SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
(RULE 14a - 101)
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Filed by the Registrant [X]
Check the appropriate box:
[ ] 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 Exchange Act Rule 14a-11 or 14a-12
GENEREX BIOTECHNOLOGY CORPORATION
------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
GENEREX BIOTECHNOLOGY CORPORATION
33 HARBOUR SQUARE
SUITE 202
TORONTO, ONTARIO, CANADA M5J 2G2
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD TUESDAY APRIL 5, 2005
Dear Stockholder:
You are cordially invited to attend the annual meeting of stockholders
of Generex Biotechnology Corporation ("Generex") that will be held on Tuesday
April 5, 2005, at 10:00 a.m. (local time), at St. Lawrence Hall, 157 King Street
East, Toronto, Ontario, Canada M5E 1C4, for the following purposes, as set forth
in the accompanying proxy statement:
1. To elect seven directors;
2. To authorize the Board of Directors, in the three-month period
commencing with the date of the annual meeting, to issue, without prior
stockholder approval, in connection with capital raising transactions,
and/or acquisitions of assets, businesses or companies, up to 10,000,000
shares of common stock, including options, warrants, securities or other
rights convertible into common stock, in the aggregate, in excess of the
number of shares that NASDAQ's Rules 4350(i)(1)(C) and (D) permit
Generex to issue in such transactions without prior stockholder
approval, the issuance of such 10,000,000 shares to be upon such terms
as the Board of Directors shall deem to be in the best interests of
Generex, for a price of not less than 70% of the market price at the
time of such issuance and for an aggregate consideration not to exceed
$50,000,000, which such authorization shall include shares of common
stock issued by Generex at or above market price prior to the date of
the annual meeting (a "Prior Issuance") in the event The NASDAQ Stock
Market, Inc. integrates (i) a new below market issuance by Generex
within the three-month period commencing on the date of the annual
meeting with (ii) the Prior Issuance;
3. To authorize the Board of Directors to issue up to 18,487,425 shares of
common stock, in excess of the 6,962,447 shares of common stock the
Board of Directors is permitted to issue without prior stockholder
approval, (i) (a) as payment for outstanding principal of, and interest
on, 6% Secured Convertible Debentures issued by Generex on November 10,
2004 (the "Debentures") or (b) upon conversion of the Debentures into
shares of common stock, and (ii) upon exercise of Warrants and
Additional Investment Rights issued in connection with the issuance of
the Debentures;
4. To authorize the Board of Directors to temporarily or permanently reduce
the exercise price of some or all of Generex's 12,789,343 outstanding
common stock purchase warrants ("Warrants") to a price not less than 90%
of the common stock's market price at the time of the Board of
Director's determination to reduce the exercise price;
5. To approve the amendment of the Generex 2001 Stock Option Plan
increasing the number of shares issuable upon exercise of options from
8,000,000 to 12,000,000;
6. To ratify the appointment of BDO Dunwoody, LLP as independent public
accountants for Generex for the fiscal year ending July 31, 2005; and
7. To transact such other business as may properly come before the annual
meeting and any adjournments or postponements of the meeting.
The Board of Directors has established the close of business on
February 24, 2005, 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.
YOU ARE URGED TO REVIEW CAREFULLY THE ACCOMPANYING PROXY STATEMENT AND TO
COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING.
You may revoke your proxy at any time before it has been voted. You are
cordially invited to attend the annual meeting in person if it is convenient for
you to do so.
By order of the Board of Directors,
Rose C. Perri
- ---------------------------
Rose C. Perri
Secretary
March 10, 2005
GENEREX BIOTECHNOLOGY CORPORATION
PROXY STATEMENT
General Information
This proxy statement is provided to the stockholders of Generex
Biotechnology Corporation ("Generex") in connection with the solicitation by the
Board of Directors of Generex of proxies for use at the annual meeting of
stockholders of Generex to be held on Tuesday April 5, 2005, at 10:00 a.m.
(local time), at St. Lawrence Hall, 157 King Street East, Toronto, Ontario,
Canada M5E 1C4, and any adjournments or postponements thereof. A form of proxy
is enclosed for use at the annual meeting. Proxies properly executed and
returned in a timely manner will be voted at the annual meeting in accordance
with the directions specified therein. If no direction is indicated, they will
be voted FOR (1) the election of the nominees named herein as directors, (2) the
proposal to authorize the Board of Directors to issue up to 10,000,000 shares of
common stock at less than market price in excess of amounts permitted under
NASDAQ rules, (3) the proposal to authorize the Board of Directors to issue up
to 18,487,425 shares of common stock, in excess of the 6,962,447 shares of
Common Stock the Board of Directors is permitted to issue without prior
stockholder approval, (i) (a) as payment for outstanding principal of, and
interest on, 6% Secured Convertible Debentures issued by Generex on November 10,
2004 (the "Debentures") or (b) upon conversion of the Debentures into shares of
common stock, and (ii) upon exercise of Warrants and Additional Investment
Rights issued in connection with the issuance of the Debentures, (4) the
proposal to authorize the Board of Directors to temporarily or permanently
reduce the exercise price of some or all of Generex's Warrants to a price not
less than 90% of the common stock's market price at the time the exercise prices
are reduced, (5) the approval of an amendment to the Generex 2001 Stock Option
Plan to increase the number of shares issuable upon exercise of options granted
under the Plan from 8,000,000 to 12,000,000 and (6) the ratification of
appointment of BDO Dunwoody, LLP as Generex's independent public accountants;
and they will be voted on other matters presented for a vote, in accordance with
the judgment of the persons acting under the proxies. The persons named as
proxies were selected by the Board of Directors and are present members of the
executive management of Generex.
Any stockholder voting by proxy may revoke that proxy at any time before
it is voted at the annual meeting by delivering written notice to the Secretary
of Generex at the address set forth below, by delivering a proxy bearing a later
date, or by attending the annual meeting in person and casting a ballot. If any
stockholder holds shares of common stock through an account with a bank or
broker, the stockholder must obtain a legal proxy from the bank or broker in
order to vote at the meeting. Even if the stockholder plans to attend the
meeting, Generex encourages such stockholder to vote its shares by proxy.
