supplements to such registrations and qualifications as may be necessary to maintain the effectiveness thereof during the Registration Period, (iii) take such other actions as may be necessary to maintain such registrations and qualifications in effect at all times during the Registration Period, and (iv) take all other actions reasonably necessary or advisable to qualify the Registrable Securities for sale in such jurisdictions; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to (x) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(e), (y) subject itself to general taxation in any such jurisdiction, or (z) file a general consent to 5 service of process in any such jurisdiction. The Company shall promptly notify Legal Counsel and each Investor who holds Registrable Securities of the receipt by the Company of any notification with respect to the suspension of the registration or qualification of any of the Registrable Securities for sale under the securities or "blue sky" laws of any jurisdiction in the United States or its receipt of actual notice of the initiation or threatening of any proceeding for such purpose. f. In the event Investors who hold a majority of the Registrable Securities being offered in the offering select underwriters for the offering, the Company shall enter into and perform its obligations under an underwriting agreement, in usual and customary form, including, without limitation, customary indemnification and contribution obligations, with the underwriters of such offering. g. As promptly as practicable after becoming aware of such event, the Company shall notify Legal Counsel and each Investor in writing of the happening of any event as a result of which the prospectus included in a Registration Statement, as then in effect, includes an untrue statement of a material fact or omission to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and promptly prepare a supplement or amendment to such Registration Statement to correct such untrue statement or omission, and deliver ten (10) copies of such supplement or amendment to Legal Counsel and each Investor (or such other number of copies as Legal Counsel or such Investor may reasonably request). The Company shall also promptly notify Legal Counsel and each Investor in writing (i) when a prospectus or any prospectus supplement or post-effective amendment has been filed, and when a Registration Statement or any post-effective amendment has become effective (notification of such effectiveness shall be delivered to Legal Counsel and each Investor by facsimile on the same day of such effectiveness and by overnight mail), (ii) of any request by the SEC for amendments or supplements to a Registration Statement or related prospectus or related information, and (iii) of the Company's reasonable determination that a post-effective amendment to a Registration Statement would be appropriate. h. The Company shall use its best efforts to prevent the issuance of any stop order or other suspension of effectiveness of a Registration Statement, or the suspension of the qualification of any of the Registrable Securities for sale in any jurisdiction and, if such an order or suspension is issued, to obtain the withdrawal of such order or suspension at the earliest possible moment and to notify Legal Counsel and each Investor who holds Registrable Securities being sold (and, in the event of an underwritten offering, the managing underwriters) of the issuance of such order and the resolution thereof or its receipt of actual notice of the initiation or threat of any proceeding for such purpose. i. At the request of any Investor, the Company shall furnish to such Investor, on the date of the effectiveness of the Registration Statement and thereafter from time to time on such dates as an Investor may reasonably request (i) if required by an underwriter, a letter, dated such date, from the Company's independent certified public accountants in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters, and (ii) an opinion, dated as of such date, of counsel representing the Company for purposes 6 of such Registration Statement, in form, scope and substance as is customarily given in an underwritten public offering, addressed to the underwriters and the Investors. j. The Company shall make available for inspection by (i) any Investor, (ii) Legal Counsel, (iii) any underwriter participating in any disposition pursuant to a Registration Statement, (iv) one firm of accountants or other agents retained by the Investors, and (v) one firm of attorneys retained by such underwriters (collectively, the "INSPECTORS") all pertinent financial and other records, and pertinent corporate documents and properties of the Company (collectively, the "RECORDS"), as shall be reasonably deemed necessary by each Inspector, and cause the Company's officers, directors and employees to supply all information which any Inspector may reasonably request; provided, however, that each Inspector shall hold in strict confidence and shall not make any disclosure (except to an Investor) or use of any Record or other information which the Company determines in good faith to be confidential, and of which determination the Inspectors are so notified, unless (a) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in any Registration Statement or is otherwise required under the 1933 Act, (b) the release of such Records is ordered pursuant to a