UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
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¨ | Preliminary Proxy Statement |
¨ | Confidential, For use of the Commission only (as permitted by Rule 14a-6(e)(2)) |
x | Definitive Proxy Statement |
¨ | Definitive Additional Materials |
¨ | Soliciting Material Pursuant to §240.14a-12 |
GENEREX BIOTECHNOLOGY CORPORATION
(Name of Registrant as Specified In Its Charter)
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GENEREX BIOTECHNOLOGY CORPORATION
33 Harbour Square
Suite 202
Toronto, Ontario, Canada M5J 2G2
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD TUESDAY, JUNE 19, 2012
Dear Stockholder:
You are cordially invited to attend the annual meeting of stockholders of Generex Biotechnology Corporation ("Generex") that will be held on Tuesday, June 19, 2012, at 10:00 am (local time), at the Terrence Donnelly Centre for Cellular and Biomolecular Research, University of Toronto, 160 College Street, Toronto, Ontario, Canada M5S 3E1for the following purposes, as set forth in the accompanying Proxy Statement:
1. | To elect six directors; |
2. | To ratify the appointment of MSCM LLP as independent public accountants for the year ending July 31, 2012; and |
3. | To conduct any other business as may properly come before the annual meeting or any adjournment or postponement thereof. |
The Board of Directors has established the close of business on May 2, 2012, as the record date for the determination of stockholders entitled to receive notice of, and to vote at, the annual meeting and any adjournment or postponement thereof. Generex is complying with the Securities and Exchange Commission rule that permits us to furnish proxy materials to stockholders on the Internet. This Notice and the Proxy Statement are being made available to stockholders on or about May 10, 2012.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON JUNE 19, 2012: The proxy statement for the special meeting of stockholders will be made available to stockholders on the Internet at www.generex.com/proxy.
Your vote is very important. Whether or not you plan to attend the annual meeting of stockholders, we urge you to vote and to submit your proxy over the Internet, by telephone or by mail. If you are a registered stockholder and attend the meeting, you may revoke the proxy and vote your shares in person. If you hold your shares through a bank or broker and want to vote your shares in person at the meeting, please contact your bank or broker to obtain a legal proxy.
By order of the Board of Directors,
/s/ David A. Brusegard | |
David A. Brusegard | |
Secretary |
May 3, 2012
GENEREX BIOTECHNOLOGY CORPORATION
33 Harbour Square
Suite 202
Toronto, Ontario, Canada M5J 2G2
PROXY STATEMENT
TABLE OF CONTENTS
Page | ||
About the Annual Meeting and Voting at the Meeting | 1 | |
Election of Directors (Item 1 on the Proxy Card) | 5 | |
Independence and Compensation of Directors | 8 | |
Director Independence | 8 | |
Non-Employee Directors’ Compensation | 8 | |
Corporate Governance | 9 | |
Code of Ethics | 9 | |
Board Structure; Risk Oversight; Risk Assessment of Compensation Policies and Practices | 9 | |
Board Meetings; Annual Meeting Attendance | 10 | |
Audit Committee | 10 | |
Compensation Committee | 11 | |
Corporate Governance and Nominating Committee | 11 | |
Director Nominations by Stockholders | 12 | |
Communications with Directors | 12 | |
Executive Compensation | 13 | |
Compensation Discussion and Analysis | 13 | |
Compensation Committee Report | 18 | |
Executive Compensation Tables | 18 | |
Compensation Elements; Employment Agreements and Agreements Providing Payments Upon Retirement, Termination or Change in Control for Named Executives | 20 | |
Other Benefit Plans | 22 | |
Potential Payments Upon Termination or Change-in-Control | 22 | |
Ratification of the Appointment of MSCM LLP as Generex’s Independent Public Accountants for Fiscal Year 2012 (Item 2 on the Proxy Card) | 25 | |
Audit Matters | 26 | |
Fees Paid to Generex’s Independent Public Accountants | 26 | |
Policy for Pre-Approval of Audit and Non-Audit Services | 27 | |
Report of the Audit Committee | 27 | |
Security Ownership of Certain Beneficial Owners and Management | 27 | |
Certain Transactions | 29 | |
Change in Control | 29 | |
Section 16(a) Beneficial Ownership Reporting Compliance | 30 | |
Other Information | 30 | |
Annual Report. | 30 | |
Stockholder Proposals for the Next Annual Meeting | 30 | |
Appendix A – Audit Committee Charter | 31 | |
Appendix B – Corporate Governance and Nominating Committee Charter | 34 |
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ABOUT THE ANNUAL MEETING AND VOTING AT THE MEETING
Why am I being furnished this Proxy Statement?
This Proxy Statement is provided to the stockholders of Generex in connection with the solicitation by our Board of Directors of proxies for use at our annual meeting of stockholders to be held on Tuesday, June 19, 2012 at 10:00 am (local time), at the Terrence Donnelly Centre for Cellular and Biomolecular Research, University of Toronto, 160 College Street, Toronto, Ontario, Canada M5S 3E1, and any adjournments or postponements thereof. Generex’s Annual Report to Stockholders in respect of the fiscal year of Generex ended July 31, 2011, as amended, including financial statements, accompanies this Notice and Proxy Statement, but is not incorporated as part of the Proxy Statement and is not to be regarded as part of the proxy solicitation material.
What are the items of business for the meeting?
The items of business for the meeting are as follows:
· | To elect six directors; |
· | To ratify the appointment of MSCM LLP as independent public accountants for the year ending July 31, 2012; |
· | To conduct any other business as may properly come before the annual meeting or any adjournment or postponement thereof. |
Who is soliciting my proxy?
The Board of Directors is soliciting your proxy in order to provide you with an opportunity to vote on all matters scheduled to come before the meeting whether or not you attend the meeting in person.
What if I received in the mail a Notice of Internet Availability of Proxy Materials?
In accordance with rules adopted by the Securities and Exchange Commission (SEC), we are providing access to our proxy materials over the Internet. Accordingly, on or about May 10, 2012, we are mailing to our record and beneficial stockholders a Notice of Internet Availability of Proxy Materials, which contains instructions on how to access our proxy materials over the Internet. If you received a Notice of Internet Availability of Proxy Materials, you will not receive a printed copy of our proxy materials by mail unless you request one. You may request a printed copy of our proxy materials for the 2012 annual meeting. If you wish to receive a printed copy of our proxy materials, you should follow the instructions for requesting those materials included in the Notice of Internet Availability of Proxy Materials.
Who is entitled to vote?
You may vote if you owned shares of Generex’s common stock as of the close of business on May 2, 2012, which is the record date. You are entitled to one vote for each share of common stock that you own. As of May 2, 2012, we had 343,474,558 shares of common stock outstanding.
How do I vote before the meeting?
If you hold your shares in your own name as the stockholder of record, you have three options for voting and submitting your proxy before the meeting:
· | By Internet — We encourage you to vote and submit your proxy over the Internet atwww.proxyvote.com. |
· | By Telephone — You may vote and submit your proxy by calling 1-800-690-6903. |
· | By Mail — If you received your proxy materials by mail, you may vote by completing, signing and returning the enclosed proxy card. |
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If you are a street-name stockholder, you will receive instructions from your bank, broker or other nominee describing how to vote your shares. Certain of these institutions offer telephone and Internet voting. Please refer to the information forwarded by your bank, broker or other nominee to see which options are available to you.
What shares can I vote?
You may vote all shares owned by you as of the close of business on May 2, 2012, the record date. These shares include:
· | Shares held directly in your name as the stockholder of record; and |
· | Shares of which you are the beneficial owner but not the stockholder of record (typically referred to as being held in “street name”). These are shares that are held for you through a broker, trustee or other nominee such as a bank. |
May I vote at the meeting?
You may vote your shares at the meeting if you attend in person. If you hold your shares through an account with a bank or broker, you must obtain a legal proxy from the bank or broker in order to vote at the meeting. Even if you plan to attend the meeting, we encourage you to vote your shares by proxy over the Internet, by telephone or by mail.
How do I revoke my proxy?
If you are the stockholder of record, you may revoke your proxy at any time before the polls close at the meeting. You may change you vote by:
· | Signing another proxy card with a later date and returning it to us prior to the meeting. |
· | Voting again over the Internet or by telephone prior to 11:59 p.m., Eastern Time, on June 18, 2012. |
· | Voting at the meeting if you are the stockholder of record. |
· | Voting at the meeting if you are the beneficial owner and have obtained a legal proxy from your bank or broker. |
Our principal executive offices are located at 33 Harbour Square, Suite 202, Toronto, Ontario, Canada M5J 2G2, and our telephone number is (416) 364-2551.
Will my shares be voted if I do not return my proxy?
If your shares are registered directly in your name, your shares will not be voted if you do not vote over the Internet, vote by telephone, return your proxy, or vote by ballot at the 2012 annual meeting.
If your shares are held in “street name,” your brokerage firm, under certain circumstances, may vote your shares for you if you do not return your proxy. Brokerage firms have authority to vote customers’ unvoted shares on some routine matters. If you do not give a proxy to your brokerage firm to vote your shares, your brokerage firm may either vote your shares on routine matters, or leave your shares unvoted.Item 2 to ratify the appointment of MSCM LLP as our independent public accountants is considered a routine matter.The following is considered a non-routine matter:Item 1 to elect directors. Your brokerage firm cannot vote your shares with respect toItem 1unless they receive your voting instructions. We encourage you to provide voting instructions to your brokerage firm by giving your proxy. This ensures your shares will be voted at the 2012 annual meeting according to your instructions. You should receive directions from your brokerage firm about how to submit your proxy to them at the time you receive this Proxy Statement.
What if I return my proxy card but do not provide voting instructions?
Proxy cards that are signed and returned but do not contain instructions will be voted as follows:
· | For the election of the nominees for director named on page 5 of this Proxy Statement; |
· | Forthe ratification of the appointment of MSCM LLP as independent public accountants for the year ending July 31, 2012; |
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· | In accordance with the best judgment of the individuals named as proxies on the proxy card on any other matters properly brought before the meeting. |
What does it mean if I receive more than one Notice of Internet Availability of Proxy Materials or one proxy card?
Your shares are probably registered in more than one account. You should vote all of your shares. We encourage you to consolidate all of your accounts by registering them in the same name, social security number and address. For assistance consolidating accounts where you are the stockholder of record, you may contact our transfer agent, Broadridge Financial Solutions, at 1-800-733-1121.
May stockholders ask questions at the meeting?
Yes. Generex representatives will answer stockholders’ questions of general interest at the end of the meeting.
How many votes must be present to hold the meeting?
In order for us to conduct our meeting, a majority of our outstanding shares of common stock as of May 2, 2012 must be present in person or by proxy at the meeting. This is referred to as a quorum. If a quorum is not present, we expect that the annual meeting will be adjourned until we obtain a quorum.
Your shares are counted as present at the meeting if you attend the meeting and vote in person or if you properly return a proxy by mail. Shares voted by banks or brokers on behalf of beneficial owners are also counted as present at the meeting. In addition, abstentions and broker non-votes will be counted for purposes of establishing a quorum with respect to any matter properly brought before the meeting. Broker non-votes occur on a matter when a bank or broker is not permitted under applicable rules and regulations to vote on a matter without instruction from the beneficial owner of the underlying shares and no instruction has been given.
How many votes are needed for each proposal and how are the votes counted?
The six nominees for director receiving the highest number of votes FOR election will be elected as directors(Item 1 on the Proxy Card). This is called a plurality. Abstentions and broker non-votes are not counted for purposes of electing directors.
The affirmative vote of the majority of shares present in person or represented by proxy at the meeting and entitled to vote on the particular proposal will be required for the ratification of the appointment of MSCM LLP as independent public accountants for the year ending July 31, 2012 (Item 2 on the Proxy Card) and any other proposal that might properly come before the meeting.
Abstentions will be counted toward the tabulation of votes cast onItem 2 and will have the effect of negative votes.Item 2is considered a routine matters on which brokers will be permitted to vote in their discretion even if the beneficial owners do not provide voting instructions.
How will proxies be voted on other items or matters that properly come before the meeting?
If any other items or matters properly come before the meeting, the proxies received will be voted on those items or matters in accordance with the discretion of the proxy holders.
Is Generex aware of any other item of business that will be presented at the meeting?
The Board of Directors does not intend to present, and does not have any reason to believe that others will present, any item of business at the annual meeting other than those specifically set forth in the notice of the meeting. However, if other matters are properly brought before the meeting, the persons named on the enclosed proxy will have discretionary authority to vote all proxies in accordance with their best judgment.
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Where do I find the voting results of the annual meeting?
We will report the voting results in a current report on Form 8-K within four business days after the end of the annual meeting.
Who bears the costs of soliciting these proxies?
Our directors, officers, and employees may solicit proxies by telephone, e-mail, and in person, without additional compensation. Upon request, we will also reimburse brokerage houses and other custodians, nominees, and fiduciaries for their reasonable out-of-pocket expenses for distributing proxy materials to stockholders. All costs and expenses of any solicitation, including the cost of preparing this proxy statement and posting it on the Internet and mailing the Notice of Internet Availability of Proxy Materials, will be borne by Generex.
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ELECTION OF DIRECTORS
(Item 1 on the Proxy Card)
How many directors will be elected at the meeting?
Six directors are to be elected at the annual meeting of stockholders.
What is the term of office for each director elected at the meeting?
All directors will be elected to hold office until the next annual meeting of stockholders following election and until their successors are duly elected and qualified.
Who are the nominees for election as directors?
The persons named below have been approved by our full Board of Directors as nominees for election as directors. All of the nominees currently serve as our directors.
Name | Age | Position Held with Generex | Director Since | |||
John P. Barratt | 67 | Chairman and Independent Director | March 2003 | |||
Nola E. Masterson | 65 | Independent Director | May 2007 | |||
Brian T. McGee | 51 | Independent Director | March 2004 | |||
Mark A. Fletcher | 46 | President and Chief Executive Officer, General Counsel and Secretary | June 2011 | |||
James H. Anderson, Jr., M.D. | 65 | Independent Director | June 2011 | |||
Eric Von Hofe, Ph.D. | 57 | President of Antigen Express, Inc. | June 2011 |
Biographical Information of Nominees for Directors:
John P. Barratt. Independent Director since March 2003 and Chairman of the Board since September 2010. Mr. Barratt is currently the Chairman of the Generex Compensation Committee and a member of the Generex Audit Committee and Corporate Governance and Nominating Committee. Mr. Barratt served as the Board Liaison Officer of The Caldwell Partners International from July 2006 until May 2009. From April 2005 to July 2006, Mr. Barratt served as Chief Operating Officer of The Caldwell Partners International. The Caldwell Partners International is a Canadian-based human capital professional services company. Mr. Barratt from January 2002 until February 2007 served as the court-appointed Responsible Person and Liquidation Manager of Beyond.com Corporation, Debtor-in-Possession, a U.S. Chapter 11 Bankruptcy case, in which capacity Mr. Barratt reported to the bankruptcy court and to the U.S. Trustee’s Office. From September 2000 to January 2002, Mr. Barratt acted in the capacity of Chief Operating Officer of Beyond.com Corporation, an electronic fulfillment provider. Between 1996 and 2000, Mr. Barratt was partner-in-residence with the Quorum Group of Companies, an international investment partnership specializing in providing debt and/or equity capital coupled with strategic direction to emerging technology companies. Between 1988 and 1995, Mr. Barratt held a number of positions with Coscan Development Corporation, a real estate development company, the last position of which was Executive Vice-President and Chief Operating Officer. Mr. Barratt currently serves on a number of Boards of Directors, including Brookfield Investments Corporation and BAM Split Corporation, and is a member of the Board of Directors and Chairman of the Risk Policy Committee of the Bank of China (Canada). Mr. Barratt also serves as Chairman of the Independent Review Committees of BAM Split Corp. and Brookfield Soundvest Capital Management Ltd. Mr. Barratt is currently the Chief Financial Officer and a member of the Advisory Board of Crystal Fountains Inc. and also served as interim Chief Financial Officer of its subsidiary, Crystal Fountains Inc. from September 2008 to May 2009. The Board believes that Mr. Barratt’s wide-ranging business experience in various industries, his extensive service as an executive officer and director in various companies, and his knowledge of finance, combined with his leadership skills and business judgment, provide our Board with valuable financial and operational expertise and leadership skills.