Generex's principal executive offices are located at 33 Harbour Square,
Suite 202, Toronto, Ontario, Canada M5J 2G2, and its telephone number is
(416) 364-2551. Proxy materials are first being mailed to stockholders beginning
on or about March 14, 2005.
Shares Outstanding, Voting Rights and Vote Required
Only stockholders of record at the close of business on
February 24, 2005, are entitled to vote at the annual meeting. The only voting
stock of Generex outstanding and entitled to vote at the annual meeting is its
common stock, $.001 par value per share (the "Common Stock"). As of the close of
business on February 21, 2005, 35,733,643 shares of Common Stock were
outstanding. Each share of
1
Common Stock issued and outstanding is entitled to one vote on matters properly
submitted at the annual meeting. Cumulative voting is not permitted under
Generex's Restated Certificate of Incorporation, as amended.
The presence, in person or by proxy, of the holders of a majority of the
total issued and outstanding shares of Common Stock entitled to vote at the
annual meeting is necessary to constitute a quorum for the transaction of
business at the annual meeting. Abstentions and broker non-votes will be counted
for purposes of determining the presence or absence of a quorum. A broker
non-vote occurs when a nominee holding shares for a beneficial owner does not
vote on a particular proposal because the nominee does not have discretionary
voting power with respect to that item and has not received instructions from
the beneficial owner. Directors are elected by a plurality of the votes. This
means the seven nominees for director receiving the highest number of "For"
votes will be elected as directors. Approval of each of (i) the proposal to
authorize the Board of Directors to issue up to 10,000,000 shares of common
stock at less than market price in excess of amounts permitted under
NASDAQ rules, (ii) the proposal to authorize the Board of Directors it issue up
to 18,487,425 shares of Common Stock in excess of the 6,962,447 shares of Common
Stock the Board of Directors is permitted to issue without prior stockholder
approval, (a) (1) as payment for outstanding principal of, and interest on, the
Debentures or (2) upon conversion of the Debentures into shares of common stock,
and (b) upon exercise of Warrants and Additional Investment Rights issued in
connection with the issuance of Debentures, (iii) the proposal to authorize the
Board of Directors to temporarily or permanently reduce the exercise price of
some or all of Generex's Warrants to a price not less than 90% of the common
stock's market price at the time the exercise prices are reduced, (iv) the
proposal to ratify the appointment of BDO Dunwoody, LLP as Generex's independent
public accountants and (v) any other matter that may be submitted to a vote of
stockholders require the affirmative vote of a majority of the votes of the
shares present or represented by proxy at the annual meeting and cast on such
proposals. Except for the election of directors, abstentions will be counted in
tabulating votes cast on the proposals presented to stockholders and will have
the same effect as negative votes. Broker non-votes will not be counted in
tabulating votes cast on the proposals presented to stockholders. Votes cast in
person or by proxy at the annual meeting will be tabulated by the election
inspectors appointed for the meeting.
The Board of Directors recommends voting FOR (1) the election of the
nominees named herein for directors, (2) the proposal to authorize the Board of
Directors to issue up to 10,000,000 shares of common stock at less than the
market price in excess of amounts permitted under NASDAQ rules, (3) the proposal
to authorize the Board of Directors it issue up to 18,487,425 shares of Common
Stock in excess of the 6,962,447 shares of Common Stock the Board of Directors
is permitted to issue without prior stockholder approval, (i)(a) as payment for
principal of, and interest on, the Debentures or (b) upon conversion of the
Debentures into shares of common stock, and (b) upon exercise of Warrants and
Additional Investment Rights issued in connection with the issuance of
Debentures, (4) the proposal to authorize the Board of Directors to temporarily
or permanently reduce the exercise price of some or all of Generex's Warrants to
a price not less than 90% of the common stock's market price at the time the
exercise prices are reduced, and (5) the appointment of BDO Dunwoody, LLP as
Generex's independent public accountants for fiscal 2005.
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ELECTION OF DIRECTORS
(PROPOSAL 1)
Seven directors are to be elected at the annual meeting of stockholders.
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.
The persons named below have been designated by the Board of Directors,
including a majority of independent directors, as nominees for election as
directors. All nominees, except Peter G. Amanatides currently serve as directors
of Generex. The individuals named in the enclosed proxy intend to vote all
proxies received by them for the nominees listed below unless otherwise
instructed. If you do not wish your shares to be voted for any of the nominees,
you may so indicate on the proxy. If, for any reason, any of the nominees shall
become unavailable for election, the individuals named in the enclosed proxy may
exercise their discretion to vote for any substitutes proposed by the Board of
Directors, including a majority of independent directors. At this time, the
Board of Directors knows of no reason why any of the nominees might be
unavailable to serve.
Name Age Position Held with Generex
- ----------------------- --- ---------------------------------------------
Anna E. Gluskin 53 Chairman, President, Chief Executive Officer
and Director
Rose C. Perri 37 Chief Operating Officer, Acting Chief
Financial Officer, Treasurer,
Secretary and Director
Gerald Bernstein, M.D. 71 Director, Vice President Medical Affairs
John P. Barratt 60 Director
Mindy J. Allport-Settle 37 Director
Brian T. McGee 43 Director
Peter G. Amanatides 41 Director Nominee
Anna E. Gluskin -- Director since September 1997. Ms. Gluskin has served as the
President and Chief Executive Officer of Generex since October 1997 and the
Chairman since November 2002. She held comparable positions with Generex
Pharmaceuticals, Inc. from its formation in 1995 until its acquisition by
Generex in October 1997.
Rose C. Perri -- Director since September 1997. Ms. Perri has served as
Treasurer and Secretary of Generex since October 1997, and as Chief Operating
Officer since August 1998. She was an officer of Generex Pharmaceuticals, Inc.
from its formation in 1995 until its acquisition by Generex in October 1997.
Effective November 2002, Ms. Perri became acting Chief Financial Officer.