final, non-appealable subpoena or order from a court or government body of competent jurisdiction, or (c) the information in such Records has been made generally available to the public other than by disclosure in violation of this or any other agreement of which the Inspector has knowledge. Each Investor agrees that it shall, upon learning that disclosure of such Records is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt notice to the Company and allow the Company, at its expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, the Records deemed confidential. k. The Company shall hold in confidence and not make any disclosure of information concerning an Investor provided to the Company unless (i) disclosure of such information is necessary to comply with federal or state securities laws, (ii) the disclosure of such information is necessary to avoid or correct a misstatement or omission in any Registration Statement, (iii) the release of such information is ordered pursuant to a subpoena or other final, non-appealable order from a court or governmental body of competent jurisdiction, or (iv) such information has been made generally available to the public other than by disclosure in violation of this Agreement or any other agreement of which the Company has knowledge. The Company agrees that it shall, upon learning that disclosure of such information concerning an Investor is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt written notice to such Investor and allow such Investor, at the Investor's expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, such information. l. The Company shall use its best efforts either to (i) cause all the Registrable Securities covered by a Registration Statement to be listed on each securities exchange on which securities of the same class or series issued by the Company are then listed, if any, if the listing of such Registrable Securities is then permitted under the rules of such exchange, or (ii) secure designation and quotation of all the Registrable Securities covered by the Registration Statement on the Nasdaq Stock Market. The Company shall pay all fees and expenses in connection with satisfying its obligation under this Section 3(l). 7 m. [Reserved.] n. The Company shall provide a transfer agent and registrar of all such Registrable Securities not later than the effective date of such Registration Statement. o. If requested by the managing underwriters or an Investor, the Company shall (i) immediately incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriters and the Investors agree should be included therein relating to the sale and distribution of Registrable Securities, including, without limitation, information with respect to the number of Registrable Securities being sold to such underwriters, the purchase price being paid therefor by such underwriters and any other terms of the underwritten (or best efforts underwritten) offering of the Registrable Securities to be sold in such offering; (ii) make all required filings of such prospectus supplement or post-effective amendment as soon as notified of the matters to be incorporated in such prospectus supplement or post-effective amendment; and (iii) supplement or make amendments to any Registration Statement if requested by a shareholder or any underwriter of such Registrable Securities. p. [Reserved.] q. [Reserved.] r. The Company shall otherwise use its best efforts to comply with all applicable rules and regulations of the SEC in connection with any registration hereunder and the Company shall use its best efforts to file with the SEC in a timely manner all reports and documents required of the Company under the 1933 Act and the 1934 Act (as defined in Section 6(a)). s. Within two (2) business days after the Registration Statement which includes the Registrable Securities is ordered effective by the SEC, the Company shall deliver, and shall cause legal counsel for the Company to deliver, to the transfer agent for such Registrable Securities (with copies to the Investors whose Registrable Securities are included in such Registration Statement) confirmation that the Registration Statement has been declared effective by the SEC in the form attached hereto as Exhibit A. t. [Reserved.] u. The Company shall take all other reasonable actions necessary to expedite and facilitate disposition by the Investors of Registrable Securities pursuant to a Registration Statement. v. Notwithstanding anything to the contrary contained in this Agreement, the Registration Statement shall register only the Registrable Securities and the Company common stock purchased by the Other Purchasers (as defined in the Securities Purchase Agreement) pursuant to the Offering (as defined in the Securities Purchase Agreement); provided, however, that the Registration Statement covering the resale of the Registrable Securities may register for resale the common stock held by or issuable to Coleman & Company Securities, 8 Inc. pursuant to the registration rights of such party in effect prior to the date of this Agreement only in the event that the Company calls, redeems or otherwise purchases all of the outstanding Company Series A Warrants (the "WARRANTS") from the holders thereof prior to the exercise or conversion of such Warrants by the holders thereof. 