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Nola E. Masterson. Independent Director since May 2007. Ms. Masterson is currently the Chair of the Generex Corporate Governance and Nominating Committee and a member of the Generex Audit Committee and Compensation Committee. Since 1982, she has been the chief executive officer of Science Futures Inc., an investment and advisory firm. Ms. Masterson is currently Managing Member and General Partner of Science Futures Management Co. LLC, which administers several venture funds invested in life science fund of funds and life science companies. She also serves as Chairwoman of the Board of Directors of Repros Therapeutics Inc. and serves as Chair of the Compensation Committee and Nominating and Corporate Governance Committee and is a member of the Audit Committee. Repros is a development stage biopharmaceutical company formerly known as Zonagen, Inc. (currently trading on The NASDAQ Global Market under the symbol “RPRX”). Ms. Masterson was the first biotechnology analyst on Wall Street, working with Drexel Burnham Lambert and Merrill Lynch, and is a co-founder and first president of Sequenom, Inc., a genetic analysis company located in San Diego and Hamburg, Germany. She also started the BioTech Meeting in Laguna Nigel, CA, the annual Biopharmaceutical Conference in Europe, and was nominated to the 100 Irish American Business List in 2003. Ms. Masterson began her career at Ames Company, a division of Bayer, and spent eight years at Millipore Corporation in sales and sales management. Ms. Masterson has 34 years of experience in the life science industry. She received her Masters in Biological Sciences from George Washington University, and continued Ph.D. work at the University of Florida. The Board believes that Ms. Masterson’s extensive experience in the life science industry and venture capital and investment industry, her business experience, including her experience as an executive officer of an investment advisory company and as a director of a publicly-traded biopharmaceutical company, combined with her business judgment, provide our Board with valuable scientific and operational expertise.
Brian T. McGee.Independent Director since March 2004. Mr. McGee is currently the Chairman of the Generex Audit Committee and a member of the Generex Compensation Committee and Corporate Governance and Nominating Committee. Mr. McGee has been a partner of Zeifmans LLP ("Zeifmans") since 1995. Mr. McGee began working at Zeifmans shortly after receiving a B.A. degree in Commerce from the University of Toronto in 1985. Zeifmans is a Chartered Accounting firm based in Toronto, Ontario. A significant element of Zeifmans’ business is public corporation accounting and auditing. Mr. McGee is a Chartered Accountant. Throughout his career, Mr. McGee has focused on, among other areas, public corporation accounting and auditing. In 1992, Mr. McGee completed courses focused on International Taxation and Corporation Reorganizations at the Canadian Institute of Chartered Accountants and in 2003, Mr. McGee completed corporate governance courses on compensation and audit committees at Harvard Business School. In April 2004 Mr. McGee received his CPA designation from The American Institute of Certified Public Accountants. Mr. McGee has received a certificate in International Financial Reporting Standards issued by The Institute of Chartered Accountants in England and Wales in 2010. The Board believes that Mr. McGee’s knowledge and understanding of accounting and finance, his education and training in accounting and corporate governance, and his extensive experience in the accounting industry, combined with his business acumen and judgment, provide our Board with valuable accounting and financial expertise.
Mark Fletcher, Esq. Mark A. Fletcher, Esq. has served as our President and Chief Executive Officer since March 2011. Mr. Fletcher was elected to serve as a member of the Board of Directors at our annual meeting of stockholders held on June 8, 2011. Mr. Fletcher was appointed interim President and Chief Executive Officer on September 29, 2010 to succeed Anna E. Gluskin, who was terminated as President and Chief Executive Officer on that date. On September 29, 2010, Mr. Fletcher was also appointed Secretary and served as such until June 8, 2011. He served as Executive Vice President and General Counsel since April 2003, and he continues in his role as General Counsel. From October 2001 to March 2003, Mr. Fletcher was engaged in the private practice of law as a partner at Goodman and Carr LLP, a leading Toronto law firm. From March 1993 to September 2001, Mr. Fletcher was a partner at Brans, Lehun, Baldwin LLP, a law firm in Toronto. Mr. Fletcher received his LL.B. from the University of Western Ontario in 1989 and was admitted to the Ontario Bar in 1991. The Board believes that Mr. Fletcher’s wide-ranging legal knowledge and extensive experience as a practicing lawyer, his years of experience in the biotech industry, combined with his managerial skills, and business acumen and judgment, provide our Board with valuable legal and operational expertise and leadership skills.
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James H. Anderson, Jr., M.D. Independent Director since June 2011. Dr. Anderson is currently Chairman of the Corporate Governance and Nominating Committee and a member of the Generex Compensation Committee, and has served on the Generex Scientific Advisory Board since October 2010. Dr. Anderson is a diabetologist and endocrinologist who has been in the pharmaceutical industry for over 25 years. He is currently CEO and President of Symcopeia, a private drug discovery and development company focused on new mechanisms of action for the treatment of diabetes mellitus, and diabetes related obesity and cardiovascular diseases. From 2005 to 2009, Dr. Anderson served as Senior Medical Director for Diabetes and Cardiometabolic Medicine with Eli Lilly and Company and had medical responsibility for diabetes and cardiometabolic drug development, and drove the clinical development, registration and launch of two families of diabetes care products, Humulin® and Humalog. At Eli Lilly, Dr. Anderson contributed to the inventions of the first recombinant DNA produced human insulin analog products, led multiple clinical drug development projects, was responsible for 6 US NDAs and had clinical responsibility for all insulin products worldwide. Dr. Anderson is an elected Fellow of the Faculty of Pharmaceutical Medicine of the Royal Colleges of Physicians of the UK, was a founding board member of the American Association of Pharmaceutical Physicians and is a Fellow of the American College of Endocrinology. Dr. Anderson has been active in the American Diabetes Association and is a member of the International Diabetes Federation, the European Association for the Study of Diabetes, and the Endocrine Society. Dr. Anderson is a founding editorial board member of two journals for diabetes, and serves on the editorial boards or as a reviewer for 5 other diabetes/endocrine journals. Dr. Anderson is a Clinical Associate Professor of Medicine for the Division of Endocrinology and Metabolism at the Indiana University School of Medicine and was awarded an M.D. from the LSU School of Medicine. Dr. Anderson attained the rank of Lieutenant Colonel in the US Army Medical Corps and during his military career, he served as the Chairman, Department of Clinical Investigation at the Army’s largest healthcare center, and Chief of the Medical Division of the US Army Medical Research Institute for Infectious Diseases. Dr. Anderson also serves on the Medical/Scientific Advisory Boards of Elona Biotechnologies, Inc. and Zimmerman Biotechnologies, LLC. The Board believes that Dr. Anderson’s extensive experience in the pharmaceutical industry, his experience in the diabetes and endocrinology fields, combined with his business experience and judgment, provide our Board with valuable scientific and operational expertise.
Eric von Hofe, Ph.D.Director since June 2011. Dr. von Hofe is currently President of Antigen Express, Inc., a wholly-owned subsidiary of Generex. He has held this position since 2005. Since 2005, he has also been a Vice President of Generex. He has extensive experience with technology development projects, including his previous position at Millennium Pharmaceuticals as Director of Programs & Operations, Discovery Research. Prior to that, Dr. von Hofe was Director, New Targets at Hybridon, Inc., where he coordinated in-house and collaborative research that critically validated gene targets for novel antisense medicines. Dr. von Hofe also held the position of Assistant Professor of Pharmacology at the University of Massachusetts Medical School, where he received a National Cancer Institute Career Development Award for defining mechanisms by which alkylating carcinogens create cancers. He received his Ph.D. from the University of Southern California in Experimental Pathology and was a postdoctoral fellow at both the University of Zurich and Harvard School of Public Health. His work has been published in forty-eight articles in peer-reviewed journals, and he has been an inventor on four patents. The Board believes that Dr. von Hofe 's experience in private and publicly traded companies in the biotechnology industry, including leadership and management positions and his scientific expertise, together with his practical understanding of the requirements for success of both therapeutic and technology development, provide the Board with valuable scientific, business and strategic expertise.
Are there any family relationships among Generex’s officers and directors?
There are no family relationships among our officers and directors.
What if a nominee is unable or unwilling to serve?
If, for any reason, any of the nominees shall become unavailable for election, the shares represented by proxies may be voted for any substitutes proposed by the Corporate Governance and Nominating Committee and approved by the Board of Directors. At this time, the Board of Directors knows of no reason why any of the nominees might be unavailable to serve.
What if I return my proxy card but do not provide voting instructions with respect to the election of directors?
The individuals named in the accompanying proxy intend to vote all proxies received by them for the nominees listed above unless otherwise instructed.
What if I do not wish to vote for a particular nominee?
If you do not wish your shares to be voted for any of the nominees, you may so indicate.
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How does the Board of Directors recommend that I vote?
We recommend that you voteFor the election of each of the six nominees named in this proxy statement to the Board of Directors.
INDEPENDENCE AND COMPENSATION OF DIRECTORS
Director Independence
The Board of Directors currently consists of six members, four of whom are “independent” as defined under applicable rules of the SEC and The NASDAQ Stock Market LLC. The four independent members of the Board of Directors are John P. Barratt, Brian T. McGee, James H. Anderson, Jr., M.D. and Nola E. Masterson. During the fiscal year ended July 31, 2011, the board consisted of six members, including the four independent directors identified in the preceding sentence and Mark Fletcher and Dr. Eric von Hofe who are not independent under applicable SEC and NASDAQ rules.
For a director to be considered independent, the Board must determine that the director has no relationship which, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.
All members of the Audit Committee, the Compensation Committee and the Corporate Governance and Nominating Committee must be independent directors under NASDAQ rules. Members of the Audit Committee also must satisfy a separate SEC independence requirement, which provides that they may not accept directly or indirectly any consulting, advisory or other compensatory fee from the Company or any of its subsidiaries other than their directors’ compensation. In addition, under SEC rules, an Audit Committee member who is an affiliate of the issuer (other than through service as a director) cannot be deemed to be independent.
Non-Employee Directors' Compensation
In fiscal 2011, our policy for compensation of non-employee directors was as follows.
· | Non-employee directors (other than the non-executive chairman of the board) receive an annual cash based retainer. Each non-employee director serving on the Board of Directors as of May 27, 2008 is entitled to an annual cash retainer of $40,000. Each new non-employee director will initially receive a cash retainer of $20,000, increasing to $30,000 for the second year, and $40,000 thereafter. |
· | The non-executive chairman of the board receives an annual cash based retainer of $100,000 per year. |
· | At the discretion of the full Board of Directors, nonemployee directors may receive stock options to purchase shares of our common stock or shares of restricted stock each fiscal year. The number and terms of such options or shares is within the discretion of the full Board of Directors. |
· | Nonemployee directors serving on committees of the Board of Directors receive additional cash compensation as follows: |
Committee | Chairperson | Member | ||||||
Audit Committee | $ | 15,000 | $ | 5,000 | ||||
Compensation Committee | $ | 15,000 | $ | 5,000 | ||||
Governance & Nominating Committee | $ | 5,000 | $ | 2,000 |
On June 8, 2011, the board amended the policy regarding the cash-based retainer for non-employee directors such that all non-employee directors will receive an annual retainer of $40,000 effective in the first year they are appointed and in subsequent years of service, effective as of that date.
Directors who are officers or employees of Generex or its subsidiaries do not receive separate consideration for their service on the Board of Directors. The compensation received by Mr. Fletcher as an employee of Generex is show in the Summary Compensation Table above. The compensation received by Mr. von Hofe as an employee of our subsidiary Antigen is shown in the Director Compensation Table below under “All Other Compensation”.
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Fiscal Year 2011 Director Compensation Table
Name | Fees Earned or Paid in Cash (1) | Stock Awards (2) | Option Awards (3) | All Other Compensation | Total | |||||||||||||||
John P. Barratt | $ | 93,666 | $ | 0 | $ | 104,850 | $ | 0 | $ | 198,516 | ||||||||||
Brian T. McGee | $ | 62,000 | $ | 0 | $ | 41,940 | $ | 0 | $ | 103,940 | ||||||||||
Nola E. Masterson | $ | 55,000 | $ | 0 | $ | 41,940 | $ | 0 | $ | 96,940 | ||||||||||
James H. Anderson | $ | 8,400 | $ | 0 | $ | 0 | $ | 40,000 | (4) | $ | 48,400 | |||||||||
Eric von Hofe | $ | 0 | $ | 0 | $ | 41,940 | $ | 260,480 | (5) | $ | 302,420 |
(1) Includes the annual retainer and additional fees for directors who chair a Board committee or who serve on a Board committee.
(2) There were no restricted stock awards to directors in fiscal year 2011. As of July 31, 2011, the aggregate number of shares underlying stock awards previously granted to each non-employee director was as follows: Mr. Barratt (150,000), Ms. Masterson (100,000) and Mr. McGee (150,000).
(3) Includes the grant date fair value for options to purchase 200,000 shares of common stock granted to each of Mr. McGee, Ms. Masterson and Dr. von Hofe and options to purchase 500,000 shares of common stock granted to Mr. Barratt on March 25, 2011, calculated in accordance with FASB ASC Topic 718. The grant date fair value for these options is based on the Black-Scholes model valuation of $0.2097 per share. The following assumptions were used in the calculation: expected term of 5 years; a risk-free interest rate of 0.013%; and expected price volatility of 101%. The options granted on March 25, 2011 vested immediately on the date of grant.
At fiscal year end, the total number of stock options held by each non-employee director was as follows: : Mr. Barratt (805,714), Mr. McGee (505,714), Ms. Masterson (300,000) and Dr. Anderson (0). Dr. von Hofe, who is an employee of our subsidiary Antigen held, 435,000 stock options at fiscal year-end.