Gerald Bernstein, M.D. -- Director since October 2002. Dr. Gerald Bernstein has
served as Vice President of Generex since October 1, 2001. Dr. Bernstein acts as
a key liaison for Generex on medical and scientific affairs to the medical,
scientific and financial communities and consults with Generex under a
consulting agreement on research and medical affairs and on development
activities. Dr. Bernstein has been an associate clinical professor at the Albert
Einstein College of Medicine in New York and an attending physician at Beth
Israel Medical Center, Lenox Hill Hospital and Montefore Medical Center, all in
New York, since 1999. He was president of the American Diabetes Association from
1997 to 1998.
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John P. Barratt -- Director since March 2003. Mr. Barratt is Court appointed
Responsible Person and Liquidation Manager of Beyond.com Corporation,
Debtor-in-Possession, a US Chapter 11 Bankruptcy Case. Prior to his appointment
in 2002, he had served as Chief Operating Officer of Beyond.com, since 2000.
From January 1996 to September 2000, Mr. Barratt served as partner-in-residence
for the Quorum Group of Companies, an international investment partnership
specializing in providing debt and equity capital to the emerging high growth
technology sector. From 1988 to December 1995, Mr. Barratt was Executive Vice
President and Chief Operating Officer of Coscan Development Corporation. He
previously held a number of senior-level management positions, including Deputy
Chief Executive of Lloyds Bank Canada. Mr. Barratt also currently serves on the
Board of Directors and is Chairman of the Credit Committee and member of the
Audit Committee for the Bank of China (Canada), and as a director and a member
of the Audit Committee of GLP NT Corporation and BNN Split Corporation.
Mr. Barratt also serves on the Advisory Board of Brascan SoundVest Diversified
Income Fund and Brascan SoundVest Total Return Fund and was also recently
appointed to the Advisory Board of Brascan SoundVest Rising Distribution Split
Trust.
Mindy J. Allport-Settle -- Director since February 2004. Ms. Allport-Settle has
been President and Chief Executive Officer of Integrated Development, LLC
("Integrated") since 1998. Integrated is an independent consulting firm to the
pharmaceutical industry, providing informed guidance in operational, project and
contract management, new business development and regulatory compliance. In
addition to her position with Integrated, Ms. Allport-Settle has been a
Vice-President of Impact Management Services, Inc. ("IMS") since 2003, which
also provides consulting services to the pharmaceutical industry. In her current
positions at Integrated and IMS, Ms. Allport-Settle has worked with several
major pharmaceutical companies. From 2001 to 2002, Ms. Allport-Settle was
Director of Client Services for Scriptorium Publishing Service. From 1992 to
1994, Ms. Allport-Settle was an Eye Bank Technician/Organ Procurement Surgeon
for NC Eye & Human Tissue Bank; and from 1991 to 1998, Ms. Allport-Settle was a
Freelance Writer and Photographer. Ms. Allport-Settle is currently working on
her M.B.A. in Global Management at the University of Phoenix and expects to
receive her degree in 2005.
Brian T. McGee - Director since March 2004. Mr. McGee has been a partner of
Zeifman & Company, LLP ("Zeifman") since 1995. Mr. McGee began working at
Zeifman shortly after receiving a B.A. degree in Commerce from the University of
Toronto in 1985. Zeifman is a Chartered Accounting firm based in Toronto,
Ontario. A significant element of Zeifman's 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.
Peter G. Amanatides. Mr. Amanatides has been working in the pharmaceutical and
biotechnology industry since 1988. Since November 2004, Mr. Amanatides has been
President and Chief Operating Officer of Pharmalogika, Inc., a North Carolina
based service provider for the pharmaceutical and biotechnology industry. Since
April 2002, Mr. Amanatides has held Director, and most recently, Vice President
positions within the Quality Organization for DSM Pharmaceuticals and DSM
Biologics, both divisions of DSM Pharmaceutical Products, Inc.. From February
1999 to April 2002, Mr. Amanatides had been Director of Quality Systems for
Celera Genomics, a division of Applied Biosystems involved in Genomics and
Pharmaceutical Discovery. Mr. Amanatides received a B.S. degree in biology from
Regents College, Albany, New York and a M.S. degree in Biotechnology and
Molecular Biology from
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Hood College, Frederick, Maryland. Mr. Amanatides has also held ASQ
Certifiication as a certified Quality Manager.
There are no family relationships among the officers and directors of Generex.
NASDAQ Rule 4350(c) requires that a majority of the Board of Directors be
comprised of independent directors as defined in NASDAQ Rule 4200(a)(15). The
Board of Directors has determined that Messrs. Barratt, McGee and Rosen and Ms.
Allport-Settle are independent, in accordance with NASDAQ Rules 4200(a)(15) and
4350(c). Accordingly, a majority of the current directors and a majority of the
nominees for director meet the definition of independence under the NASDAQ
SmallCap Market listing requirements. In addition, Generex continues to evaluate
additional candidates for independent directors. In accordance with the Bylaws
of Generex, 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 shareholders.
In addition, in connection with a joint venture, Generex entered into a
Securities Purchase Agreement, dated January 16, 2001, with Elan Corporation plc
("Elan") and Elan International Services, Ltd. ("EIS"), pursuant to which EIS
had the right to nominate one director to Generex's Board of Directors for so
long as EIS or its affiliates owned at least 1.0% of the issued and outstanding
shares of Common Stock. On December 21, 2004, Generex entered into a Termination
Agreement with Elan and EIS, whereby Generex, Elan and EIS agreed to terminate
their joint venture and the rights and obligations of each party thereunder,
including EIS' right to nominate a director to Generex's Board of Directors. EIS
had not exercised its right to have a representative on the Board of Directors
since August, 2002.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
THE ELECTION OF THE ABOVE-NAMED NOMINEES
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PROPOSAL TO APPROVE THE POTENTIAL ISSUANCE AND SALE OF SHARES
AT PRICES BELOW THE THEN CURRENT MARKET PRICE
IN POTENTIAL CAPITAL RAISING TRANSACTIONS AND ACQUISITIONS
(PROPOSAL 2)
Management has recommended to the Board of Directors that, in light of
Generex's actual and potential cash needs, Generex must avail itself of all
possible means of financing, including the private placement of its securities.