4. OBLIGATIONS OF THE INVESTORS. a. At least seven (7) days prior to the first anticipated filing date of the Registration Statement, the Company shall notify each Investor in writing of the information the Company requires from each such Investor if such Investor elects to have any of such Investor's Registrable Securities included in such Registration Statement. It shall be a condition precedent to the obligations of the Company to complete the registration pursuant to this Agreement with respect to the Registrable Securities of a particular Investor that such Investor shall furnish to the Company such information regarding itself and the Registrable Securities held by it as shall be reasonably required to effect the registration of such Registrable Securities and shall execute such documents in connection with such registration as the Company may reasonably request. b. Each Investor by such Investor's acceptance of the Registrable Securities agrees to cooperate with the Company as reasonably requested by the Company in connection with the preparation and filing of any Registration Statement hereunder, unless such Investor has notified the Company in writing of such Investor's election to exclude all of such Investor's Registrable Securities from such Registration Statement. c. In the event any Investor elects to participate in an underwritten public offering pursuant to Section 2, each such Investor agrees to enter into and perform such Investor's obligations under an underwriting agreement, in usual and customary form, including, without limitation, customary indemnification and contribution obligations, with the managing underwriter of such offering and take such other actions as are reasonably required in order to expedite or facilitate the disposition of the Registrable Securities. 5. EXPENSES OF REGISTRATION. All reasonable expenses, other than underwriting discounts and commissions, incurred in connection with registrations, filings or qualifications pursuant to Sections 2 and 3, including, without limitation, all registration, listing and qualifications fees, printers and accounting fees, and fees and disbursements of counsel for the Company and, in the event the Company fails to comply with the reasonable requests of Legal Counsel made pursuant to Section 3(c) of this Agreement, the fees and disbursements of Legal Counsel, shall be paid by the Company. 6. INDEMNIFICATION. In the event any Registrable Securities are included in a Registration Statement under this Agreement: 9 a. To the fullest extent permitted by law, the Company will, and hereby does, indemnify, hold harmless and defend each Investor who holds such Registrable Securities, the directors, officers, partners, employees, agents, representatives of, and each Person, if any, who controls any Investor within the meaning of the 1933 Act or the Securities Exchange Act of 1934, as amended (the "1934 ACT"), and any underwriter (as defined in the 1933 Act) for the Investors, and the directors and officers of, and each Person, if any, who controls, any such underwriter within the meaning of the 1933 Act or the 1934 Act (each, an "INDEMNIFIED PERSON"), subject to Section 6(d) below, against any losses, claims, damages, liabilities, judgments, fines, penalties, charges, costs, attorneys' fees, amounts paid in settlement or expenses, joint or several, (collectively, "INDEMNIFIED DAMAGES") incurred in investigating, preparing or defending any action, claim, suit, inquiry, proceeding, investigation or appeal taken from the foregoing by or before any court or governmental, administrative or other regulatory agency, body or the SEC, whether pending or threatened, whether or not an indemnified party is or may be a party thereto ("CLAIMS"), to which any of them may become subject insofar as such Claims (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue statement of a material fact in a Registration Statement or any post-effective amendment thereto or in any filing made in connection with the qualification of the offering under the securities or other "blue sky" laws of any jurisdiction in which Registrable Securities are offered ("BLUE SKY FILING"), or the omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus if used prior to the effective date of such Registration Statement, or contained in the final prospectus (as amended or supplemented, if the Company files any amendment thereof or supplement thereto with the SEC) or the omission or alleged omission to state therein any material fact necessary to make the statements made therein, in light of the circumstances under which the statements therein were made, not misleading, (iii) any violation or alleged violation by the Company of the 1933 Act, the 1934 Act, any other law, including, without limitation, any state securities law, or any rule or regulation thereunder relating to the offer or sale of the Registrable Securities pursuant to a Registration Statement or (iv) any material violation of this Agreement (the matters in the foregoing clauses (i) through (iv) being, collectively, "VIOLATIONS"). The Company shall reimburse the Investors and each such underwriter or controlling person, promptly as such expenses are incurred and are due and payable, for any legal fees or other reasonable expenses incurred by them in connection with investigating or defending any such Claim. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(a): (i) shall not apply to a Claim by an Indemnified Person arising out of or based upon a Violation which occurs in reliance upon and in conformity with information furnished in writing to the Company by such Indemnified Person or underwriter for such Indemnified Person expressly for use in connection with the preparation of the Registration Statement or any such amendment thereof or supplement thereto, if such prospectus was timely made available by the Company pursuant to Section 3(d); (ii) with respect to any preliminary prospectus, shall not inure to the benefit of any such person from whom the person asserting any such Claim purchased the Registrable Securities that are the subject thereof (or to the benefit of any person controlling such person) if the untrue statement or omission of material fact contained in the preliminary prospectus was corrected in the prospectus, as then amended or supplemented, if such prospectus was timely made available by the Company pursuant to Section 3(d), and the 10 Indemnified Person was promptly advised in writing not to use the incorrect prospectus prior to the use giving rise to a violation and such Indemnified Person, notwithstanding such advice, used it; (iii) shall not be available to the extent such Claim is based on a failure of the Investor to deliver properly or to cause to be delivered properly the prospectus made available by the Company, if such prospectus was timely made available by the Company pursuant to Section 3(d); and (iv) shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Company, which consent shall not be unreasonably withheld. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Indemnified Person and shall survive the transfer of the Registrable Securities by the Investors pursuant to Section 9. b. In connection with any Registration Statement in which an Investor is participating, each such Investor agrees to severally and not jointly indemnify, hold harmless and defend, to the same extent and in the same manner as is set forth in Section 6(a), the Company, each of its directors, each of its officers who signs the Registration Statement, each Person, if any, who controls the Company within the meaning of the 1933 Act or the 1934 Act (collectively and together with an Indemnified Person, an "INDEMNIFIED PARTY"), against any Claim or Indemnified Damages to which any Indemnified Party may become subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim or Indemnified Damages arise out of or are based upon (i) any Violation, in each case to the extent, and only to the extent, that such Violation occurs in reliance upon and in conformity with written information furnished to the Company by such Investor expressly for use in connection with such Registration Statement, and (ii) any Violation, in each case to the extent and only to the extent that such Violation occurs as a result of the failure of an Investor to deliver properly or to cause to be delivered properly the prospectus made available by the Company, if such prospectus was timely made available by the Company pursuant to Section 3(d); and, subject to Section 6(d), such Investor will reimburse any legal or other expenses reasonably incurred by them in connection with investigating or defending any such Claim; provided, however, that the indemnity agreement contained in this Section 6(b) and the agreement with respect to contribution contained in Section 7 shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of such Investor, which consent shall not be unreasonably withheld; provided, further, however, that the Investor shall be liable under this Section 6(b) for only that amount of a Claim or Indemnified Damages as does not exceed the net proceeds to such Investor as a result of the sale of Registrable Securities pursuant to such Registration Statement. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Indemnified Party and shall survive the transfer of the Registrable Securities by the Investors pursuant to Section 9. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(b) with respect to any preliminary prospectus shall not inure to the benefit of any Indemnified Party if the untrue statement or omission of material fact contained in the preliminary prospectus was corrected on a timely basis in the prospectus, as then amended or supplemented. c. The Company shall be entitled to receive indemnities from underwriters, selling brokers, dealer managers and similar securities industry 11 professionals participating in any distribution, to the same extent as provided above, with respect to information such persons so furnished in writing expressly for inclusion in the Registration Statement. d. Promptly after receipt by an Indemnified Person or Indemnified Party under this Section 6 of notice of the commencement of any action or proceeding (including any governmental action or proceeding) involving a Claim, such Indemnified Person or Indemnified Party shall, if a Claim in respect thereof is to be made against any indemnifying party under this Section 6, deliver to the indemnifying party a written notice of the commencement thereof, and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume control of the defense thereof with counsel mutually satisfactory to the indemnifying party and the Indemnified Person or the Indemnified Party, as the case may be; provided, however, that an Indemnified Person or Indemnified Party shall have the right to retain its own counsel with the fees and expenses to be paid by the indemnifying party, if, in the reasonable opinion of counsel retained by the