(4) Includes payments received as a member of the Scientific Advisory Board of $5,000 per month for the period from December 2010 through July 2011.
(5) Represents employment income earned as president of Antigen for the fiscal year ended July 31, 2011.
CORPORATE GOVERNANCE
Code of Ethics
Generex has adopted a code of ethics that applies to its directors and the following executive officers: the President, Chief Executive Officer, Chief Financial Officer (principal financial/accounting officer), Chief Operating Officer, any Vice-President, Controller, Secretary, Treasurer and any other personnel performing similar functions. We also expect any consultants or advisors whom we retain to abide by this code of ethics. The Generex Code of Ethics has been posted on Generex's Internet web site - www.generex.com.
Board Structure; Risk Oversight; Risk Assessment of Compensation Policies and Practices
The business affairs of Generex are managed under the direction of our Board of Directors. A Special Committee of the Board of Directors, which was formed on September 29, 2010, is comprised of three of our independent directors, Mr. Barratt, Mr. McGee and Ms. Masterson. In Fiscal 2010, the Special Committee determined that having an independent director serve as Chairman of the Board is in the best interest of stockholders at this time and appointed Mr. Barratt as Chairman. This structure has been particularly suitable given the appointment of Mr. Fletcher as interim President and CEO as the Board has considered significant adjustments to Generex’s strategic direction following its delisting from The NASDAQ Stock Market. The structure ensures a greater role for the independent directors in the oversight of Generex and active participation of the independent directors in setting agendas and establishing priorities and procedures for the work of the Board.
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The Board is actively involved in oversight of risks that could affect Generex. This oversight is conducted primarily through committees of the Board, as disclosed in the descriptions of each of the committees below and in the charters of two of the committees, but the full Board has retained responsibility for general oversight of risks. The Board satisfies this responsibility through full reports by each committee chair regarding the committee's considerations and actions, as well as through regular reports directly from officers responsible for oversight of particular risks within Generex. The Board believes its administration of its risk oversight function has not affected the Board's leadership structure.
Management has conducted a risk assessment of Generex's compensation policies and practices relating to executive and non-executive employees. Management has concluded that Generex’s compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on the company. The Compensation Committee has reviewed and concurred with management's conclusion. In assessing risk, management reviewed, among other things:
(i) | all key incentive compensation plans to ensure that they are aligned with our compensation philosophy which aims to: |
a) | motivate executives and employees to achieve our business objectives, |
b) | align employee and shareholder interests, |
c) | recognize individual contributions and overall business success, and |
d) | ensure that compensation policies include performance metrics that meet and support corporate goals. |
(ii) | the overall compensation mix to ensure an appropriate balance between fixed and variable pay components and between short-term and long-term incentives. |
The objective of the process was to identify any compensation plans and practices that may encourage employees to take unnecessary risk that could threaten the company. Management identified no such plans or practices.
Board Meetings; Annual Meeting Attendance
On September 29, 2010, the Board of Directors formed a Special Committee which took all actions on behalf of the Board of Directors during the fiscal year ended July 31, 2011 from the date of its formation until June 8, 2011 when Messrs. Fletcher, von Hofe and Anderson were elected to the Board of Directors. The Special Committee included John P. Barratt, Brian T. McGee and Nola E. Masterson. During the fiscal year ended July 31, 2011, the Special Committee of the Board of Directors held four meetings and took action by unanimous consent five times. During the fiscal year ended July 31, 2011, no director on the Special Committee attended fewer than 75% of the Board of Directors meetings that were held, and no director attended fewer than 75% of the meetings held by all committees of the Board on which he or she served. During the fiscal year ended July 31, 2011, our full Board of Directors held one meeting and took action by unanimous consent six times.
We currently expect all of our directors to be in attendance at the 2012 Annual Meeting of Stockholders. It has been customary for our directors to attend our annual meetings of stockholders. All of our directors attended the 2011 Annual Meeting of Stockholders, except for Mr. McGee who had a pre-existing commitment overseas, and Ms. Perri who was not nominated to stand for re-election.
The Board of Directors has established a standing Audit Committee, Compensation Committee and Corporate Governance and Nominating Committee.
Audit Committee
The Audit Committee, which was established on March 1, 2000 in accordance with Section 3(a)(58)(A) of the Securities Exchange Act, met four times during the fiscal year ended July 31, 2011. During fiscal 2011, the Audit Committee consisted of Brian T. McGee (Chair), John P. Barratt and Nola E. Masterson, each of whom satisfied the independence requirements under NASDAQ Listing Rules for audit committee members. Members of the Audit Committee also satisfied the separate SEC independence requirement, which provides that members of the Audit Committee may not accept directly or indirectly any consulting, advisory or other compensatory fee from Generex or any of its subsidiaries other than their directors’ compensation. All of the members of the Audit Committee attended all of the meetings that they were eligible to attend during fiscal 2011.
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The Audit Committee reviews and discusses with Generex's management and its independent auditors the audited and unaudited financial statements contained in Generex's Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, respectively. Although Generex's management has the primary responsibility for the financial statements and the reporting process, including the system of internal controls and disclosure controls and procedures, the Audit Committee reviews and discusses the reporting process with management on a regular basis. The Audit Committee also discusses with the independent auditors their judgments as to the quality of Generex's accounting principles, the reasonableness of significant judgments reflected in the financial statements and the clarity of disclosures in the financial statements, as well as such other matters as are required to be discussed with the Audit Committee under generally accepted auditing standards. The Audit Committee has adopted a written charter, which was amended on October 30, 2003. A copy of the Audit Committee charter is reproduced asAppendix A to this Proxy Statement.
Compensation Committee
The Compensation Committee was formed on July 30, 2001. The members of the Compensation Committee met along with the Special Committee three times during the fiscal year ended July 31, 2011 to discuss and approve compensation matters related to the named executives and former named executives. For the period of the fiscal year ending July 31, 2011 from August 1, 2010 through June 8, 2011, the Compensation Committee consisted of three non-employee directors: John P. Barratt (Chair), Nola E. Masterson and Brian T. McGee. On June 8, 2011, following his election to the Board of Directors, James H. Anderson was appointed as a member of the Compensation Committee. In fiscal 2011, up to June 8, 2011, all of the then members of the Compensation Committee attended all of the meetings of the Compensation Committee that they were eligible to attend. There were no Compensation Committee meetings held in fiscal 2011 after June 8, 2011, up until the end of our fiscal year on July 31, 2011.
The Compensation Committee is responsible for reviewing and recommending to the Board of Directors compensation programs and policies for our President and Chief Executive Officer, General Counsel and Secretary, our Chief Operating Officer and our Acting Chief Financial Officer and Treasurer, who currently comprise Generex’s executive management team. The Compensation Committee has the authority to use a compensation consultant to assist the Compensation Committee in the evaluation of the compensation of our executive management team and other executive officers and to consult with other outside advisors to assist in its duties to the Company. The Compensation Committee does not have a written charter.
The Compensation Committee does not delegate its authority. In the past, the former President and Chief Executive Officer has typically presented the Compensation Committee with recommendations regarding salaries, bonuses and long term incentives for members of the executive management team and support for such recommendations Members of our senior management team and other executive officers do not attend meetings of the Compensation Committee.
In fiscal 2010, the Compensation Committee directly engaged a compensation consultant, J. Thelander Consulting, in its determination of executive compensation. In November 2009, the Compensation Committee undertook a comprehensive review of compensation for the named executives. As part of the review the Compensation Committee engaged a compensation consultant, J. Thelander Consulting. A significant portion of the consultant’s review consisted of benchmarking Generex’s named executive compensation against similar positions at public companies in the biotechnology and pharmaceutical industry. The list of companies considered primarily had market capitalizations between $80 and $160 million which was considered comparable to Generex’s market capitalization. The compensation consultant provided no other services to Generex during fiscal 2010. In the fiscal year ended July 31, 2011, the Compensation Committee did not engage any compensation consultants or engage in benchmarking activities, however the November 2009 review of compensation for the then named executives was considered when making salary recommendations in fiscal 2011.
Corporate Governance and Nominating Committee
The Board of Directors formed the Corporate Governance and Nominating Committee on May 29, 2007 and appointed Messrs. Barratt and McGee and Ms. Masterson as members. Dr. Anderson was appointed as chair of this committee in fiscal 2011. The members of the Corporate Governance and Nominating Committee met along with the Special Committee during fiscal 2011 to recommend the nominations of Messrs. Fletcher, von Hofe and Anderson as director nominees in the prior year’s proxy statement. The Corporate Governance and Nominating Committee has a charter, which was adopted on May 29, 2007. A copy of the charter is attached asAppendix B to this Proxy Statement.
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The Corporate Governance and Nominating Committee will consider candidates whom the stockholders of Generex put forward. The name, together with the business experience and other relevant background information of a candidate, should be sent to Mark Fletcher, Secretary of Generex, at Generex’s principal executive offices located at 33 Harbour Square, Suite 202, Toronto, Ontario, Canada M5J 2G2. Mr. Fletcher will then submit such information to the chair of the Corporate Governance and Nominating Committee for the Committee’s review and consideration. The process for determining whether to nominate a director candidate put forth by a stockholder is the same as that used for reviewing candidates submitted by directors. After full consideration, the stockholder proponent will be notified of the decision of the committee.
The Corporate Governance and Nominating Committee will seek to identify director candidates with the highest personal and professional ethics, integrity and value and diverse experience in business, finance, pharmaceutical and regulatory matters, and other matters relevant to a company such as Generex. The Corporate Governance and Nominating Committees also will require that director nominees have sufficient time to devote to the company’s affairs. The charter of the Corporate Governance and Nominating Committee sets forth the policy with regard to the consideration of diversity in identifying director nominees and calls for periodic review of director recruitment and selection protocols so that diversity remains a component of any director search. The Corporate Governance and Nominating Committee is charged with developing a formal list of qualifications for members of the Board of Directors as mandated by its charter and criteria to assist the Board in attaining diversity of background and skills in director candidates, but the Committee has yet to develop such a list or criteria.
In accordance with our bylaws, the Board of Directors is permitted to increase the number of directors and to fill the vacancies created by the increase until the next annual meeting of stockholders.
To date, the Corporate Governance and Nominating Committee has not engaged any third party to assist it in identifying director candidates.
Director Nominations by Stockholders
Any stockholder entitled to vote for the election of directors may nominate a person for election to the Board of Directors at the annual meeting. Any stockholder wishing to do so must submit a notice of such nomination in writing to the Secretary of Generex at Generex's principal offices located at 33 Harbour Square, Suite 202, Toronto, Ontario, Canada M5J 2G2 not less than 60 nor more than 90 days prior to the annual meeting. In the event that less than 70 days’ notice or prior disclosure of the date of the meeting is given or made to stockholders, notice of nomination by a stockholder to be timely must be 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. The stockholder's notice of nomination must provide information about both the nominee and the nominating stockholder, as required by Generex's bylaws. A copy of these bylaw requirements will be provided upon request in writing to Mark Fletcher, Executive Vice-President and General Counsel of Generex, at Generex’s principal executive offices.
Communications with Directors
Interested parties who wish to make any concerns known to non-management directors may submit communications at any time in writing to: Mark Fletcher, President, Chief Executive Officer and General Counsel, Generex Biotechnology Corporation, 33 Harbour Square, Suite 202, Toronto, Ontario, Canada M5J 2G2. The General Counsel will determine, in his good faith judgment, which communications will be relayed to the non-management directors.
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Compensation Philosophy
Compensation Philosophy
We are a development stage company focused on research, development, and commercialization of our proprietary drug delivery platform for administration of large molecule drugs to the oral cavity through a hand-held aerosol spray applicator. We are in the process of developing proprietary formulations of drugs that can be delivered through an oral spray thereby eliminating the need for injections and have focused on our Oral-lyn™ insulin formulation, which is administered as a spray into the oral cavity. We also have a subsidiary, Antigen Express, which focuses on developing proprietary immunomedicines.
As a development stage company, our future depends on the ability of our executives to obtain necessary regulatory approvals to launch Oral-lyn™ in key markets such as the United States, Canada, and Europe, as well as furthering the development of other products in our pipeline through the clinical trial and regulatory process. Attracting, retaining, and motivating key executives who can lead Generex through this process is critical to our success. We have a small executive team that works together closely. Our executives perform multiple roles and need to be able to respond to changing market dynamics quickly.
For these reasons, we seek to ensure that our compensation programs are competitive with similarly sized companies with which we compete for executive talent. The goals of our executive compensation program are to attract and retain top executives, to motivate executives to achieve our business objectives, to align executive and shareholder interests, and to recognize individual contributions and overall business success.
During the fiscal year ended July 31, 2011, the Compensation Committee of the Board of Directors evaluated the types and amounts of compensation that it believed were appropriate for our President and Chief Executive Officer, our Chief Operating Officer and our Acting Chief Financial Officer, who are considered Generex’s policy making executives and who are listed in the Summary Compensation Table on page 18. We refer herein to these executives as the “named executives.”
In addition to the compensation of our named executives, the Compensation Committee also reviews and approves the compensation of members of our senior management, including our Vice President, Regulatory Affairs and our Controller, as well as the President of our subsidiary, Antigen Express, Inc.
The Board of Directors appointed three of the four current members of the Compensation Committee on May 28, 2008 following the 2008 Annual Meeting of the Stockholders and all three of these members served throughout fiscal 2011. The fourth member was appointed on June 8, 2011 following the 2011Annual Meeting of the Stockholders. During fiscal 2011, the Compensation Committee convened once to evaluate and discuss compensation for the named executives with respect to stock awards during the fiscal year ended July 31, 2011, bonuses for the fiscal year ended July 31, 2010 and base salaries for the calendar year ended December 31, 2011. During the majority of fiscal 2011, the three members of the Compensation Committee also comprised the Special Committee of the board of directors and met several times as the Special Committee to discuss various compensation and executive personnel matters, including the terminations of Ms. Gluskin and Ms. Perri and the appointments of Mr. Fletcher, Mr. Fellows and Dr. Brusegard to their respective positions.
Historically, the key components of our executive compensation have been base salary, cash bonuses, and equity incentives, including stock bonuses, restricted stock, and stock options awarded at the discretion of our Compensation Committee and Board of Directors. As a development stage company, we have reviewed compensation of our named executives annually and at the discretion of the Compensation Committee as warranted by our financial condition and achievement of our business goals. While the elements of compensation are considered separately, the Compensation Committee ultimately considers the value of the total compensation package provided to the individual named executive.