In addition, Generex has been presented with potential acquisition candidates
and other acquisition and business combination opportunities in the past and
must have the flexibility to timely act upon any such opportunities and
transactions which may arise in the future. Management informed the Board of
Directors that the ability of Generex to offer its securities in private
placements or acquisitions at an offering price below the market price or book
value of such securities at the time of any such private placements or
acquisitions would afford Generex greater flexibility in structuring future
financings or acquisitions. However, NASDAQ Marketplace Rules 4350(i)(1)(C) and
(D) require stockholder approval prior to the sale or issuance or potential
issuance of shares equal to twenty percent (20%) or more of Generex's Common
Stock, or twenty percent (20%) or more of the voting power of Generex,
outstanding before the issuance, if the effective sale price of the Common Stock
is less than the greater of the book or market value of the Common Stock on the
date of such issuance. Shares of Generex's Common Stock issuable upon the
exercise or conversion of warrants, options, debt instruments, preferred stock
or other equity securities issued or granted in such capital raising
transactions or acquisitions are considered shares issued in the transaction or
acquisition in determining whether the twenty percent (20%) limit has been
reached. Management believes the delay required to arrange for a meeting of
stockholders to approve a specific financing transaction or acquisition might
jeopardize the closing of the transaction or acquisition. In order to comply
with the possible application of the NASDAQ rules, Generex is seeking
stockholder approval for the issuance and sale of shares, during the three-month
period commencing with the date of the annual meeting, in a potential
acquisition, corporate transaction, other business combination or private
placement or other capital raising transaction ("Potential Equity Related
Investment") so that the Board of Directors will have flexibility to timely
enter into and close any such transaction.
There are various reasons management may seek additional financing in
the three-month period immediately following the annual meeting. Generex may
need additional financing to fund expanded research and development activities
and working capital needs. While Generex has no present need for additional
financing for these purposes, Generex believes it should have the flexibility to
respond to opportunities as they are presented. In addition, the sale of equity
securities may be necessary to enable Generex to continue to comply with the
Stockholders' Equity requirements of the NASDAQ SmallCap Market; and increases
in Stockholders' Equity could potentially permit Generex to regain compliance
with NASDAQ National Market standards. In addition, Generex may be presented
with an acquisition, corporate transaction or other business combination
opportunity that would be beneficial to it and would require the issuance of
shares and/or options in excess of the amounts required under the NASDAQ rules.
Management believes it may need the general flexibility to issue shares
at prices which Generex and any prospective investor or acquisition candidate
expressly contemplate are below market value. Management also believes that it
needs the flexibility provided by this proposal because there may be situations
where the parties to a transaction believe the shares are being issued at a
price equal to or greater than book and market value but the effective price
would be considered below the greater of book or market value by NASDAQ. This
would primarily occur because investors and others in the financial community
may consider market value to be an average of closing prices for a period of
6
several days, while NASDAQ would consider the market value to be the closing
price on a particular day or an average over a much shorter period.
The stockholders approved a similar proposal at each of the special meeting held
on November 4, 2003 and the annual meeting held on May 17, 2004, however, of the
private placements Generex conducted since then, only two have been at a price
that was deemed to be less than market price and book value. The first such
private placement occurred during the three month period immediately following
the annual meeting held on May 17, 2004 and was therefore previously authorized
by the stockholders. The second below market private placement occurred in
November 2004 and is the subject of Proposal No. 3 (the "November Private
Placement").
Additionally, in the event NASDAQ were to "integrate" a new below market
issuance with an issuance of securities by Generex at or above market price
prior to the date of the annual meeting (a "Prior Issuance"), NASDAQ may
consider the Prior Issuance to retroactively be a below market issuance.
Accordingly, this authorization shall include shares of Common Stock issued by
Generex in a Prior Issuance in the event The NASDAQ Stock Market, Inc.
integrates (i) a new below market issuance of Common Stock by Generex within the
three-month period commencing on the date of the annual meeting with (ii) the
Prior Issuance.
Other than the November Private Placement, as of the date hereof, Generex is not
a party to any agreement, nor has it conducted negotiations with any third
party, which would require Generex to issue shares of its Common Stock at a
price that would be less than the market value of the Common Stock at the time
of such agreement.
POTENTIAL EQUITY RELATED INVESTMENTS
The following description of various forms of Potential Equity Related
Investments and the reasons for such Potential Equity Related Investments is
offered for informational purposes to Generex's stockholders in connection with
this proxy solicitation and does not constitute an offer to sell or a
solicitation of an offer to buy any securities of Generex. Generex cannot
guarantee any private placement or other financing will be completed (or if so,
what the timing and the terms may be) and, other than as stated above, has not
agreed to, nor conducted any negotiations for, a below market private placement.
Accordingly, Generex cannot be certain that it will receive any proceeds from
any potential financing.
Given the uncertainty of the ultimate sales price for securities placed
in any such private placement or other equity investment, and the percentage of
Generex's currently outstanding Common Stock that may be sold, the sale of
shares in a Potential Equity Related Investment (or one more transactions which
NASDAQ would consider to be integrated) could result in the issuance of twenty
percent (20%) or more of the outstanding voting stock of Generex and/or twenty
percent or more of the voting power at a price less than the greater of the book
value or market value of the shares. Therefore, Generex is seeking stockholder
approval because the potential issuance and sale of shares may trigger the
threshold requiring approval under NASDAQ Marketplace Rules 4350(i)(1)(C) and/or
(D). Generex believes that the current capital market environment requires
management to maintain maximum flexibility in order to be able to timely
consummate any potential capital-raising transaction without undue delay.