indemnifying party, the representation by such counsel of the Indemnified Person or Indemnified Party and the indemnifying party would be inappropriate due to actual or potential differing interests between such Indemnified Person or Indemnified Party and any other party represented by such counsel in such proceeding. The Company shall pay reasonable fees for only one separate legal counsel for the Investors, and such legal counsel shall be selected by the Investors holding a majority in interest of the Registrable Securities included in the Registration Statement to which the Claim relates. The Indemnified Party or Indemnified Person shall cooperate fully with the indemnifying party in connection with any negotiation or defense of any such action or claim by the indemnifying party and shall furnish to the indemnifying party all information reasonably available to the Indemnified Party or Indemnified Person which relates to such action or claim. The indemnifying party shall keep the Indemnified Party or Indemnified Person fully apprized at all times as to the status of the defense or any settlement negotiations with respect thereto. No indemnifying party shall be liable for any settlement of any action, claim or proceeding effected without its written consent, provided, however, that the indemnifying party shall not unreasonably withhold, delay or condition its consent. No indemnifying party shall, without the consent of the Indemnified Party or Indemnified Person, consent to entry of any judgment or enter into any settlement or other compromise which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party or Indemnified Person of a release from all liability in respect to such claim or litigation. Following indemnification as provided for hereunder, the indemnifying party shall be subrogated to all rights of the Indemnified Party or Indemnified Person with respect to all third parties, firms or corporations relating to the matter for which indemnification has been made. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall not relieve such indemnifying party of any liability to the Indemnified Person or Indemnified Party under this Section 6, except to the extent that the indemnifying party is prejudiced in its ability to defend such action. e. The indemnification required by this Section 6 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or Indemnified Damages are incurred. 12 f. The indemnity agreements contained herein shall be in addition to (i) any cause of action or similar right of the Indemnified Party or Indemnified Person against the indemnifying party or others, and (ii) any liabilities the indemnifying party may be subject to pursuant to the law. 7. CONTRIBUTION. To the extent any indemnification by an indemnifying party is prohibited or limited by law, the indemnifying party agrees to make the maximum contribution with respect to any amounts for which it would otherwise be liable under Section 6 to the fullest extent permitted by law; provided, however, that: (i) no seller of Registrable Securities guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any seller of Registrable Securities who was not guilty of fraudulent misrepresentation; and (ii) contribution by any seller of Registrable Securities shall be limited in amount to the net amount of proceeds received by such seller from the sale of such Registrable Securities. 8. LIQUIDATED DAMAGES. a. The Company agrees that an Investor will suffer damages if the Company violates any provision of or fails to fulfill its obligations pursuant to Sections 2(a), 2(b), 2(g), 3(a), 3(b), 3(e), 3(h), 3(l) and 3(v) of this Agreement (a "REGISTRATION DEFAULT") and that it would not be possible to ascertain the extent of such damages. Accordingly, in the event of such Registration Default, the Company hereby agrees to pay liquidated damages ("LIQUIDATED DAMAGES") to such Investor following the occurrence of such Registration Default in an amount determined by multiplying (i) $.11 per Common Share then held by such Investor by (ii) the percentage derived by dividing (A) the actual number of days elapsed from the first day of the date that an uncured Registration Default occurred or the end of the prior 30-day period, as applicable, to the day all Registration Defaults have been completely cured, by (B) 30. Liquidated Damages shall be paid in cash, or at the Investor's option, in the number of shares of Company common stock equal to the quotient of (v) the dollar amount of the Liquidated Damages due on the Payment Date (as defined below) divided by (w) the closing bid price of the Company's common stock (as quoted in the Principal Market or the market or exchange where the Company's common stock is then traded) as of the first day that an uncured Registration Default occurred; provided, however, that if the Company timely files a Registration Statement covering the resale of the Registrable Securities pursuant to Sections 2(a) and 3(a) of this Agreement and the Company utilizes its best efforts to cause such Registration Statement to become effective but such Registration Statement has not become effective as required by Sections 2(a) and 3(a) of this Agreement, then during the first 30-day period immediately following the occurrence of such Registration Default caused by such failure of the Registration Statement to become effective as required pursuant to Sections 2(a) and 3(a) of this Agreement, the Company