The Compensation Committee believes the company’s compensation program must take into account the following factors:
· | past levels of compensation adjustments; |
· | the expected transition of the company from a development stage company to an operating company; |
· | the nature of the regulatory approval process for the company’s products; and |
· | the potential for growth of the company in the event that regulatory approvals are obtained. |
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In fiscal 2011, the Compensation Committee reviewed and implemented changes in base salaries for certain of the named executives, upon their appointment to new positions in fiscal 2011 and awarded equity incentive awards to the named executives primarily in recognition of efforts made to stabilize the company and effect the company’s reorganization plan. The Compensation Committee did not award any of the named executives cash bonuses during fiscal 2011 for fiscal 2010 performance and contributions. The Compensation Committee has not made any determinations as to bonuses or equity awards for the named executives with respect to performance or contributions for the fiscal year ended July 31, 2011, but the Compensation Committee expects to consider the matter in the future during fiscal 2012.
In administering the executive compensation program, our Compensation Committee has relied upon market data provided on a periodic basis by external consultants, as well as its own understanding and assessment of executive compensation trends. In its consideration of compensation for the named executives, the Compensation Committee has reviewed compensation data for pharmaceutical and biotechnology companies, market data provided by external compensation consultants, compensation data compiled by a third-party compensation data firm and publicly available executive compensation data for publicly traded companies.
Use of Compensation Consultant and Benchmarking
In the fiscal year ended July 31, 2011, the Compensation Committee did not engage any compensation consultants or engage in benchmarking activities, however in November 2009, the Compensation Committee undertook a comprehensive review of compensation for the then named executives which has been considered when making salary recommendations in the fiscal year ended July 31, 2011. As part of the previous fiscal year review the Compensation Committee engaged a compensation consultant, J. Thelander Consulting. A significant portion of the consultant’s review consisted of benchmarking Generex’s then named executive compensation against similar positions at public companies in the biotechnology and pharmaceutical industry. The list of companies considered primarily had market capitalizations between $80 and $160 million which was considered comparable to Generex’s market capitalization at that time. In addition, one other company was considered which had a market capitalization in excess of $1 billion, as it had been considered in past compensation studies and as its primary product is somewhat similar to Generex’s Oral-lyn™, in that it is also a drug delivery system for insulin. The companies considered in the consultant’s report included the following:
Market capitalization between $80 and $160 million
· | ArQule (ARQL) |
· | Progenix Pharmaceuticals, Inc. (PGNX) |
· | Idenix Pharmaceuticals, Inc. (IDIX) |
· | Discovery Laboratories, Inc. (DSCO) |
· | Ideera Pharmaceuticals, Inc. (IDRA) |
Market capitalization greater than $1 billion
· | Mannkind (MNKD) |
The consultant’s report concluded that base salaries for the then named executives were at or above average compared to the benchmarked companies, while bonus targets, equity incentive compensation and overall total compensation (i.e. base salary, bonuses and equity compensation combined) were below average. The Compensation Committee reviewed and considered the consultant’s fiscal 2010 report when making decisions regarding compensation changes and levels for the new named executives in fiscal 2011, but the Compensation Committee members exercised discretion and formulated their own conclusions when the Committee determined the compensation components discussed below.
Determination of Compensation
The Compensation Committee typically makes compensation determinations, including any increases in base salary for the next calendar year and any bonuses in respect of the prior fiscal year, before or during the first calendar quarter of each year. The Compensation Committee follows such a schedule in order to eliminate the need to award retroactive salary increases. In addition, the Compensation Committee intends to review compensation arrangements in the first calendar quarter to ensure that compensation levels are appropriate in light of Generex’s financial position and performance at that time. Due to the changes in management in fiscal 2011, including the terminations of the previous President and Chief Executive Officer and the Chief Financial Officer and Chief Operations Officer, as well as the appointment of our Executive Vice President and General Counsel to interim President and Chief Executive Officer in September 2010 and to President and Chief Executive Officer in March 2011, the appointment of our VP Finance to Acting Chief Financial Officer in March 2011 and the appointment of our Chief Operating Officer in March 2011, the Committee did not follow such a schedule in fiscal 2011.
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In considering whether to award bonuses in respect of fiscal year 2010 or to make changes to base compensation for calendar year 2011, in addition to the compensation consultant’s report from fiscal 2010, the Compensation Committee also reviewed publicly available executive compensation information for Generex’s peer companies, executive compensation information as reported in biotechnology and pharmaceutical industry publications, unique aspects of each executive’s roles within Generex, including multiple roles performed by each named executive, as well as contribution and performance of individual named executives towards achievement of overall company performance, and alignment with shareholder expectations.
Components of Compensation
Base Salary
Base salary provides a fixed amount of compensation necessary to attract and retain key executives. It is guaranteed compensation to the named executives for performance of core duties. Base salaries for the named executives may be adjusted upon recommendation by the Compensation Committee and ratification by the Board of Directors. Historically, annual base salaries for the named executives have been reviewed periodically relative to the base pay levels for each executive’s position based on the peer group. The Compensation Committee last undertook such a review in November 2009. Levels of base salary are generally targeted at the market’s second quartile (51% – 75%), but also reflect the compensation goals adopted by the Compensation Committee, operational goals determined by management, the named executive’s individual performance, contribution of the named executive to overall corporate performance, and the level of responsibility of the named executive with respect to his or her specific position. The level of base salary also reflects multiple titles and additional responsibilities of the named executives driven by the operational needs of the company.
Salary adjustments for the President and Chief Executive Officer and the Acting Chief Financial Officer were last made to base salary compensation in March 2010, which were made effective retroactive to January 1, 2010. No salary adjustments were made in calendar year 2009. In determining the levels of the base salary adjustments for the named executives, if any, the Compensation Committee considered the achievement of certain performance goals by the named executives, including those considered in connection with the award of cash bonuses and enumerated below.
In September 2010, in connection with the termination of our former President and Chief Executive Officer, our Executive Vice President and General Counsel was appointed to interim President and Chief Executive Officer. The Compensation Committee recommended, and the Special Committee of the Board of Directors approved a base salary adjustment of $150,000 or 46% to $475,000 effective immediately. The increase was considered appropriate in relation to the assumption of the additional duties and responsibilities of the new role, in addition to his duties as General Counsel, as well as based on the comparison to peer companies prepared by the compensation consultant in fiscal 2010.
In March 2011, the Compensation Committee recommended, and the Special Committee of the Board of Directors approved a base salary adjustment of 12.5% for our VP Finance from $200,000 to $225,000, effective retroactive to January 1, 2011, in connection with his appointment to Acting Chief Financial Officer. The increase was considered appropriate in relation to the assumption of the additional duties and responsibilities of the new role.
In March 2011, the Compensation Committee recommended, and the Special Committee of the Board of Directors approved the hiring and appointment of our Chief Operating Officer at an annual base salary of $225,000 effective immediately. The base salary was considered appropriate in relation to the salaries of our other executives.
Cash Bonuses
Performance-based compensation is a key component of our compensation philosophy. Historically, cash bonuses have been provided to attract, motivate, and retain highly qualified executives on a competitive basis and provide financial incentives that promote company success. From time to time in the past, the Compensation Committee has granted bonuses to reward achievement relative to specific performance objectives. In awarding bonuses, the Compensation Committee considers various factors, including the named executive’s position within Generex, attainment of specific business objectives and performance milestones, and the named executive’s individual contributions thereto. The Committee exercises discretion with respect to the weight that it gives to these and other factors in determining bonuses. The Compensation Committee also retains discretion with respect to whether any bonuses are paid to the named executives, the amounts of any such bonuses, and the form of any such bonuses.
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The Compensation Committee did not grant or accrue any bonuses in fiscal 2011, with respect to the fiscal year ended July 31, 2010, due to the recent appointments of all the named executives to their current positions, as well as in consideration of the current financial position of the company.
Long-Term Incentives and Equity Awards
Our compensation program also includes long-term incentive compensation in the form of equity grants subject to a vesting schedule. We believe such incentive compensation further aligns the interests of management with those of stockholders and enhances shareholder value. Currently, we do not have any long-term cash incentive programs in place for the named executives.
Long-term equity incentive grants are discretionary. In determining whether such grants are warranted, the Compensation Committee considers our compensation strategy, market practice concerning long-term incentives provided to executives at peer companies and within the broader market, and the named executive’s specific roles within Generex. At the present, equity incentive awards are subject to vesting over a period of time and are not tied to specific performance measures.
Equity grants have historically been made through stock options under our various plans, including Generex’s 2000 Stock Option Plan, 2001 Stock Option Plan, as amended, and Amended and Restated 2006 Stock Plan, which also allows grants of restricted stock. We consider the costs to the company of granting stock options under Statement of Financial Accounting Standard (SFAS) 123(R) as compared to the costs to named executives of higher income tax liabilities associated with the granting of restricted stock.
In March 2011, the Compensation Committee recommended, and the Special Committee of the board of directors approved, the following discretionary awards of options to purchase shares of our common stock to our named executives:
Named Executive | No. of Shares Underlying Options | |||
Mr. Fletcher | 1,500,000 | |||
Mr. Fellows | 200,000 | |||
Dr. Brusegard | 200,000 |
The award to Mr. Fletcher were made pursuant to the 2006 Stock Plan (1,100,000 options) and pursuant to the 2001 Stock Option Plan (400,000 options). The awards to Mr. Fellows and Dr. Brusegard were made pursuant to the 2001 Stock Option Plan. The stock options have an exercise price equal to $0.282 per share, the closing price of the Company’s common stock on the OTC Bulletin Board on March 25, 2011. The options awarded were fully vested at the date of grant and shall expire on the fifth anniversary of the date of grant, subject to earlier termination under the terms set forth in the 2001 Stock Option Plan or subject to truncation upon cessation of employment as specified in the 2006 Stock Plan (as applicable).
The Compensation Committee recommended these option grants in recognition of efforts made to stabilize the Company and create a reorganization plan involving, among other possible actions, a reverse stock split of our common stock, listing of our common stock on a national stock exchange, spin-out of Antigen Express, Inc., and a rights offering to our stockholders (the “Reorganization Plan”) and as an incentive for the successful implementation of the Reorganization Plan.
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Benefits and Perquisites
Named executives may participate in benefit plans that are offered generally to salaried employees such as short and long term disability, health and welfare benefits, and paid time off.
We provide very limited perquisites. During fiscal 2011, subsequent to his appointment as interim President and Chief Executive Office on September 29, 2010, we provided our President and Chief Executive Officer a car allowance with an estimated value of $800 per month to compensate use of his car for business purposes. During fiscal 2011, up to the dates of their respective terminations on September 29, 2010 and March 25, 2011, respectively, we provided our former President and Chief Executive Officer and our former Chief Operating Officer and Chief Financial Officer a car allowance with an estimated value of $800 per month to compensate use of their cars for business purposes.
We do not offer deferred compensation plans, defined benefit plans, supplemental executive retirement plans, supplemental life insurance, benefit restoration plans, or tax gross-ups on change-in-control benefits.
Employment and Severance Agreements
During fiscal 2011, we had terms of employment covering our President and Chief Executive Officer, as described in “Employment Agreements and Potential Payments Upon Termination or Change-In-Control”, which clarify the terms and conditions of his employment. These terms provide clarity concerning the employment relationship and provide a competitive benefit level to the executive, thus promoting stability at the President and Chief Executive Officer position.
We have agreed to provide severance benefits to the President and Chief Executive Officer as set forth in the terms of his employment. The intent of such severance is to provide the President and Chief Executive Officer with financial security in the event of a covered termination (including change in control) and to thus support executive retention. To be eligible for certain benefits, including cash payments, under these arrangements, a named executive must experience a covered termination, which may include a change in control, a material reduction in executive compensation, a material change in duties, or a material breach in the agreement by Generex, The benefits payable to our President and Chief Executive Officer upon a change in control of Generex require two conditions, or “double triggers,” to be satisfied: the change in control must occur, and the named executive’s employment must be terminated, voluntarily or involuntarily, as a result of such event. Under the terms of employment, our President and Chief Executive Officer would receive a benefit upon a change in control only if he terminates his employment in connection with such event.
As of the end of fiscal 2011, each of the current named executive officers held stock options or restricted stock granted pursuant to either the 2001 Stock Option Plan or the 2006 Stock Plan. The 2001 Plan provides that outstanding options will become immediately exercisable and vested upon a change in control, unless the Board of Directors or its designee determines otherwise. In the event that Generex will not be the surviving corporation, the Board or its designee has flexibility under the 2001 Plan to determine how to treat stock options. The 2001 Plan does not condition the acceleration and vesting of stock options in such an event upon an option holder’s termination of employment; however, the terms of the 2001 Plan provide that, unless otherwise provided by the Board or its designee, an option holder can exercise outstanding options after the date of his or her termination of employment only if the option holder voluntarily terminated employment with Generex or was terminated without cause by Generex. Under the terms of the 2006 Plan, unvested stock options and restricted stock will become exercisable or unrestricted, as applicable, thirty days prior to the change-in-control event and such acceleration is not conditioned upon the termination of a participant’s employment with Generex. The 2006 Plan further provides that if Generex is not the surviving corporation as a result of a change in control, all outstanding options that are not exercised will be assumed by, or replaced with comparable options or rights by, the surviving corporation, and outstanding grants of restricted stock will be converted to similar grants of equity in the surviving corporation.
Tax and Accounting Considerations
The Compensation Committee considers implications of tax and accounting requirements impacting compensation programs from the perspective of the company and the individual named executive officers. The Compensation Committee may also consider sections of the tax code which impact Generex or individual taxpayers. For U.S. taxpayers, the Committee structures its programs to comply with Section 409A of the Internal Revenue Code.
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Given the high individual income tax liabilities which result from the awarding of restricted stock to our executives who are all tax residents of Canada, the Compensation Committee expects to grant future equity awards in the form of stock options for the foreseeable future.
Compensation Committee Report
The Compensation Committee of Generex Biotechnology Corporation has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in Generex’s Annual Report on Form 10-K for the year ended July 31, 2011 and in Generex’s 2012 Proxy Statement.
THE COMPENSATION COMMITTEE
Nola E. Masterson, Chairperson
John P. Barratt
Brian T. McGee
James H. Anderson, Jr.
Executive Compensation Tables
The following executive compensation tables pertain to the fiscal year ended July 31, 2011. Therefore, the tables contain information relating to the named executives who served as of the fiscal year end and refer to the positions held by such named executives as of July 31, 2011. On September 29, 2010, the Board of Directors terminated Ms. Gluskin in her employment as President and Chief Executive and appointed Mark A. Fletcher as interim President and Chief Executive Officer and Secretary. On that date, the Board also appointed John P. Barratt as Chairman of the Board. On March 25, 2011, the Board of Directors terminated Ms. Perri in her employment as Chief Financial Officer and Chief Operations Officer and appointed Mark A. Fletcher as President and Chief Executive Officer, appointed Stephen Fellows as Acting Chief Financial Officer and appointed David Brusegard as Chief Operations Officer.
Summary Compensation Table
The following table provides information concerning compensation of Generex’s named executives for Generex’s last three completed fiscal years ending July 31, 2009, 2010 and 2011. In respect of fiscal years 2009, 2010 and 2011, the named executives did not receive compensation in the form of non-equity incentive plan compensation or changes in pension value or non-qualified deferred compensation earnings. Therefore, the table below does not include columns for these types of compensation.
Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) | All Other Compensation ($) | Total ($) | |||||||||||||||||||||
Anna E. Gluskin | 2011 | S | 87,500 | $ | 0 | $ | 0 | $ | 1,324 | (2) | $ | 556,389 | (3) | S | 645,213 | |||||||||||||
Former President and | 2010 | S | 525,000 | $ | 0 | $ | 0 | $ | 324,468 | (2) | $ | 27,846 | (3) | S | 877,314 | |||||||||||||
Chief Executive Officer | 2009 | $ | 525,000 | $ | 0 | $ | 37,750 | (1) | $ | 9,219 | (2) | $ | 23,991 | (3) | $ | 595,960 | ||||||||||||
Rose C. Perri | 2011 | S | 403,992 | $ | 0 | $ | 0 | $ | 28,603 | (2) | $ | 20,389 | (3) | S | 452,984 | |||||||||||||
Former Chief Operating Officer, | 2010 | S | 420,000 | $ | 0 | $ | 0 | $ | 284,739 | (2) | $ | 27,846 | (3) | S | 732,585 | |||||||||||||
Chief Financial Officer, | 2009 | S | 420,000 | $ | 0 | $ | 33,031 | (1) | $ | 24,583 | (2) | $ | 23,991 | (3) | S | 501,605 | ||||||||||||
Treasurer and Secretary | ||||||||||||||||||||||||||||
Mark A. Fletcher | 2011 | S | 479,642 | (4) | $ | 0 | $ | 0 | $ | 356,660 | (2)(6) | $ | 0 | S | 836,302 | |||||||||||||
President and | 2010 | S | 320,833 | (4) | $ | 225,000 | $ | 0 | $ | 233,970 | (2) | $ | 0 | S | 779,803 | |||||||||||||
Chief Executive Officer | 2009 | $ | 315,000 | (5) | $ | 0 | $ | 18,875 | (1) | $ | 0 | $ | 0 | $ | 333,875 | |||||||||||||
Stephen Fellows | 2011 | S | 212,788 | (7) | $ | 0 | $ | 0 | $ | 81,338 | (2)(6) | $ | 0 | S | 294,126 | |||||||||||||
Acting Chief | 2010 | S | 198,179 | (7) | $ | 0 | $ | 0 | $ | 112,865 | (2)(8) | $ | 0 | S | 311,044 | |||||||||||||
Financial Officer | 2009 | $ | 24,821 | (7) | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 24,821 | ||||||||||||||
David Brusegard | 2011 | S | 161,465 | (9) | $ | 0 | $ | 0 | $ | 41,940 | (6) | $ | 0 | S | 203,405 | |||||||||||||
Chief Operating | 2010 | S | 34,857 | (9) | $ | 0 | $ | 0 | $ | 0 | $ | 0 | S | 34,857 | ||||||||||||||
Officer | 2009 | $ | 0 | (9) | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 |
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*Cash compensation is stated in the table in U.S. dollars. To the extent any cash compensation was paid in Canadian dollars, it has been converted into U.S. dollars based on the average Canadian/U.S. dollar exchange rate for the years ended July 31, 2011, July 31, 2010 and July 31, 2009.
(1) This amount represents the aggregate grant date fair value computed in accordance with FASB ASC Topic 718 with respect to the fiscal years ended July 31, 2010, 2009 and 2008 for restricted stock awards granted in August 2007, a portion of which was in respect of fiscal 2007 and was immediately vested. The fair value is calculated using the closing price of Generex stock on the date of grant. For additional information, refer to Note 15 to our Consolidated Financial Statements included in the Form 10-K for the year ended July 31, 2010 as filed with the SEC. This amount reflects our accounting expense for these awards, and does not correspond to the actual value that will be recognized by the named executives.
(2) This amount reflects the aggregate grant date fair value computed in accordance with FASB ASC Topic 718 for option awards granted in May 2008 and March 2010. Such awards were made pursuant to the 2006 Stock Plan. Specifically, amounts reflected in this column relate to options to purchase shares of common stock granted to Ms. Gluskin (50,000 shares) and Ms. Perri (125,000 shares) on May 27, 2008 and options to purchase shares of common stock granted to Ms. Gluskin (500,000 shares), Ms. Perri (400,000 shares), Mr. Fletcher (300,000 shares) and Mr. Fellows (250,000 shares) on March 8, 2010. The options vest incrementally over two years. The total fair values of the respective option grants are being expensed over the two-year vesting periods for the options. We utilize a closed-form model (Black-Scholes) to estimate the fair value of stock option grants on the date of grant. Assumptions used in the calculation of these amounts are as follows: risk-free interest rate of 0.12%, expected dividend yield of 0.0%, 10 year expected life of options and expected volatility rate of 105.7%. Also included in this column is the incremental fair value, computed as of October 20, 2009 in accordance with FASB ASC Topic 718, with respect to the modified options. While these amounts reflect the aggregate grant date fair value computed in accordance with ASC Topic 718, they may not correspond to the actual value that will be recognized by the option holders. SeeGrants of Plan-Based Awards in Fiscal 2011 for a list of the options for which the expiration dates were extended.
(3) Represent 50% of the management fee paid to the property management company that manages all of our real estate properties and is owned by Ms. Perri, Ms. Gluskin and the estate of Mark Perri, our former Chairman of the Board. In addition, Ms. Gluskin and Ms. Perri each received a car allowance with an estimated value of $800 per month to compensate use of their cars for business purposes, but such amounts have not been included in this column as the total value of such perquisites is less than $10,000 per named executive for fiscal year 2011, 2010 and 2009. The 2011 amount for Ms. Gluskin includes salary continuation payments following termination of her employment on September 29, 2011, payable until December 31, 2011 in the aggregate amount of $525,000 and a car allowance of approximately $11,000 USD paid in Canadian currency.
(4) This amount reflects a base salary of $325,000 earned by the named executive up until September 28, 2010 and a salary increase to $475,000 as approved by the Special Committee of the Board on September 29, 2011. The amount also reflects a car allowance of approximately $11,000 USD per year paid to the executive in Canadian currency.
(5) This amount reflects a base salary of $315,000 earned by the named executive, as approved by the Board on May 6, 2008 effective retroactively to January 1, 2008.
(6) This amount reflects the aggregate grant date fair value computed in accordance with FASB ASC Topic 718 for option awards granted in March 2011. Such awards were made pursuant to the 2001 and 2006 Stock Plans. Specifically, amounts reflected in this column relate to options to purchase shares of common stock Mr. Fletcher (400,000 shares under 2001 Stock Option Plan and 1,100,000 shares under 2006 Stock option Plan), Dr. Brusegard and Mr. Fellows (200,000 shares each under 2001 Stock Option Plan) on March 29, 2011. The options vested upon the grant. We utilize a closed-form model (Black-Scholes) to estimate the fair value of stock option grants on the date of grant. Assumptions used in the calculation of these amounts are as follows: risk-free interest rate of 0.013%, expected dividend yield of 0.0%, 5 year expected life of options and expected volatility rate of 101%.
(7) This amount reflects a base salary of $175,000 earned by the named executive until December 31, 2009, a salary of $200,000 earned by the named executive from January 1, 2010 until December 31, 2010 and a salary increase to $225,000 retroactive as of January 1, 2011 as approved by the Special Committee of the Board on March 25, 2011.
(8) This amount represents the aggregate grant date fair value computed in accordance with FASB ASC Topic 718 with respect to the fiscal years ended July 31, 2011, 2010 and 2009 for options awards granted in October 2009. The total fair values of the respective option grants are being expensed over the four-year vesting periods for the options. We utilize a closed-form model (Black-Scholes) to estimate the fair value of stock option grants on the date of grant. Assumptions used in the calculation of these amounts are as follows: risk-free interest rate of 0.14%, expected dividend yield of 0.0%, 5 year expected life of options and expected volatility rate of 104%.
(9) This amount reflects a base salary of $225,000 earned by the named executive from March 25, 2011, as approved by the Special Committee of the Board on March 25, 2011. Also includes consulting fees paid to named executive in respect to fiscal years ended July 31, 2011 and 2010, prior to his appointment to the position of Chief Operating Officer on March 25, 2011.
Grants of Plan-Based Awards in Fiscal 2011
The following table provides information about equity awards granted to the named executives or modified in the fiscal year ended July 31, 2011, including: (1) the grant date; (2) the number of shares underlying stock options awarded to the named executives, (3) the number of shares underlying existing stock options the terms of which were extended, (4) the exercise price of the stock options awarded or extended, and (5) the grant date fair value of each equity award computed under SFAS 123R.
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Name | Grant Date | All Other Option Awards: Number of Securities Underlying Options (#) | Exercise Price or Base Price of Option Awards ($/Sh) | Grant Date Fair Value of Stock and Option Awards | ||||||||||||
Mark Fletcher, President & Chief Executive Officer | March 25, 2011 | 1,500,000 | (1) | $ | 0.282 | (2) | $ | 0.2097 | (3) | |||||||
Stephen Fellows, Acting Chief Financial Officer | March 25, 2011 | 200,000 | (4) | $ | 0.282 | (2) | $ | 0.2097 | (3) | |||||||
David Brusegard, Chief Operating Officer | March 25, 2011 | 200,000 | (4) | $ | 0.282 | (2) | $ | 0.2097 | (3) |
(1) | The options were granted on March 25, 2011 pursuant to the terms of our 2006 Stock Plan (1,100,000 options) and pursuant to the terms of our 2001 Stock Option Plan (400,000). The options vested immediately upon the date of the grant. |
(2) | The options have an exercise price equal to the official closing price of our common stock on OTC bulletin board on the date of grant ($0.282 per share). |
(3) | This column shows fair value of the options calculated using the Black Scholes value on the grant date of $0.2097. See note 4 of the Summary Compensation Table for a discussion of fair value calculation related to the options and the valuation assumptions made with respect to the options. |
(4) | The options were granted on March 25, 2011 pursuant to the terms of our 2001 Stock Option Plan. The options vested immediately upon the date of the grant. |
Compensation Elements; Employment Agreements and Agreements Providing Payments Upon Retirement, Termination or Change in Control for Named Executives
Historically, the key components of our executive compensation have been base salary, cash bonuses, and equity incentives, including stock bonuses, restricted stock, and stock options awarded at the discretion of our Compensation Committee and Board of Directors. As a development stage company, we have reviewed compensation of our executive management team from time to time and at the discretion of the Compensation Committee when warranted by our financial condition and achievement of our business goals.
Set forth below are the material terms of employment for the President and Chief Executive Officer as of the end of fiscal 2011. The terms of employment provide for certain payments upon retirement, termination or change in control. Such benefits are in addition to benefits available generally to salaried employees who joined the company prior to 2011, such as distributions under the 401(k) savings plan, disability and death benefits and accrued vacation pay.
Terms of Employment for Mr. Fletcher
On March 17, 2003, our Board of Directors approved the terms and conditions of Mr. Fletcher’s employment, prior to his joining Generex on or about April 21, 2003. Pursuant to the terms of his employment, Mr. Fletcher holds the position of Executive Vice President and General Counsel. Subject to termination in accordance with the terms and conditions of his employment, Mr. Fletcher's term of service extends through March 16, 2008, which term has not been formally extended to date. Mr. Fletcher is entitled to receive annual base compensation and may receive additional cash bonuses at the discretion of the Board of Directors.
On September 29, 2010, Generex and Mr. Fletcher agreed to amend the terms of Mr. Fletcher’s employment to provide that the replacement of Ms. Gluskin as a director or Chief Executive Officer will not constitute a “change of control” and to provide for an increase in Mr. Fletcher’s base salary (to $475,000) upon his appointment as interim Chief Executive Officer. Under the terms of his employment with Generex, Mr. Fletcher is entitled to receive annual base compensation and may receive additional cash bonuses at the discretion of the Board.
The terms of his employment provide that Mr. Fletcher will be bound by standard restrictive covenants prohibiting him from disclosing confidential information about Generex. Either party may give at least 12 months’ notice of non-renewal of the term; if such notice is not given, the term of employment will be indefinite.
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Generex may terminate its obligations with respect to Mr. Fletcher’s employment as follows:
(i) | upon 30 days written notice; |
(ii) | for “cause”; |
(iii) | in the event of Mr. Fletcher’s disability; |
(iv) | in the event of Mr. Fletcher’s death; or |
(v) | in the event of Mr. Fletcher voluntarily resigning. |
Mr. Fletcher may terminate his obligations upon 30 days written notice upon:
(a) | a material change in his duties, |
(b) | a material reduction in compensation, |
(c) | a material breach or default by Generex, or |
(d) | a change in control of Generex. |
In the event that Mr. Fletcher terminates his employment voluntarily (and not under the circumstances described in (a), (b), (c) or (d) above) or Generex terminates his employment under the circumstances described in (ii), (iii), (iv) or (v) above, Mr. Fletcher will be entitled only to that portion of his base salary due and owing as of his last day worked, less any amounts owed to Generex. Under these circumstances, he will not be entitled to any bonus or incentive compensation.
If Generex terminates Mr. Fletcher’s employment under the circumstance described in (i) above (and not for cause, disability or death) or Mr. Fletcher gives notice of termination pursuant to (a), (b), (c) or (d) above, Mr. Fletcher will be entitled to receive a lump sum severance payment on the termination date in an amount equal to 18 months of base salary plus the average annual bonus paid to him during each fiscal year of the term of his employment and he will be entitled to participate in and receive benefits for 18 months after the termination date. Mr. Fletcher will have 90 days after the eighteenth month anniversary of the termination date to exercise vested options, and all unvested options that he holds will accelerate and fully vest on the termination date. He has no duty to mitigate his damages based on the termination of employment.
Terms of Employment Termination for Ms. Gluskin and Ms. Perri
On September 29, 2010 Anna E. Gluskin was terminated as President and Chief Executive Officer. Per the terms of separation agreed to by Ms. Gluskin and the Company, Ms. Gluskin's salary will be continued through December 31, 2011. The Company is not required to make any additional payments to Ms. Gluskin.
On March 25, 2011, our Board of Directors terminated Ms. Perri in her employment as Chief Financial Officer and Chief Operations Officer. We have not provided Ms. Perri with any payments given the litigation involving Ms. Perri which is further described under the caption “Dispute with Former Officer” underPart I, Item 3. Legal Proceedings of our Annual Report on Form 10-K which was filed on October 14, 2011.
Outstanding Equity Awards at 2011 Fiscal Year-End
The following table provides information on the current holdings of stock option by the named executives. This table includes unexercised and unvested option awards as of July 31, 2011. Each equity grant is shown separately for each named executive. The vesting schedule for each outstanding award is set forth in the footnotes to the table. We do not have any current “stock awards” or “equity incentive plans” as defined in Regulation S-K Item 402(a)(6)(iii); thus, the columns relating to stock awards and equity incentive awards are not included in the table below.