The Board of Directors has the authority, without stockholder approval
and without endangering Generex's NASDAQ listing, to authorize the issuance in
each separate transaction (which
7
is not integrated, under NASDAQ's interpretation of its own rules, with other
transactions) of up to twenty percent (20%) of its shares outstanding before
such transaction. As of February 21, 2005, the Company had 35,733,643 shares of
Common Stock outstanding. Consequently, the Board of Directors may authorize the
issuance of up to 7,143,155 shares without obtaining stockholder approval,
assuming issuance of the new shares is not "integrated" with Generex's prior
issuance of shares of stock below market. Generally, transactions which are at
least three months apart will not be considered integrated by NASDAQ. The
approval of Proposal No. 2 will give the Board of Directors the right to
authorize, upon terms as the Board of Directors deems to be in the best
interests of Generex, but in no event for (i) a price less than 70% of the
market price at the time of issuance and (ii) aggregate consideration in excess
of $50,000,000, the issuance of an aggregate of 10,000,000 shares in such three
month period, in addition to the 7,143,155 shares, for an aggregate of
17,143,155 shares. In addition, stockholders should note that, whether or not
Proposal No. 2 is adopted, the Board of Directors may authorize, without
stockholder approval, the issuance of any number of shares in separate
transactions (provided that the Company issues less than twenty percent (20%) of
its then outstanding Common Stock in each transaction and provided that the
transactions would not be deemed integrated by NASDAQ) even if the aggregate
number of such shares exceeds the number authorized by Proposal No. 2.
EFFECT OF A POTENTIAL EQUITY RELATED INVESTMENT UPON EXISTING STOCKHOLDERS
Approval of Proposal No. 2 will give the Board of Directors substantial
discretion to determine the amount, type and terms of securities to be issued by
Generex. For example, Generex may issue any one or more of Common Stock,
preferred stock convertible into Common Stock, debt securities or other debt
obligations convertible into Common Stock, options and warrants. Some or all of
these securities may be issued to investment bankers, placement agents,
financial advisors and others who assist Generex in raising capital or in
financial affairs, for services rendered and not for cash investment. The Board
of Directors will have discretion to determine any applicable dividend or
interest rates, conversion prices, voting rights, redemption prices, maturity
dates and similar matters. If securities convertible into or exercisable for
Common Stock are issued in a Potential Equity Related Investment and such
securities, at the time of issuance constitute twenty percent (20%) or more of
Generex's securities and/or twenty percent (20%) or more of its voting power
outstanding prior to such issuance, then stockholder approval of the Potential
Equity Related Investment also will constitute approval of the issuance of
shares of Common Stock upon conversion of such securities, and no additional
approval will be solicited.
It is expected that any such securities may not be registered under the
Securities Act of 1933, as amended (the "Securities Act"), or under the
securities laws of any state or foreign country. The securities will likely be
offered and sold in reliance on Section 4(2) of the Securities Act or another
applicable exemption. However, it is also likely that the terms of the
transactions will require Generex to register the shares of Common Stock for
resale by the investors after closing of the investment.
Any transaction requiring approval by stockholders under NASDAQ Rules
4350(i)(1)(C) and (D) would be likely to result in a significant increase in the
number of shares of Common Stock of Generex outstanding on a fully-diluted
basis, and current stockholders will own a smaller percentage of the outstanding
Common Stock of Generex. If convertible preferred stock, convertible debt or
another senior security is issued in the Potential Equity Related Investment,
the holders of the shares of such preferred stock, debt or senior security will
have claims on Generex's assets and other rights superior to holders of Common
Stock. Stockholders should note that the Board of Directors has the authority
under Generex's Restated Certificate of Incorporation, as amended, to issue up
to 1,000,000 shares of preferred
8
stock in one or more series, with such voting powers, full or limited, or no
voting powers, and such designations, preferences and relative, participating,
optional or other special rights and qualifications, limitations or restrictions
as the Board of Directors determines.
In addition, stockholders may experience potential dilution in the
market price of Generex's shares as a result of issuances of shares of Common
Stock at prices below the current market price. Such issuance could cause the
market price of Generex's shares to decline and/or remain below $1.00 per share.
Generex's shares have traded below $1.00 during all of fiscal year 2005.
Accordingly, because the bid price of Generex's shares of Common Stock has
remained below $1.00 for an extended period of time, on November 24, 2004,
Generex received notice from NASDAQ that unless, on or prior to May 23, 2005,
the bid price of the Common Stock closes at or above $1.00 per share for a
minimum period of ten (10) consecutive business days, the Common Stock may be
de-listed from the NASDAQ Small Cap Market.
NO APPRAISAL RIGHTS
Under Delaware law, stockholders are not entitled to appraisal rights
with respect to this proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE
FOR PROPOSAL NO. 2, APPROVAL OF THE POTENTIAL ISSUANCE AND
SALE OF EQUITY SECURITIES IN ORDER TO COMPLY WITH
NASDAQ MARKETPLACE RULES 4350(i)(1)(C) AND (D).
9
PROPOSAL TO APPROVE THE ISSUANCE OF SHARES AS PAYMENT FOR
PRINCIPAL OF, AND INTEREST ON, OUTSTANDING DEBENTURES OR UPON
CONVERSION OF OUTSTANDING DEBENTURES AND UPON EXERCISE
OF OUTSTANDING WARRANTS AND ADDITIONAL INVESTMENT RIGHTS
(PROPOSAL 3)
On November 10, 2004, Generex entered into a Securities Purchase
Agreement whereby Generex agreed to issue 6% Secured Convertible Debentures,
Warrants and Additional Investment Rights (together, the "Securities") for an
aggregate purchase price of $4,000,000 in a private placement with four
investors (the "November Private Placement"). The Debentures, including the
Debentures issuable upon exercise of the Additional Investment Rights, have a
term of fifteen (15) months and amortize over thirteen (13) months in thirteen
(13) equal installments beginning on the first day of the third month following
their issuance. Interest on the principal amount outstanding accrues at the rate
of six percent (6%) per annum. Generex may pay principal and accrued interest in
cash or, at Generex's option, in shares of Common Stock. If Generex elects to
pay principal and interest in shares of Common Stock, the value of each share of
Common Stock will be equal to the lessor of (i) $0.82 and (ii) ninety percent
(90%) of the average of the twenty (20) trading day volume weighted average
price for the Common Stock for the twenty (20) trading day period immediately
preceding the date of payment. In addition, at the option of the holder of each
Debenture, the principle amount outstanding under each Debenture is convertible
at any time and from time to time into shares of Common Stock at an initial
conversion price of $0.82 per share. However, the conversion price may be
reduced if Generex issues securities at a price per share less than the then
effective conversion price of the Debentures.