shall pay Liquidated Damages to such Investor in an amount determined by multiplying (i) $.055 per Common Share then held by such Investor by (ii) the percentage derived by dividing (A) the actual number of days elapsed from the first day of the date such Registration Default occurred to the day such Registration Default has been completely cured, 13 by (B) 30. Liquidated Damages shall be paid, in cash, or at the Investor's option, in the number of shares of Company common stock as determined by this Section 8. The Liquidated Damages payable pursuant hereto shall be payable within five (5) business days from the end of the 30-day period commencing on the first 30-day period in which the Registration Default occurs (each, a "PAYMENT DATE"). In the event the Investor elects to receive the Liquidated Damages amount in shares of Company common stock, such shares shall also be considered Registrable Securities and shall have the registration rights set forth in this Agreement. b. Notwithstanding anything to the contrary in Section 8(a) above: (i) the Company shall have the right to pay Liquidated Damages in cash irrespective of any Investor's election to receive shares of Company Common Stock in settlement thereof if the closing bid price of the Company's Common Stock as determined under clause (w) above is less than $5.50 per share. (ii) in the event of a Registration Default under Section 2(g), Liquidated Damages shall be payable in an amount determined by multiplying (A) the amount of Liquidated Damages as calculated by Section 8(a) above, by (B) a fraction, the numerator of which fraction shall be the total number of Common Shares held by the Investor or which the Investor is entitled to receive and which have not been registered under the Registration Statement, and the denominator of which fraction shall be the total number of Common Shares held by the Investor and which the Investor is entitled to receive. (iii) no Registration Default shall be deemed to have occurred hereunder: (A) (1) under Section 2(g) if the Deficit Failure is the result of a merger or other reorganization requiring the amendment of the Registration Statement involving the restatement or filing of additional or restated financial statements, provided, however, that the Company diligently proceeds and utilizes its best efforts to satisfy its obligations under Section 3(b) and Section 2(g) of this Agreement, or (2) in the event that, pursuant to Section 2(g) of this Agreement, the Company has reserved and registered for resale the initial 363,637 Common Shares purchased by the Buyers pursuant to the Securities Purchase Agreement, under Section 2(g) if the Deficit Failure is the result of a failure to register a number of Common Shares which represent 5% or less of the additional number of Common Shares issued to such Investor pursuant to this Agreement or the Securities Purchase Agreement in excess of such initial 363,637 Common Shares purchased by the Buyers, provided, however, that the Company diligently proceeds and utilizes its best efforts to satisfy its obligations under Section 2(g) of this Agreement. 14 (B) under Section 3(a) or Section 3(b) for failing to keep the Registration Statement "effective at all times" if such failure is due to a merger or other acquisition or reorganization, a recapitalization involving the filing of new or restating of previously filed financial statements, or other material corporate developments involving any entity or business engaged in the same industry or business of the Company, provided, however, that the Company proceeds diligently and utilizes its best efforts to satisfy its obligations under Section 3(a) or Section 3(b) of this Agreement. (C) under Section 3(h) in respect of any suspension of effectiveness or withdrawal of the Registration Statement, or stop order relating thereto, or suspension of sales under the Registration Statement pending the filing and effectiveness of a post-effective amendment to the Registration Statement that is made necessary by a merger or other acquisition or reorganization, a recapitalization involving the filing of new or restating of previously filed financial statements, or other material corporate developments involving any entity or business engaged in the same industry or business of the Company, provided, however, that the Company proceeds diligently and utilizes its best efforts to satisfy its obligations under Section 3(h) of this Agreement. 9. ASSIGNMENT OF REGISTRATION RIGHTS. The rights under this Agreement shall be automatically assignable by the Investors to any transferee of all or any portion of Registrable Securities if: (i) the Investor agrees in writing with the transferee or assignee to assign such rights, and a copy of such agreement is furnished to the Company within a reasonable time after such assignment; (ii) the Company is, within a reasonable time after such transfer or assignment, furnished with written notice of (a) the name and address of such transferee or assignee, and (b) the securities with respect to which such registration rights are being transferred or assigned; (iii) immediately following such transfer or assignment the further disposition of such securities by the transferee or assignee is restricted under the 1933 Act and applicable state securities laws; provided, however, that the transferee or assignee may subsequently transfer or assign all or any portion of the Registrable Securities if an exemption from registration under the 1933 Act is applicable to such transfer or assignment; (iv) at or before the time the Company receives the written notice contemplated by clause (ii) of this sentence the transferee or assignee agrees in writing with the Company to be bound by all of the provisions contained herein; and (v) such transfer shall have been made in accordance with the applicable requirements of the Securities Purchase Agreement. 