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Option Awards | ||||||||||||||||||||
Name | Grant Date | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($) | Option Expiration Date | |||||||||||||||
Mark E. Fletcher, | 3-25-2011 | 1,500,000 | (1) | 0 | $ | 0.282 | 3-25-2016 | |||||||||||||
Executive Vice President | 3-8-2010 | 300,000 | (2) | 0 | $ | 0.64 | 3-8-2020 | |||||||||||||
and General Counsel | 12-13-2004 | 250,000 | (3) | 0 | $ | 0.61 | 10-26-2014 | |||||||||||||
4-5-2005 | 327,869 | (4) | 0 | $ | 0.001 | 10-26-2014 | ||||||||||||||
4-5-2005 | 142,857 | (5) | 0 | $ | 0.001 | 10-26-2014 | ||||||||||||||
Stephen Fellows, Acting Chief Financial Officer | 3-25-2011 | 200,000 | (1) | 0 | $ | 0.282 | 3-25-2016 | |||||||||||||
3-8-2010 | 250,000 | (2) | 0 | $ | 0.64 | 3-8-2020 | ||||||||||||||
10-10-2009 | 35,000 | (6) | 26,250 | $ | 0.642 | 10-10-2014 | ||||||||||||||
David Brusegard, Chief Operating Officer | 3-25-2011 | 200,000 | (1) | 0 | $ | 0.282 | 3-25-2016 |
Note: All outstanding options previously held by our former President and Chief Executive Officer and our former Chief Financial Officer and Chief Operations Officer were cancelled effective as of their respective dates of termination.
(1)These options were granted on March 25, 2011. The grants were made pursuant to the terms of our 2001 and 2006 Stock Plans. Specifically, amounts reflected in this column relate to options to purchase shares of common stock Mr. Fletcher (400,000 shares under 2001 Stock Option Plan and 1,100,000 shares under 2006 Stock option Plan), Dr. Brusegard and Mr. Fellows (200,000 shares each under 2001 Stock Option Plan). The exercise price per share is equal to the closing price of Generex common stock on March 25, 2011. These options were exercisable immediately upon their grant
(2)These options were granted on March 8, 2010. The grants were made pursuant to the terms of our 2006 Stock Plan. The exercise price per share is equal to the closing price of Generex common stock on March 8, 2010. The options vested as follows: 33% of the options were exercisable on the date of grant; 33% of the options became exercisable on August 1, 2010, and the remaining 33% of the options became exercisable on August 1, 2011.
(3) These stock options were approved by the Board of Directors on April 5, 2005 with an effective grant date of December 13, 2004. The exercise price per share is equal to the closing price of Generex common stock on December 13, 2004. These options were exercisable immediately upon their grant. The fair value of Generex common stock on April 5, 2005 was $0.56 per share. The expiry date of these options was extended in October 2009 to October 26, 2014.
(4) These options were granted to Mr. Fletcher representing a bonus of $200,000 awarded to Mr. Fletcher on April 5, 2005. The number of shares awarded was calculated using the closing price of the common stock on The NASDAQ Capital Market on December 13, 2004 ($0.61 per share). The options were immediately exercisable on the date of grant. They were issued under the 2001 Plan. The fair value of Generex common stock on April 5, 2005 was $0.56 per share. The expiry date of these options was extended in October 2009 to October 26, 2014.
(5) These options were issued to Mr. Fletcher on April 5, 2005 in satisfaction of retroactive salary adjustment as of August 1, 2004 and unpaid salary amounts accrued through March 31, 2005 ($80,000). The number of shares was calculated using the closing price of the common stock on the NASDAQ Capital Market on April 4, 2005 ($0.56 per share). The options were immediately exercisable on the date of grant and were issued under the 2001 Plan. The expiry date of these options was extended in October 2009 to October 26, 2014.
(6)These options were granted on October 10, 2009. The grants were made pursuant to the terms of our 2006 Stock Plan. The exercise price per share is equal to the closing price of Generex common stock on October 10, 2009. The options vest equally over a four-year period starting with the first anniversary of the grant on October 10, 2010.
Option Exercises and Stock Vested in Fiscal Year 2011
In January 2011, Ms. Perri exercised 576,752 options with an exercise price of $0.001 per share which were granted on December 13, 2004. None of the named executive officers exercised any outstanding options in fiscal year 2011.
There was no vesting of restricted stock awards during fiscal year 2011 for any of the named executive officers.
Other Benefit Plans
We have no defined benefit or actuarial pension plans.
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Potential Payments Upon Termination or Change-in-Control
The following table shows potential payments to our named executives under existing employment agreements, plans or arrangements, whether written or unwritten, for various scenarios involving termination of employment or a change in control, assuming termination on July 31, 2011 and, if applicable, based upon the closing stock price of Generex common stock on that date. These benefits are in addition to benefits available generally to salaried employees who joined the company prior to 2011, such as distributions under the 401(k) savings plan, disability and death benefits and accrued vacation pay.
The following table provides the intrinsic value (that is, the value based upon Generex’s stock price, and in the case of options minus the exercise price) of equity awards that would become exercisable or vested if the named executive had died or become disabled or been terminated as of July 31, 2011.
The terms of employment for Mr. Fletcher do not provide specific definitions for the various termination events. For the purposes of the table, below are the standard definitions for certain termination events as defined in the Amended Generex 2001 Stock Option Plan, which we refer to as the “2001 Plan,” and the Amended and Restated 2006 Stock Plan, which refer to as the “2006 Plan.”
"Cause" means that a named executive has:
(i) | breached his or her employment or service contract with Generex; |
(ii) | engaged in disloyalty to Generex, including, without limitation, fraud, embezzlement, theft, commission of a felony or proven dishonesty in the course of his or her employment or service; |
(iii) | disclosed trade secrets or confidential information of Generex to persons not entitled to receive such information; |
(iv) | breached any written confidentiality, non-competition or non-solicitation agreement between the named executive and Generex; or |
(v) | has engaged in such other behavior detrimental to the interests of Generex as determined by the Compensation Committee. |
“Change in Control” means any of the following:
(i) | a liquidation or dissolution of Generex, |
(ii) | a sale of all or substantially all of Generex’s assets, |
(iii) | a merger in which Generex’s stockholders hold less than a majority of the voting stock in the surviving corporation, or |
(iv) | when a person or group acquires control of a significant percentage of the voting stock without the approval of the Board of Directors (20% under the 2001 Plan and 50% or more under the 2006 Plan). |
“Disability" means being unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months.
There are no existing employment agreements, plans or arrangements, whether written or unwritten, for various scenarios involving termination of employment or a change in control governing Mr. Fellows’ and Dr. Brusegard’s employment. There are no benefits made available to them which are in addition to benefits available generally to salaried employees who joined the company prior to 2011 and as such neither Mr. Fellows, nor Dr. Brusegard are included in the table below.
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Potential Payments Upon Termination or Change in Control for Named Executives as of July 31, 2011
Name | Benefit | Cause | Without Cause/Non- Renewal | Voluntary Termination by Executive | Breach by Generex (1) | Change in Control | Disability | Death | ||||||||||||||||||||||||
Mark A. Fletcher | Cash Payment | $ | 0 | $ | 1,015,745 | (4) | $ | 0 | $ | 1,015,745 | (4) | $ | 1,015,745 | (4) | $ | 0 | (10) | $ | 0 | (10) | ||||||||||||
Stock | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||||||
Stock Options | $ | 67,031 | (2) | $ | 67,031 | (3),(9) | $ | 67,031 | (3) | $ | 67,031 | (3),(9) | $ | 67,031 | (8) | $ | 67,031 | (5) | $ | 67,031 | (6) | |||||||||||
Restricted Stock (11) | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||||||
Benefits | $ | 0 | $ | 0 | (7),(4) | $ | 0 | (7) | $ | 0 | (7),(4) | $ | 0 | (7),(4) | $ | 0 | $ | 0 | ||||||||||||||
Total | $ | 67,031 | $ | 1,082,776 | $ | 67,031 | $ | 1,082,776 | $ | 1,082,776 | $ | 67,031 | $ | 67,031 |
(1) | This termination event includes a material change in duties or material reduction in remuneration of such named executive. |
(2) | The options granted on April 5, 2005 (including those effective as of December 13, 2004) survive termination of the named executive’s employment. Other options granted to the named executive pursuant to the 2001 Plan and any options granted pursuant to the 2006 Plan would terminate immediately - and shares underlying such options forfeited - upon the named executive’s termination for cause. |
(3) | The 2001 and 2006 Plans permit a named executive who voluntarily terminates employment with Generex or whose employment is terminated without cause to exercise vested options outstanding at the date of termination for a period of up to 90 days thereafter or the expiration date of the option, whichever is earlier. |
(4) | Pursuant to his employment arrangement, if Generex terminates Mr. Fletcher’s employment upon written notice (and not for cause, disability or death) or Mr. Fletcher gives notice of termination pursuant to a material change in duties, reduction of remuneration, material default or breach by Generex or change in control of Generex, Mr. Fletcher will be entitled to receive a lump sum severance payment on the termination date in an amount equal to 18 months of base salary plus the average annual bonus paid to him during each fiscal year of the term of his employment and he will be entitled to participate in and receive benefits for 18 months after the termination date. |
(5) | The 2001 and 2006 Plans permit a named executive to exercise vested options outstanding at the time of the named executive’s cessation of employment due to disability for a period of up to one year thereafter or the expiration of the option, whichever is earlier. |
(6) | The 2001 and 2006 Plans permit a named executive’s beneficiary to exercise vested options outstanding at the time of the named executive’s death for a period of up to one year after death or the expiration date of the option, whichever is earlier. |
(7) | The named executive would be entitled to receive health benefits for a period of 18 months after termination of employment. Since these benefits are widely available to salaried employees of Generex, they are excluded from the table above. The total aggregate value of these benefits in each case is below $8,000. |
(8) | Upon a change of control, the 2001 and 2006 Plan provide for the acceleration of exercisability and vesting of any outstanding options and removal of all restrictions and conditions on outstanding restricted stock awards, unless otherwise determined by the Board of Directors or its designee. We have assumed for purposes of this column that the named executive will exercise all of his/her fully exercisable and vested options and will receive all shares underlying restricted stock awards in connection with a change of control of Generex, which we have assumed occurred on July 31, 2011. |
(9) | Pursuant to the terms of his employment with Generex, if Generex terminates Mr. Fletcher’s employment upon written notice (and not for cause, disability or death) or Mr. Fletcher gives notice of termination pursuant to a material change in duties, reduction of remuneration, material default or breach by Generex or change in control of Generex, Mr. Fletcher will have 90 days after the eighteenth month anniversary of the termination date to exercise vested options. |
(10) | Each named executive is entitled to receive monthly disability payments and his/her survivor(s) are entitled to receive a lump sum payment upon such named executive’s death, in either case up to an amount equal to his/her annual base salary or $100,000, whichever is less. Insurance premiums are paid by Generex and such insurance coverage is widely available to all salaried employees at Generex. Thus, the amounts payable upon the disability or death of the named executive (as well as the premiums paid by Generex) are excluded from the table above. |
(11) | The restricted stock award agreement with the named executive officers provides that in the event the named executive ceases to be employed by, or provide service to us, any unvested shares of restricted stock will be immediately forfeited. There was no unvested restricted stock as of July 31, 2011. |
On September 29, 2010 Anna E. Gluskin was terminated as President and Chief Executive Officer. Payments made to Ms. Gluskin in connection with her termination are further described underItem 11.Compensation Elements; Employment Agreements and Agreements Providing Payments Upon Retirement, Termination or Change in Control for Named Executives.
On March 25, 2011, our Board of Directors terminated Ms. Perri in her employment as Chief Financial Officer and Chief Operations Officer. We have not provided Ms. Perri with any payments given the litigation involving Ms. Perri which is further described under the caption “Dispute with Former Officer” underPart I, Item 3. Legal Proceedings of our Annual Report on Form 10-K which was filed on October 14, 2011.
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RATIFICATION OF THE APPOINTMENT OF MSCM LLP
AS GENEREX’S INDEPENDENT PUBLIC ACCOUNTANTS FOR FISCAL YEAR 2011
(Item 2 on the Proxy Card)
What am I voting on?
The Audit Committee of the Board of Directors has selected MSCM LLP as the independent public accountants to examine the financial statements of Generex and its subsidiaries for the fiscal year ending July 31, 2012. The Board of Directors has concurred in the Audit Committee’s selection and is presenting the matter to the stockholders for ratification at the annual meeting. MSCM LLP has served as our independent auditors since September 5, 2008.
Why is ratification of the selection of MSCM LLP necessary?
Stockholder ratification of the selection of MSCM LLP as our independent auditors is not required by our bylaws or otherwise. However, we are submitting the selection of MSCM LLP to the stockholders for ratification as a matter of good corporate practice. If the stockholders fail to ratify the selection, the Audit Committee will reconsider whether or not to retain MSCM LLP. Even if the selection is ratified, the Audit Committee in its discretion may direct the appointment of a different independent audit firm at any time during the year if it is determined that such a change would be in the best interests of us and our stockholders.
What is the relationship of MSCM LLP to Generex’s former independent auditors, Danziger Hochman Partners LLP?
MSCM LLP is the successor to our former independent auditors, Danziger Hochman Partners LLP, following MSCM LLP’s merger with Danziger Hochman Partners LLP in September 2008. Danziger Hochman Partners LLP served as our independent auditors from February 1, 2006 until September 5, 2008.
On July 28, 2008, we received notice of the merger of Danziger Hochman Partners LLP with MSCM LLP, to be effective as of August 1, 2008. The merger of Danziger Hochman Partners LLP and MSCM LLP did not close until the week of September 15, 2008. On September 5, 2008, the Audit Committee received an engagement letter from MSCM LLP and approved the engagement of MSCM LLP as Danziger Hochman Partners LLP’s successor to continue as our independent registered public accountant for the fiscal year ending July 31, 2008.
The reports of Danziger Hochman Partners LLP on our financial statements for the fiscal years ended July 31, 2007 and 2006 did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope, or accounting principles.
During our fiscal years ended July 31, 2008 and 2007 and the subsequent interim period through September 5, 2008, the date on which the Audit Committee approved the engagement of MSCM LLP and Danziger Hochman Partners LLP ceased being our independent auditors, there were no disagreements between us and Danziger Hochman Partners LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Danziger Hochman Partners LLP, would have caused Danziger Hochman Partners LLP to make reference to the subject matter of the disagreements in connection with its audit reports on our financial statements. During our past fiscal years ended July 31, 2008 and 2007 and the interim period through September 5, 2008, Danziger Hochman Partners LLP did not advise us of any of the matters specified in Item 304(a)(1)(v) of Regulation S-K.
During our fiscal years ended July 31, 2008 and 2007 and the subsequent interim period through September 5, 2008, we had no consultations with MSCM LLP regarding (a) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our consolidated financial statements as to which we received a written report or oral advice that was an important factor in reaching a decision on any accounting, auditing or financial reporting issue; (b) any matter that was the subject of a disagreement, as defined in Item 304(a)(1)(iv) of Regulation S-K, or (c) any matter that was the subject of a reportable event, as defined in Item 304(a)(1)(v) of Regulation S-K.