Because the value of the shares of Common Stock used by Generex to pay
principal of, and interest on, the Debentures is discounted to market and
because the conversion price of the Debentures is subject to reduction upon the
occurrence of certain events, the issuance of shares of Common Stock by Generex
in either event is deemed a below market issuance under the rules and
regulations of The NASDAQ Stock Market. Further, because the aggregate number of
shares of Common Stock issuable as payment for outstanding principal of, and
interest on, the Debentures or upon conversion of the Debentures, plus the
number of shares of Common Stock issuable upon exercise of the other Securities
would exceed 19.99% of the shares of Common Stock outstanding immediately prior
to the November Private Placement, pursuant to NASDAQ's Rules 4350(i)(1) (C)and
(D), the Board of Directors is authorized to issue not more than 6,962,447
shares of Common Stock in connection with the November Private Placement,
without prior stockholder approval.
Management has recommended to the Board of Directors that, in light of
Generex's actual and potential cash needs, Generex should pursue any opportunity
in which it can repay outstanding indebtedness with shares of its Common Stock.
As a result, Management and the Board of Directors deem it to be in the best
interests of Generex and its stockholders to pay principal of, and interest on,
the Debentures with shares of Common Stock. In addition, in the event holders of
Debentures desire to convert the outstanding principal amount thereof, and/or
exercise the other Securities, into shares of Common Stock and Generex is unable
to satisfy its obligation to issue such shares, Generex may incur substantial
monetary penalties. Accordingly, Management and the Board of Directors desire to
avoid incurring such penalties and deem it to be in the best interests of
Generex and its stockholders to provide the Board of Directors the ability to
satisfy Generex's obligations to issue shares of Common Stock upon conversion of
the Debentures and exercise of the other Securities.
10
EFFECT OF ISSUING SHARES OF COMMON STOCK TO PAY PRINCIPAL OF, AND INTEREST ON,
THE DEBENTURES, OR UPON CONVERSION OF THE DEBENTURES AND EXERCISE OF THE OTHER
SECURITIES
Approval of Proposal No. 3 will give the Board of Directors complete
discretion to determine if, and how many, shares of Common Stock will be issued
to pay principal of, and interest on, the Debentures. Approval of Proposal No. 3
will also give the holders of the Debentures and the other Securities the
ability to convert the outstanding principal amount of, and accrued and unpaid
interest on, the Debentures, and exercise the other Securities, into shares of
Common Stock. Assuming Generex pays all principal and interest in shares of
Common Stock and/or the holders of the Securities convert and exercise all such
Securities into shares of Common Stock,, shares of issued and outstanding Common
Stock will increase significantly and current stockholders will own a smaller
percentage of the outstanding Common Stock of Generex.
In addition, because of the number of shares of Common Stock that may be
issued if Proposal No. 3 is approved and because of the stated value at which
such shares would be issued, stockholders may experience dilution in the market
price of the Common Stock and the market price of the Common Stock may decline
and/or remain below $1.00 per share. Generex's shares have traded below $1.00
during all of fiscal year 2005. Accordingly, because the bid price of Generex's
shares of Common Stock has remained below $1.00 for an extended period of time,
on November 24, 2004, Generex received notice from NASDAQ that unless, on or
prior to May 23, 2005, the bid price of the Common Stock closes at or above
$1.00 per share for a minimum period of ten (10) consecutive business days, the
Common Stock may be de-listed from the NASDAQ Small Cap Market.
NO APPRAISAL RIGHTS
Under Delaware law, stockholders are not entitled to appraisal rights
with respect to this proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE
FOR PROPOSAL NO. 3, APPROVAL TO AUTHORIZE THE BOARD OF DIRECTORS TO
ISSUE UP TO 18,487,425 SHARES OF COMMON STOCK, IN EXCESS OF THE 6,962,447
SHARES OF COMMON STOCK THE BOARD OF DIRECTORS IS PERMITTED TO ISSUE WITHOUT
PRIOR STOCKHOLDER APPROVAL, (i) (a) AS PAYMENT FOR OUTSTANDING PRINCIPAL OF,
AND INTEREST ON, THE DEBENTURES OR (b) UPON CONVERSION OF THE DEBENTURES INTO
SHARES OF COMMON STOCK, AND (ii) UPON EXERCISE OF WARRANTS AND ADDITIONAL
INVESTMENT RIGHTS ISSUED IN CONNECTION WITH THE ISSUANCE OF THE DEBENTURES.
11
PROPOSAL TO APPROVE THE POTENTIAL TEMPORARY OR PERMANENT
REDUCTION OF THE EXERCISE PRICE OF SOME OR ALL OUTSTANDING GENEREX
COMMON STOCK PURCHASE WARRANTS TO A PRICE NOT LESS THAN
THE CURRENT MARKET PRICE AT THE TIME THE BOARD OF DIRECTORS
DETERMINES TO REDUCE THE PRICE
(PROPOSAL 4)
Management believes that the efficient potential means of obtaining
financing include inducing current holders of outstanding Generex common stock
purchase warrants (the "Warrants") to exercise those Warrants by reducing the
exercise price, or price payable per share, of the Warrants. Generex currently
has outstanding Warrants exercisable for 12,789,343 shares of Common Stock,
equal to approximately 35.8% of the outstanding shares of common stock, with
exercise prices ranging from $.91 to $25.15 per share. The weighted average
exercise price is $2.32 per share. Some of these Warrants have been issued to
consultants in connection with services rendered. Most of the Warrants were
issued to investors or brokers in private placements of Generex securities.
NASDAQ Marketplace Rules require stockholder approval prior to the
reduction of the exercise price of Warrants exercisable for shares equal to
twenty percent (20%) or more of Generex's Common Stock, if the effective sale
price of the Common Stock is less than the greater of the book or market value
of the Common Stock. Even if Generex were to limit the exercise price reduction
to Warrants representing less than 20% of the outstanding shares of Common
Stock, in the absence of stockholder approval the reduction could retroactively
affect the qualification of prior private placements under NASDAQ rules.