15 10. AMENDMENT OF REGISTRATION RIGHTS. Provisions of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and Investors who then hold two-thirds (_) of the Registrable Securities. Any amendment or waiver effected in accordance with this Section 10 shall be binding upon each Investor and the Company. No such amendment shall be effective to the extent that it applies to less than all of the holders of the Registrable Securities. No consideration shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of any of this Agreement unless the same consideration also is offered to all of the parties to this Agreement. 11. MISCELLANEOUS. a. A Person is deemed to be a holder of Registrable Securities whenever such Person owns or is deemed to own of record such Registrable Securities. If the Company receives conflicting instructions, notices or elections from two or more Persons with respect to the same Registrable Securities, the Company shall act upon the basis of instructions, notice or election received from the registered owner of such Registrable Securities. b. Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one business day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be: If to the Company: Generex Biotechnology Corp. 33 Harbour Square, Suite 202 Toronto, Canada M5J 2G2 Telephone: (416) 364-2551 Facsimile: (416) 364-9363 Attention: E. Mark Perri With a copy to: Connolly Epstein Chicco Foxman Oxholm & Ewing 1515 Market Street, 9th Floor Philadelphia, Pennsylvania 19102-1909 Telephone: (215) 851-8400 Facsimile: (215) 851-8383 Attention: Joseph Chicco, Esq. 16 If to Legal Counsel: Katten Muchin & Zavis 525 West Monroe Street, Suite 1600 Chicago, Illinois 60661-3693 Telephone: (312) 902-5521 Facsimile: (312) 577-8763 Attention: Anthony J. Ribaudo If to a Buyer, to it at the address and facsimile number set forth on the Schedule of Buyers attached hereto, with copies to such Buyer's representatives as set forth on the Schedule of Buyers, or at such other address and/or facsimile number and/or to the attention of such other person as the recipient party has specified by written notice given to each other party five days prior to the effectiveness of such change. c. Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof. d. This Agreement shall be governed by and construed in all respects by the internal laws of the State of Illinois (except for the proper application of the United States federal securities laws), without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Illinois or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of Illinois. Each party hereby irrevocably submits to the non-exclusive jurisdiction of the state and federal courts sitting the City of Chicago, for the adjudication of any dispute hereunder. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction. e. This Agreement and the Securities Purchase Agreement constitute the entire agreement among the parties hereto with respect to the subject matter hereof and thereof. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein and therein. This Agreement and the Securities Purchase Agreement supersede all prior agreements and understandings among the parties hereto with respect to the subject matter hereof and thereof. f. Subject to the requirements of Section 9, this Agreement shall inure to the benefit of and be binding upon the permitted successors and assigns of each of the parties hereto. g. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. 17 h. This Agreement may be executed in identical counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement. This Agreement, once executed by a party, may be delivered to the other party hereto by facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement. i. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. j. All consents and other determinations to be made by the Investors pursuant to this Agreement shall be made, unless otherwise specified in this Agreement, by Investors holding a majority of the Registrable Securities. k. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent and no rules of strict construction will be applied against any party. l. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other Person. [Signature Page Follows] IN WITNESS WHEREOF, the parties have caused this Registration Rights Agreement to be duly executed as of day and year first above written. COMPANY: BUYERS: GENEREX BIOTECHNOLOGY CORP. CRANSHIRE CAPITAL, L.P. By: By: Downsview Capital, Incorporated, ------------------------------- the General Partner Name: ----------------------------- Title: By: ----------------------------- -------------------------- Name: Mitchell Kopin Title: President KEEWAY INVESTMENTS LTD. 18 By: -------------------------------- Name: ------------------------------ Title: ----------------------------- ICN CAPITAL LTD. By: -------------------------------- Name: ------------------------------ Title: ----------------------------- GILFORD PARTNERS, L.P. By: -------------------------------- By: ----------------------------- Name: --------------------------- Title: -------------------------- HOWARD TODD HORBERG ------------------------------------ STEVE LEVY ------------------------------------ [Note: For additional parties joining in this Agreement by Joinder Agreement, see Schedule of Buyers Attached] - -------------------------------------------------------------------------------- SCHEDULE OF BUYERS Investor's Address Investor Name and Facsimile Number --------------------- --------------------------------------- CRANSHIRE CAPITAL, L.P. 770 FRONTAGE ROAD, STE. 134 NORTHFIELD, ILLINOIS 60093 ATTN: MITCHELL KOPIN (p) 847/784-1544 (f) 847/784-1546 KEEWAY INVESTMENTS LTD. 19 MOUNT HAVELOCK DOUGLAS, ISLE OF MAN UNITED KINGDOM 1M1 2QG ATTN: MARTIN PETERS (p)011-44-171-323-2131 (f)011-44-171-323-0773 ICN CAPITAL LTD. 19 MOUNT HAVELOCK DOUGLAS, ISLE OF MAN UNITED KINGDOM 1M1 2QG ATTN: ANNE NICHOLSON GILFORD PARTNERS, L.P. 2022 N. MOHAWK CHICAGO, IL 60614 (p)312-786-2071 (f)312-664-3581 ATTENTION: H. ROBERT HOLMES HOWARD TODD HORBERG 100 SHERIDAN ROAD HIGHLAND PARK, IL 60035 (p)847-433-3800 STEVE LEVY 1776 CLENDENIN LANE RIVERWOODS, IL 60015 (p)847-562-1776 (f)847-562-1415 - -------------------------------------------------------------------------------- ADDITONAL BUYERS BY EXECUTION OF JOINDER AGREEMENTS: HEADWATERS CAPITAL 220 MONTGOMERY STREET SUITE 500 SAN FRANCISCO, CA 94104 THE ARIES MASTER FUND C/O PARAGON CAPITAL ASSET ARIES DOMESTIC FUND, L.P. MANAGEMENT, INC. ARIES DOMESTIOC FUND II, L.P. 787 SEVENTH AVENUE NEW YORK, NY 10019 EXHIBIT A FORM OF NOTICE OF EFFECTIVENESS OF REGISTRATION STATEMENT [TRANSFER AGENT] Attn: --------------------- Re: GENEREX BIOTECHNOLOGY CORP. Ladies and Gentlemen: We are counsel to Generex Biotechnology Corp., an Idaho corporation (the "Company"), and have represented the Company in connection with that certain Securities Purchase Agreement (the "Purchase Agreement") entered into by and among the Company and the buyers named therein (collectively, the "Holders") pursuant to which the Company issued to the Holders shares of its Common Stock, par value $.001 per share, (the "Common Shares"). Pursuant to the Purchase Agreement, the Company also has entered into a Registration Rights Agreement with the Holders (the "Registration Rights Agreement") pursuant to which the Company agreed, among other things, to register the Registrable Securities (as defined in the Registration Rights Agreement), including the Common Shares, under the Securities Act of 1933, as amended (the "1933 Act"). In connection with the Company's obligations under the Registration Rights Agreement, on April 23, 1999, the Company filed a Registration Statement on Form S-1 (File No. _____________) (the "Registration Statement") with the Securities and Exchange Commission (the "SEC") relating to the Registrable Securities which names each of the Holders as a selling stockholder thereunder. In connection with the foregoing, we advise you that a member of the SEC's staff has advised us by telephone that the SEC has entered an order declaring the Registration Statement effective under the 1933 Act at [ENTER TIME OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge, after telephonic inquiry of a member of the SEC's staff, that any stop order suspending its effectiveness has been issued or that any proceedings for that purpose are pending before, or threatened by, the SEC and the Registrable Securities are available for resale under the 1933 Act pursuant to the Registration Statement. Very truly yours, [ISSUER'S COUNSEL] By: ----------------------- cc: [LIST NAMES OF HOLDERS] EX-5 9 OPINION OF ECKERT SEAMANS CHERMIN & MELLOT, LLC [INSERT EX-5] EX-21 10 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21 SUBSIDIARIES OF THE COMPANY Name Place of Incorporation - ---- ---------------------- Generex Pharmaceuticals, Inc. Ontario, Canada Generex Animal Health Group, Inc. New Jersey Generex Ecuador SA Ecuador Centrum Biotechnologies 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 11 CONSENT OF WITHUM, SMITH & BROWN CONSENT OF INDEPENDENT AUDITORS We consent to the use in the Registration Statement and related Prospectus of Generex Biotechnology Corporation (the "Company") 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 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. We also consent to the references to us under the heading "Experts" in such prospectus. New Brunswick, New Jersey WITHUM SMITH & BROWN July 12, 1999 EX-23.1.2 12 CONSENT OF MINTZ & PARTNERS CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in the Registration Statement and related Prospectus of Generex Biotechnology Corporation. We consent to the use therein of our report dated October 3, 1997 with respect to the consolidated financial statements of Generex Biotechnology Corporation and subsidiaries described in that report. Toronto, Ontario MINTZ & PARTNERS July 12, 1999 EX-27 13 FINANCIAL DATA SCHEDULES
5 9-MOS 12-MOS JUL-31-1998 JUL-31-1998 APR-30-1999 JUL-31-1998 $3,859,362 $2,197,354 0 0 159,629 209,090 0 0 0 0 4,151,915 2,537,784 2,295,493 1,675,614 73,236 41,167 7,267,043 5,445,708 938,460 1,664,569 635,084 912,817 0 0 1 1 16,338,238 9,174,300 0 0 7,267,043 5,445,708 0 0 0 0 0 0 0 0 4,319,895 4,550,313 0 0 26,991 63,291 0 0 0 0 0 0 0 0 0 0 0 0 (4,346,886) (4,613,604) (0.34) (0.46) (0.34) (0.46)
-----END PRIVACY-ENHANCED MESSAGE-----