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What services will the independent registered public accounting firm provide?
Audit services provided by MSCM LLP for fiscal year 2012 will include the examination of the consolidated financial statements of Generex and services related to periodic filings made with the SEC. Audit services for fiscal year 2011 also will include the audit of the effectiveness of the company’s internal control over financial reporting as required by Section 404 of the Sarbanes-Oxley Act of 2002. Additionally, MSCM LLP may provide audit-related, tax and other services comparable in nature to the services that it performed in fiscal 2011, 2010 and 2009, as described below under the heading “Audit Matters” and the subheading “Fees Paid to Generex’s Independent Public Accountants.”
Will representatives of the independent registered public accounting firm be present at the 2012 annual meeting?
Representatives of MSCM LLP are expected to be present at the meeting, will have an opportunity to make a statement if they so desire and will be available to respond to appropriate questions.
How does the Board of Directors recommend that I vote?
We recommend that you voteFor the ratification of the appointment of MSCM LLP as Generex’s independent registered public accounting firm for fiscal year 2012.
AUDIT MATTERS
MSCM LLP ("MSCM") has served as our independent auditors since September 5, 2008. The appointment of MSCM as our independent public accountants was unanimously approved by the Audit Committee of our Board of Directors. MSCM is the successor to our former independent auditors, Danziger Hochman Partners LLP (“Danziger Hochman”), following MSCM’s merger with Danziger Hochman in September 2008. Danziger Hochman served as our independent auditors from February 1, 2006 until September 5, 2008.
Fees Paid to Generex’s Independent Public Accountants
The following table sets forth the aggregate fees paid by Generex for the fiscal years ended July 31, 2011 and 2010 to our independent auditors:
Fiscal Year Ended July 31, 2011 | Fiscal Year Ended July 31, 2010 | |||||||
Audit Fees | $ | 231,018 | (1) | $ | 220,983 | (1) | ||
Audit-Related Fees | $ | 70,455 | (2) | $ | 128,867 | (2) | ||
Tax Fees | $ | -0- | (3) | $ | -0- | (3) | ||
All Other Fees | $ | 27,679 | (4) | $ | 11,923 | (5) | ||
TOTAL | $ | 329,152 | $ | 361,773 |
_______________________
(1) | Represents charges of MSCM LLP, Generex's auditors for the financial statement audits of the fiscal years ended July 31, 2011 and 2010, including fees associated with quarterly reviews of financial statements included in Generex’s Form 10-Q. |
(2) | Represents charges of MSCM LLP, Generex's auditor in the fiscal years ended July 31, 2011 and 2010 for Sarbanes-Oxley Section 404 audit of internal controls over financial reporting. |
(3) | MSCM LLP did not provide and did not bill for any tax services. |
(4) | Represents fees associated with preliminary audit work related to Generex’s preparation of Antigen financial statements in anticipation of the proposed Antigen spinout. |
(5) | Represents fees associated with review of responses to comments of the SEC Staff and review of financial statements included in Form S-8. |
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Policy for Pre-Approval of Audit and Non-Audit Services
The Audit Committee’s policy is to pre-approve all audit services and all non-audit services that Generex’s independent auditor is permitted to perform for Generex under applicable federal securities regulations. As permitted by the applicable regulations, the Audit Committee’s policy utilizes a combination of specific pre-approval on a case-by-case basis of individual engagements of the independent auditor and general pre-approval of certain categories of engagements up to predetermined dollar thresholds that are reviewed annually by the Audit Committee. Specific pre-approval is mandatory for the annual financial statement audit engagement, among others.
The pre-approval policy was implemented effective as of October 30, 2003. All engagements of the independent auditor to perform any audit services and non-audit services since that date have been pre-approved by the Audit Committee in accordance with the pre-approval policy. The policy has not been waived in any instance. All engagements of the independent auditor to perform any audit services and non-audit services prior to the date the pre-approval policy was implemented were approved by the Audit Committee in accordance with its normal functions.
Report of the Audit Committee
The Audit Committee reviewed and discussed Generex's audited financial statements for the fiscal year ended July 31, 2011 with management. The Audit Committee discussed with MSCM LLP, Generex's independent public accountants for the fiscal year ended July 31, 2011, the matters required to be discussed by Statement on Auditing Standards No. 61, as amended as adopted by the Public Company Accounting Oversight Board in Rule 3200T. The Audit Committee received the written disclosures and the letter from MSCM LLP required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the Audit Committee concerning independence, and has discussed with MSCM LLP its independence. Based on the review and discussions described above, among other things, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in Generex's Annual Report on Form 10-K for the fiscal year ended July 31, 2011 for filing with the Securities and Exchange Commission.
Submitted by the Audit Committee
Brian T. McGee (Chairman)
John P. Barratt
Nola E. Masterson
The foregoing Report of the Audit Committee shall not be deemed to be soliciting material, to be filed with the SEC or to be incorporated by reference into any of Generex's previous or future filings with the SEC, except as otherwise explicitly specified by Generex in any such filing.
OTHER MATTERS
The Generex board of directors is not aware of any other business that may be brought before the special meeting.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table on the following pages sets forth information regarding the beneficial ownership of the common stock by our named executive officers and directors (including persons who served as named executive officers as of the end of the fiscal year ended July 31, 2011) and all the named executives and directors as a group. We are not aware of any person or group that beneficially owns more than five percent of our outstanding shares of common stock.
The information contained in these tables is as of May 2, 2012. At that date, we had 343,474,558 shares of common stock outstanding.
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.
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Except as otherwise indicated, the address of each person named in the table below is c/o Generex Biotechnology Corporation, 33 Harbour Square, Suite 202, Toronto, Canada M5J 2G2.
Beneficial Ownership
Name of Beneficial Owner | Number of Shares | Percent of Class | ||||||
Named Executives, Directors and Nominees | ||||||||
John P. Barratt (1) | 1,025,714 | * | ||||||
Mark Fletcher (2) | 2,806,803 | * | ||||||
Stephen Fellows (3) | 467,500 | * | ||||||
Nola Masterson (4) | 350,000 | * | ||||||
Brian T. McGee (5) | 755,714 | * | ||||||
Dr. David Brusegard (6) | 231,295 | * | ||||||
Dr. James Anderson | 0 | * | ||||||
Eric von Hofe, Ph.D. (7) | 395,000 | * | ||||||
Named Executives and Directors as a group (10 persons) | 6,032,025 | 1.7 | % |
* Less than 1%.
(1) Includes 70,000 shares, 70,000 shares issuable upon stock options granted on October 26, 2004, 100,000 shares issuable upon exercise of stock options granted on April 5, 2005 under the 2001 Plan, 35,714 shares issuable upon exercise of stock options granted on April 5, 2005 under the 2001 Plan received in lieu of cash compensation, 100,000 options which were granted on March 8, 2010 under 2006 Plan and 150,000 shares of restricted stock awarded on May 30, 2006 under the 2006 Plan. Also includes 400,000 options issued March 25, 2011 under the 2001 Stock Option Plan and 100,000 options issued March 25, 2011 under the 2006 Stock Option Plan.
(2) Includes 286,077 shares, 250,000 shares issuable upon exercise of stock options granted on April 5, 2005 with an effective date of December 13, 2004 under the 2001 Plan, 470,726 shares issuable upon exercise of stock options granted on April 5, 2005 under the 2001 Plan, 300,000 options which were granted on March 8, 2010 under 2006 Plan and 175,000 shares of restricted stock granted in August 2007 under the 2006 Stock Plan, which shares were vested as of August 17, 2009. Also includes 400,000 options issued March 25, 2011 under the 2001 Stock Option Plan and 1,100,000 options issued March 25, 2011 under the 2006 Stock Option Plan.
(3) Includes 250,000 options which were granted on March 8, 2010 under the 2006 Plan, 17,500 vested options of 35,000 options which were granted on October 10, 2009 under the 2006 Plan and 200,000 options issued March 25, 2011 under the 2001 Stock Option Plan.
(4) Includes 100,000 options which were granted on March 8, 2010 under 2006 Plan, 50,000 shares of restricted common stock granted to Ms. Masterson on August 17, 2007 under the 2006 Plan and 200,000 options issued March 25, 2011 under the 2001 Stock Option Plan.
(5) Includes 70,000 shares issuable upon exercise of stock options granted on October 26, 2004, 100,000 shares issuable upon exercise of stock options granted on April 5, 2005 under the 2001 Plan, 35,714 shares issuable upon exercise of stock options granted on April 5, 2005 under the 2001 Plan received in lieu of cash compensation, 100,000 options which were granted on March 8, 2010 under the 2006 Plan and 150,000 shares of restricted stock awarded on May 30, 2006 under the 2006 Plan. Also includes 100,000 shares acquired in February and March 2006 and 200,000 options issued March 25, 2011 under the 2001 Stock Option Plan.
(6) Includes 31,295 shares of common stock held by Dr. Brusegard and 200,000 options issued March 25, 2011 under the 2001 Stock Option Plan.
(7) Includes 10,000 shares of common stock held by Dr. von Hofe awarded on March 5, 2007 under the 2006 Plan. Also includes 100,000 shares issuable upon exercise of stock options granted on October 26, 2004, 35,000 shares issuable upon exercise of stock options granted on July 29, 2005, 50,000 vested options of 100,000 options which were granted on October 10, 2009 under the 2006 Plan and 200,000 options issued March 25, 2011 under the 2001 Stock Option Plan.
Changes in Control
We know of no arrangements, including any pledge by any person of our securities, the operation of which may at a subsequent date result in the change in control of Generex.
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CERTAIN TRANSACTIONS
Changes in Control
We know of no arrangements, including any pledge by any person of our securities, the operation of which may at a subsequent date result in the change in control of Generex.
Certain Relationships and Related Transactions
Review of Related Party Transactions
We presently have a policy requiring approval by stockholders or by a majority of disinterested directors of transactions in which one of our directors has a material interest apart from such director's interest in Generex. We also have a policy requiring the approval by the Audit Committee for any transactions in which a director or an executive officer has a material interest apart from such director's or officer’s interest in Generex.
Related Transactions
On December 9, 2005, our Board of Directors approved the grant to Ms. Perri of a right of first refusal in respect of any sale, transfer, assignment or other disposition of either or both real properties municipally known as 1740 Sismet Road, Mississauga, Ontario and 98 Stafford Drive, Brampton, Ontario (collectively, the “Properties”). We granted Ms. Perri this right in recognition of the fair market value transfer to us during the fiscal year ended July 31, 1998 by Ms. Perri (or parties related to her) of the Properties. In June 2011, we listed these real properties for sale and received third party offers for such properties which we accepted conditionally based on Ms. Perri’s existing right of first refusal. Ms. Perri exercised her right of first refusal and the sale of these real properties to Ms. Perri closed on August 26, 2011 on the same terms as the original third party offer.
Through April 20, 2011, we used a management company to manage all of our real properties. The property management company is owned by Rose Perri, Anna Gluskin and the estate of Mark Perri. Ms. Perri and Ms. Gluskin are former executive officers of Generex. In the nine-month period ended April 30, 2011 and the fiscal years ended July 31, 2010 and July 31, 2009, we paid the management company $40,778, $55,691 and $47,981, respectively, in management fees. We believe that the amounts paid to the management company approximate the rates that would be charged by a non-affiliated property management company. On April 20, 2011, we formally terminated the relationship, and no further property management fees will be paid to this company.
During the period from June 2005 to November 2010, Generex paid Time Release Corp. an aggregate amount of approximately $1,030,000. During the period from 2006 to 2008, Time Release, at the direction of Ms. Perri, made payments of at least $285,000 of the funds received from Generex to Angara Investments Limited and directed certain additional payments to Golden Bull Estates Ltd. Angara Investments is believed to be owned and controlled by Ms. Perri and Ms. Gluskin, former executive officers and directors of Generex. Golden Bull Estates is controlled by Ms. Perri. The payments to Time Release were discovered following the termination of Ms. Perri and were not approved by the Board of Directors of Generex, or any committee thereof, at any time.
During the period from September 2006 through February 2010, Generex made payments in excess of $700,000 to an Ecuadorian corporation, MediExpress S.A., at the direction of Ms. Perri. Generex also paid approximately $385,000 to the principal of MediExpress during the period from August 2004 to December 2010 at the direction of Ms. Perri. We are aware that Ms. Perri had other business relationships with Medi-Express’ principal, and we have not been able to determine what business purpose of Generex was served by these payments
The Special Committee of independent members of the Board of Directors retained outside counsel to investigate the foregoing payments. Based on the foregoing payments and other actions of Ms. Perri discovered following her termination, Generex has filed a counterclaim to litigation commenced by Ms. Perri against Generex. See the discussion under the caption “Dispute with Former Officer” underPart I, Item 3. Legal Proceedings of our Annual Report on Form 10-K which was filed on October 14, 2011.
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SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires that Generex's directors and executive officers, and any persons who own more than ten percent (10%) of Generex's common stock, file with the Securities and Exchange Commission (the “SEC”) initial reports of ownership and reports of changes in ownership of common stock and other equity securities of Generex. Such persons are required by SEC regulations to furnish Generex with copies of all such reports that they file. To the knowledge of Generex, based upon its review of these reports, all Section 16 reports required to be filed by its directors and executive officers during the fiscal year ended July 31, 2011 were filed on a timely basis, with the exception of the Initial Statements of Beneficial Ownership of Securities on Form 3 for Eric von Hofe and James H. Anderson, Jr. upon their appointment to the Generex board of directors on June 8, 2011 and the Statements of Changes in Beneficial Ownership of Securities on Form 4 filed on April 25, 2011 on behalf of each of the persons named below, which reports belatedly disclosed the Board of Directors’ granting of stock options as follows:
Name of Executive Officer or Director | No. of Shares of Common Stock Underlying Option | Exercise Price per Share | Grant Date | Expiration Date | ||||||||||||
Mark Fletcher | 1,500,000 | $ | 0.282 | 03/25/11 | 03/25/15 | |||||||||||
John P. Barratt | 500,000 | $ | 0.282 | 03/25/11 | 03/25/15 | |||||||||||
Brian T. McGee | 200,000 | $ | 0.282 | 03/25/11 | 03/25/15 | |||||||||||
Nola E. Masterson | 200,000 | $ | 0.282 | 03/25/11 | 03/25/15 |
The Initial Statements of Beneficial Ownership of Securities on Form 3 for Eric von Hofe and James H. Anderson, Jr. were filed on October 26, 2011.
OTHER INFORMATION
Annual Report
Copies of our Annual Report on Form 10-K for the fiscal year ended July 31, 2011, as amended (without exhibits or documents incorporated by reference therein), are available without charge to stockholders upon written request to the Secretary of Generex at Generex Biotechnology Corporation, 33 Harbour Square, Suite 202, Toronto, Ontario, Canada M5J 2G2, by calling 416-364-2551 or via the Internet atwww.generex.com.