Therefore, in order to comply with the possible application of the NASDAQ rules,
Generex is seeking stockholder approval to reduce the exercise price of some or
all of its outstanding Warrants so that the Board of Directors will have
flexibility to timely react to market conditions that might favor obtaining
funding in this manner. Generex may reduce the exercise price of all of the
outstanding Warrants at one time during the three-month period commencing with
the date of the Annual Meeting, or may reduce the exercise price of one or more
series or other subgroups of Warrants at different times during this three month
period. No individual Warrant, however, will be reduced more than once. Generex
anticipates it will place time limits on the price reduction, so that the
exercise prices will revert to their original levels at the end of such periods.
However, the Board of Directors may decide that the price reductions should
apply for the entire exercise period of some or all Warrants.
The general reasons for seeking additional financing in the three-month
period immediately following the Annual Meeting are described above in
connection with Proposal 2. Management believes providing an inducement for
exercise of the Warrants may be a particularly cost effective mechanism for
obtaining investment. All of the Warrant holders have either provided services
to Generex or made direct investments in Generex, and therefore are familiar
with Generex. Generex will be able to communicate directly with the Warrant
holders, and documentation will be limited. No brokers' or finders' fees will be
required, and legal, accounting and other expenses and management resources will
be significantly less than in connection with a standard private placement. This
will offset at least some of the cost of permitting exercise at below market
price
Generex cannot guarantee that a 10% discount will induce a material
number of warrant exercises. Accordingly, Generex cannot be certain that it will
receive any proceeds from this potential action.
12
EFFECT OF A WARRANT EXERCISE PRICE REDUCTIONS UPON EXISTING STOCKHOLDERS
Substantially all of the shares issuable upon exercise of the Warrants
are registered for resale under the Securities Act of 1933, as amended (the
"Securities Act"). There will be no restriction on the ability of Warrant
holders to sell these shares in the public market. If a substantial number of
Warrants are exercised and sold shortly thereafter, this, as well as the
issuance of shares of Common Stock at prices below the current market price,
could depress the market price of the Company's Common Stock. These actions
could cause the market price of Generex's shares to decline and/or remain below
$1.00 per share. Generex's shares have traded below $1.00 during all of fiscal
year 2005. Accordingly, because the bid price of Generex's shares of Common
Stock has remained below $1.00 for an extended period of time, on November 24,
2004, Generex received notice from NASDAQ that unless, on or prior to May 23,
2005, the bid price of the Common Stock closes at or above $1.00 per share for a
minimum period of ten (10) consecutive business days, the Common Stock may be
de-listed from the NASDAQ Small Cap Market.
NO APPRAISAL RIGHTS
Under Delaware law, stockholders are not entitled to appraisal rights
with respect to this proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE
FOR PROPOSAL NO. 4, APPROVAL OF THE POTENTIAL REDUCTION OF THE
EXERCISE PRICE OF OUTSTANDING GENEREX COMMON STOCK PURCHASE
WARRANTS TO A PRICE NOT LESS THAN 90% OF MARKET VALUE OF THE COMMON STOCK.
13
PROPOSAL 5
APPROVAL OF AN AMENDMENT TO THE GENEREX BIOTECHNOLOGY
CORPORATION 2001 STOCK OPTION PLAN AND APPROVAL OF THE PLAN, AS
AMENDED
The Board of Directors approved an amendment to the Generex Biotechnology
Corporation 2001 Stock Option Plan (the "2001 Plan"), effective as of March 8,
2005, to increase the shares authorized to be issued under awards granted
thereunder by four million -- from 8.0 million to 12.0 million. The amendment is
intended to replenish the supply of Common Stock to be issued under the 2001
Plan. Prior to the amendment, 566,841 shares remained available for awards under
the 2001 Plan. Proposal 5 presents the amendment to the 2001 Plan and the 2001
Plan, as amended, for approval by the stockholders.
The 2001 Plan was approved at the annual meeting of shareholders held on
March 18, 2002. The number of shares authorized to be issued upon exercise of
options under the plan was increased from 4 million to 8 million at a special
meeting of shareholders in November, 2003. The purpose of the 2001 Plan is to
provide an additional incentive to employees and directors to enter into and
remain in the service or employ of Generex by providing such individuals with an
opportunity to receive grants of options. In addition, the Board of Directors
believes that the receipt of such options encourages the recipients to
contribute materially to the growth of Generex and further align the interests
of such recipients with the interests of stockholders
Stockholder approval of the amendment to the 2001 Plan and of the 2001 Plan, as
amended, is required under new NASDAQ rules and as a condition to favorable tax
treatment of options intended to be incentive stock options pursuant to Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"), and for the
Company to maintain the deductibility of performance-based compensation granted
under the Plan to certain officers under Section 162(m) of the Code.
Summary Description of Amendment to Increase in Number of Shares Available for
Issuance.
To enable the Company to continue to grant stock option awards under the 2001
Plan, the amendment increases the number of shares of the Company's common stock
available for issuance by an additional four million -- from 8 million to
12 million shares. The additional shares are needed to facilitate the continued
use of the 2001 Plan, which would have 566,841 shares remaining available for
awards without the amendment.
On March 7, 2005, the closing price for a share of the Company's common stock,
as reported on the NASDAQ SmallCap Market, was $53.
A copy of the 2001 Plan, as amended, is attached to this Proxy Statement as
Appendix A.
Summary Description of the 2001 Plan
The 2001 Plan is administered by the Board of Directors and
itsCompensation Committee (together, the "Committee"). The Committee has the
authority to determine: (i) the individuals to whom Options shall be granted;
(ii) the type, size and terms of the Options to be made to each individual and
(iii) the time when the Options will be granted and the duration of any
applicable exercise period, including the criteria for exercisability and the
acceleration of exercisability. The Committee also has the
14
authority to amend the terms of a previously issued Option and deal with any
other matters arising under the 2001 Plan.