Stockholders are referred to the report for financial and other information about Generex, but such report is not incorporated in this proxy statement and is not a part of the proxy soliciting material.
Stockholder Proposals for the Next Annual Meeting
Any proposals of stockholders intended to be presented at the 2013 annual meeting of stockholders must be received by Generex at 33 Harbour Square, Suite 202, Toronto, Ontario, Canada M5J 2G2, no later than December 23, 2012 in order to be included in the proxy materials and form of proxy relating to such meeting. It is suggested that stockholders submit any proposals by an internationally recognized overnight delivery service to the Secretary of Generex at its principal executive offices located at 33 Harbour Square, Suite 202, Toronto, Ontario, Canada M5J 2G2. Such proposal must meet the requirements set forth in the rules and regulations of the SEC in order to be eligible for inclusion in the proxy materials for such meeting. The 2013 annual meeting is tentatively scheduled to take place in June 2013.
For business to be properly brought before the 2013 annual meeting by a stockholder in a form other than a stockholder proposal requested to be included in Generex’s proxy materials, any stockholder who wishes to bring such business before the annual meeting of stockholders must give notice of such business in writing to the Secretary of Generex not less than 60 nor more than 90 days prior to the annual meeting. In the event that less than 70 days’ notice or prior disclosure of the date of the meeting is given or made to stockholders, notice of such business to be timely must be received by the Secretary of Generex 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. The stockholder's notice of such business must provide information about the stockholder proposing such business and the nature the business, as required by Generex's bylaws. A copy of these bylaw requirements will be provided upon request in writing to Mark Fletcher, Secretary, at the principal offices of Generex.
If there should be any change in the foregoing submission deadlines, Generex intends to publicly disseminate information concerning the change.
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Appendix A
GENEREX BIOTECHNOLOGY CORPORATION
AUDIT COMMITTEE CHARTER
The Audit Committee (the "Committee") is appointed by the Board of Directors (the "Board") to assist the Board in monitoring (1) the integrity of the Company's financial statements and reports and (2) the independence and performance of the Company's auditors. The Committee shall be solely responsible for the appointment, compensation, retention and oversight of the work of any independent auditors employed by the Company for the purpose of preparing or issuing an audit report or related work. The independent auditor so employed shall report directly to the Committee.
The Committee shall pre-approve all auditing and permitted non-audit services (including the fees and terms thereof) to be performed for the Company by its independent auditor, subject to the de minimis exceptions for non-audit services described in Section 10A(i)(1)(B) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which are approved by the Committee prior to the completion of the audit. The Committee may form and delegate authority to subcommittees consisting of one or more members when appropriate, including the authority to grant pre-approvals of audit and permitted non-audit services, provided that such delegation is in compliance with Section 10A(i)(3) of the Exchange Act and the rules thereunder and decisions of such subcommittees to grant pre-approvals shall be presented to the Committee at its next scheduled meeting. The Committee shall not delegate its responsibilities to pre-approve services performed by the independent auditors to management.
The Committee shall have the authority to retain independent legal, accounting or other consultants or advisors to advise it. The Committee shall have the authority to request any officer or employee of the Company or the Company's outside counsel, auditor or other consultant or advisor to attend a meeting of the Committee or to meet with any members of, or consultants or advisors to, the Committee. The Company shall provide sufficient funds to the Committee for the retention, use or employment of any legal, accounting or other consultant or advisor by the Committee that is necessary for the Committee to carry out its duties under this Charter.
The Committee shall:
1. | Review and reassess the adequacy of this Charter from time to time and recommend any proposed changes to the Board for approval. |
2. | Review the Company's annual audited financial statements with management and the Company's independent auditor, including major issues regarding accounting and auditing principles and practices. |
3. | Review with management and the Company's independent auditor any significant financial reporting issues and judgments observed by or brought to the attention of the Committee relative to the preparation of the Company's financial statements. |
4. | Review the Company's quarterly financial statements prior to the filing of its Form 10-Q. |
5. | Review any proposed major changes to the Company's auditing and accounting principles prior to their adoption. |
6. | Receive periodic reports from the Company's independent auditor regarding the auditor's independence, discuss such reports with the auditor, and recommend any Board action deemed necessary and appropriate by the Committee to assure the independence of the auditor. |
7. | Ensure the rotation of the audit partners of the independent auditor to the extent required by law. |
8. | Recommend to the Board policies for the Company's hiring of employees, or former employees, of the Company's independent auditor who participated in any capacity in the audit of the Company, prior to the Company's hiring any such persons. |
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9. | Review and discuss reports from the independent auditor on: (a) all critical accounting policies and practices to be used; (b) all alternative treatments of financial information within generally accepted accounting principles that have been discussed with management, ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the independent auditor; and (c) other material communications between the independent auditor and management. |
10. | Discuss with the independent auditor the matters required to be discussed with the Committee by the independent auditor under Statement on Auditing Standards No. 61 relating to the conduct of the audit of the Company's financial statements. |
11. | Review with the Company's independent auditor any problems or difficulties the auditor may have encountered, as well as any management letter provided by the auditor and the Company's response to that letter. |
12. | Review and discuss with management, the independent auditor and the Controller: (a) the adequacy and effectiveness of the Company's internal controls (including any significant deficiencies and significant changes in internal controls reported to the Committee by the independent auditor or management); (b) the Company's internal audit procedures; and (c) the adequacy and effectiveness of the Company's disclosures controls and procedures, and management reports thereon. |
13. | Review disclosures made to the Committee by the Company's Chief Executive Officer and Chief Financial Officer during their certification process for the Form 10-K and Form 10-Q about any significant deficiencies in the design or operation of internal controls or material weaknesses therein and any fraud involving management or other employees who have a significant role in the Company's internal controls. |
15. | Prepare the report required by the rules of the Securities and Exchange Commission to be included in the Company's annual proxy statement. |
16. | Review with the Company's attorneys such legal matters as the Committee determines may have a material impact on the Company's financial statements. |
17. | Evaluate together with the Board the performance of the Company's independent auditor. |
18. | Review the appointment and any replacements of the Company's principal accounting officer. |
19. | Establish procedures for the receipt, retention and treatment of complaints received regarding accounting, internal accounting controls or auditing matters and the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters. |
The Committee shall consist of no fewer than three members. Each member of the Committee shall be independent and shall have the ability to read and understand financial statements, including the Company's balance sheet, income statement and cash flow statement. For purposes of this Charter, to be considered "independent" a Committee member: (1) must meet the independence requirements of the NASDAQ Stock Market, Inc. and any U.S. Securities and Exchange Commission regulation applicable to the Company; and (2) may not, other than in his or her capacity as a member of the Committee, (a) accept any consulting, advisory or other compensatory fee from the Company or any subsidiary thereof, or (b) be an affiliated person of the Company or any subsidiary thereof.
Committee members shall be members of the Board of the Company and shall be nominated and elected by the full Board annually. The full Board shall promptly fill vacancies that may occur on the Committee. At least one member of the Committee shall have past employment experience in finance or accounting, or comparable experience or background (including, for example, being or having been a chief executive officer, chief financial officer or other senior corporate officer with financial oversight responsibilities) which results in such member having financial sophistication. The qualifications of Committee members shall be determined by the full Board.
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Meetings of the Committee may be called from time to time by the Chairman or any two members of the Committee upon not less than seventy-two (72) hours prior notice (which may but need not state the business intended to be conducted at the meeting), provided that a meeting may be held without such notice if all members are present or, if absent, waive notice of the meeting. A majority of the members of the Committee shall constitute a quorum for the purpose of taking any action upon any matter than may come before it, and the Committee may take any action which it is authorized to take as a committee without the necessity of a meeting if all members of the Committee consent in writing in accordance with Section 141(f) of the Delaware General Corporation Law. The Chairman of the Committee shall promulgate such other rules or procedures as he or she deems necessary or appropriate for the proper and efficient conduct of the business of the Committee.
While the Committee has the responsibilities and powers set forth in this Charter, it is not the duty of the Committee to plan or conduct audits or to determine that the Company's financial statements are complete and accurate and in accordance with generally accepted accounting principles. This is the responsibility of management and the independent auditor. Nor is it the duty of the Committee to conduct investigations, to resolve disagreements, if any, between management and the independent auditor or to assure the Company's compliance with laws and regulations relating to financial disclosure or any other area.
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Appendix B
May 29, 2007
Corporate Governance and Nominating Committee Charter
This corporate governance and nominating committee (the “Committee”) charter was adopted by the board of directors (the “Board”) of Generex Biotechnology Corporation (the “Company”) on May 29, 2007.
This charter is intended as a component of the flexible framework within which the Board, assisted by its committees, directs the affairs of the Company. While it should be interpreted in the context of all applicable laws, regulations, and listing requirements, as well as in the context of the Company’s Certificate of Incorporation and bylaws, it is not intended to establish by its own force any legally binding obligations.
I. | Purpose |
The Committee helps ensure that the Board governance system performs well, with specific responsibility for making recommendations to the Board on Board organization and procedures, performance evaluation of the Board and individual directors, and nomination of directors. This Committee works closely with the President & Chief Executive Officer of the Company and the Chairperson of the Board.
The Board believes that diversity is an important attribute of a well-functioning board. It is the responsibility of the Committee to recommend for selection a slate of qualified candidates to serve as directors of the Company. Among the responsibilities of the Committee shall be to advise the Board on matters of diversity, including race, gender, culture, and geography, and recommend, as necessary, measures contributing to a board that, as a whole, reflects a range of viewpoints, backgrounds, skills, experience, and expertise.
II. | Committee Membership |
Committee members must be a majority of independent directors, as defined by the NASDAQ Stock Market’s Marketplace Rules.
III. | Committee Meetings |
The Committee shall meet on a regularly scheduled basis at least four times per year, or more frequently as circumstances dictate.
The Committee shall meet at least annually with the President & Chief Executive Officer of the Company and the General Counsel of the Company and any other corporate officers the Board and Committee deem appropriate to discuss and review the performance evaluations of officers and directors.
IV. | Key Responsibilities and Duties |
The Committee will conduct an annual evaluation of its effectiveness, to determine if the purpose and responsibilities are consistent with the guidelines of this Charter of the Corporate Governance and Nominating Committee, and are clearly aligned with the Company's strategic corporate governance and nominating goals and objectives.
In addition, the Committee will:
1. | Review with the Board on an annual basis the appropriate skills and characteristics required on the Board in the context of the strategic direction of the Company. |
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2. | Review Board composition to ensure that the Board reflects a balance of knowledge, experience, skills, expertise, and diversity, including racial and gender diversity required for the Board to fulfill its duties. |
(i). | Develop a set of criteria for Board membership that strives to attain a diversity of background and skills for the Board. |
(ii). | Create a search protocol that seeks qualified Board candidates from, among other areas, the traditional corporate environment, government, academia, private enterprise, non-profit organizations, and professions such as accounting, human resources, and legal services. |
(iii). | Strive for the inclusion of diverse groups, knowledge, and viewpoints. To accomplish this, the committee may retain an executive search firm to help meet the committee’s diversity objective, as well as form alliances with organizations representing the interests of women and minorities. In connection with its efforts to create and maintain a diverse board, the governance committee will: |
Develop recruitment protocols that seek to include diverse candidates in any director search. These protocols should take into account that qualified, but often overlooked, candidates may be found at the senior levels in a broad array of organizations, including academic institutions, privately held businesses, nonprofit organizations, and trade associations, in addition to the traditional candidate pool of corporate directors and officers.
Strive to use, to their fullest potential, the current network of organizations and trade groups that may help identify diverse candidates.
Periodically review director recruitment and selection protocols so that diversity remains a component of any director search.
(iv). | The Committee shall seek diverse populations, expertise, and viewpoints for representation on the Board. The Board recognizes, however, that the representation of any specific characteristic may vary over time. |
3. | Manage the process whereby the full Board annually assesses its performance, and then report the results of this evaluation to the Board along with any recommendations for improvements. |
4. | Manage the process whereby the current Board members are evaluated individually by the Board at the time they are considered for re-nomination, and provide advice to individual Board members based on these evaluations. |
5. | Upon receiving the resignation letter required from any director who makes a principal occupation change (including retirement), and after considering advice from the Chairperson of the Board and the President & Chief Executive Officer of the Company, recommend to the full Board whether to accept the resignation. |
6. | Recommend for Board approval a definition of what constitutes an independent director. The definition should be in compliance with relevant standards by regulators and listing bodies. |
7. | Investigate any potential conflict of interest by a director as assigned to it by the Board. |
8. | Recommend to the Board the existing directors to be re-nominated, after considering the appropriate skills and characteristics required on the Board, the current makeup of the Board, the results of the individual evaluations of the directors, and the wishes of existing Board members to be re-nominated. |
9. | Review with the Board on an annual basis the appropriate skills and characteristics required of new Board members. (See also items 1, 2, and 4.) |
10. | Solicit nominations for new directors and screen the list of potential new directors submitted to it by other directors or any other sources. Decide whether the assistance of a search firm is needed, and, if so, choose the firm. This Committee shall have the sole authority to retain and terminate any search firm to be used to identify director candidates, including sole authority to approve the search firm’s fees and other retention terms. |
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11. | After a review of Board candidates and after considering the advice of the chairperson of the Board and the President & Chief Executive Officer of the Company, designate which candidates are to be interviewed. Candidates at a minimum are interviewed by the chairperson of this Committee, the chairperson of the Board, and the President & Chief Executive Officer of the Company, but may be interviewed by other directors. |
12. | After the interviews, recommend for Board approval any new directors to be nominated. Prior to the final vote of the Board on the nomination of a new director, arrange for the selected candidate to meet all existing directors not yet met. |
13. | Design an orientation program for new directors and consult with them on their progress. |
14. | Recommend committee assignments, including committee chairmanships, to the full Board for approval. This is done after receiving advice from the chairperson of the Board and the President & Chief Executive Officer of the Company, and with consideration of the desires of individual Board members. |
15. | Review annually the corporate governance guidelines and committee charters and recommend to the Board any needed changes. |
16. | Keep abreast of the developments in the corporate governance field that might affect the Company. |
17. | Jointly with the Company’s Compensation Committee, recommend to the Board the compensation to be paid to directors, including the chairperson of the Board. |
18. | If a separate chairperson of the Board or a lead director has not been selected, then the governance and nominating committee has two additional duties: |
(i). | Work with the chairperson of the Compensation Committee on issues of management objectives, Chief Executive Officer evaluation, and management development and succession. |
(ii). | Work with the Chief Executive Officer of the Company to establish an annual schedule of agenda items and present this proposed schedule to the Board for approval at its first meeting of the year. The chairperson of this Committee meets with the Chief Executive Officer of the Company as needed during the year to discuss a specific agenda for each Board meeting. |
V. | Authority |
This Committee has the power to delegate aspects of its work to independent subcommittees, with Board approval. Furthermore, the Board may allocate any of the responsibilities of this committee to a separate committee, provided that the committee is composed of a majority of independent directors. Any such committee must have a published committee charter.
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