Awards under the 2001 Plan may be in the form of incentive stock options
("ISOs") within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"), and options that are not incentive stock options
("Non-ISOs") (collectively, "Options").
Options may be granted to employees and non-employee directors as well
as certain consultants and advisors of Generex and its subsidiary corporations;
provided, however, that ISOs may only be granted to employees. 38 employees and
non-employee directors were eligible to participate in the 2001 Plan as of
March 7, 2005. If an Option granted under the 2001 Plan expires, lapses or is
terminated for any reason, the underlying shares again become available for
issuance under the 2001 Plan, unless otherwise provided by the Committee. The
maximum number of Options that may be granted to any individual during any
calendar year is 400,000.
Options granted under the Plan may include terms that permit a
participant to use shares of Common Stock to exercise the Options. The terms of
any such Options may provide for the grant of additional Options (or the
Committee may grant additional Options) to purchase a number of shares of Common
Stock equal to the number of whole shares used to exercise the Option and the
number of whole shares, if any, withheld in payment of any taxes. Any Options so
granted will be granted with an exercise price equal to the fair market value of
the Common Stock on the date of grant, or at such other exercise price as the
Committee may establish, for a term not longer than the unexpired term of the
exercised Option and on such other terms as the Committee may determine.
The exercise price of ISOs granted under the 2001 Plan must be equal to
the fair market value of the Common Stock on the date the ISO is granted
(110 percent of the fair market value in the case of an ISO granted to an
individual who at the time of the grant owns ten percent or more of the combined
voting power of Generex capital stock (a "Ten Percent Owner")). The fair market
value of the Common Stock will be determined by the Committee.
In the event a participant's employment with Generex or its subsidiary
corporations is terminated for any reason, a participant may exercise an Option
only to the extent it was exercisable on the participant's date of termination.
An Option must be exercised prior to the earlier of (i) the expiration of ninety
days or such other period as the Committee may select (one year in the case of
disability or death) after the termination date or (ii) the expiration date of
the Option, which may not exceed ten years from the date of grant (five years in
the case of an ISO granted to a Ten Percent Owner), provided that the Committee
has the authority to issue non-ISOs which are exercisable until their expiration
date regardless of termination of employment or service. Subject to the
Committee's authority to provided different terms in an option grant, in the
event of a participant's termination for cause or the participant's engaging in
conduct after termination that constitutes cause (as defined in the 2001 Plan
and determined by the Committee), the participant's Option will terminate
immediately and the participant automatically will forfeit all Common Stock for
which Generex has not yet delivered share certificates, upon refund of the
exercise price.
The Committee may adjust the number of shares covered by outstanding
options, the kind of shares issued under the 2001 Plan and the price per share
of Common Stock available for issuance under the 2001 Plan, at any time to
reflect any change in the capital structure of Generex affecting outstanding
shares of Common Stock, whether through merger, consolidation, reorganization,
recapitalization, stock
15
dividend, stock split, combination of shares, exchange of shares or other
similar change in the capital structure of Generex.
In the event of a "Change of Control" (as defined in the 2001 Plan),
unless the Committee determines otherwise, outstanding Options will become
exercisable immediately. In addition, the Committee may take whatever action it
deems necessary with respect to any or all outstanding Options, including
requiring that Optionees surrender their outstanding options in exchange for a
payment by Generex or terminating any or all unexercised options after giving
Optionees an opportunity to exercise their outstanding Options. If a Change of
Control occurs in which Generex is not the surviving corporation, or survives
only as a subsidiary of another corporation, unless the Committee determines
otherwise, all outstanding Options that have not been exercised will be assumed
by, or replaced with comparable options or rights by the surviving corporation.
No Option may be transferred, except by will or the laws of descent and
distribution, and in the case of a Non-ISO, as permitted by the Committee.
The Committee may amend or terminate the 2001 Plan at any time;
provided, however, that the Committee will not increase the aggregate number of
shares that may be issued or transferred under the 2001 Plan or upon which
awards under the 2001 Plan may be granted, or otherwise materially amend the
2001 Plan, without stockholder approval to the extent such approval is required
in order to comply with the Internal Revenue Code or applicable laws, or to
comply with applicable stock exchange requirements.
Federal Income Tax Consequences
In 2004, Congress revised portions of the internal revenue code relating
to "nonqualified deferred compensation plans." The internal revenue service ha
not yet issued final regulations relating to those statutory revisions. The
final regulations or interpretations may affect the tax treatment or other
aspects of non-qualified options. The following description of federal income
tax consequences is based on current regulations and interpretations.
ISOs. In general, the value of an ISO is not included in the
participant's income at the time of grant, and the participant does not
recognize income on exercise of an ISO for the purpose of computing regular
federal income tax. However, when calculating income for alternative minimum tax
purposes, the excess, if any, of the fair market value of the shares acquired
over the exercise price (the "Spread") generally will be considered part of
income. At the subsequent sale of Common Stock received through the exercise of
an ISO, all gain on the sale of the Common Stock (as long as the Common Stock
has been held for one year after exercise and two years after grant) will be
characterized as capital gain or loss, and Generex will not be entitled to any
federal income tax deduction with respect to such gain. If the Common Stock has
been held for at least one year, the capital gain or loss will be taxed as
long-term capital gain or loss. If a participant disposes of ISO Common Stock
before the holding period has expired (a "Disqualifying Disposition"), the
Spread (up to the amount of the gain on disposition) will be ordinary income at
the time of such Disqualifying Disposition, and Generex will be entitled to a
federal income tax deduction. A participant must recognize as ordinary income
the gain on the disposition.
NON-ISOs. In general, the value of a Non-ISO is not included in the
participant's income at the time of grant, unless the Non-ISO Common Stock has a
"readily ascertainable fair market value" at the date of grant. It is not
anticipated that any Non-ISO will have a "readily ascertainable fair market
value" at the date of grant. On exercise, the difference between the exercise
price of a Non-ISO and the fair
16
market value of the Common Stock received generally will be recognized as
ordinary income, subject to federal income tax withholding, and will be allowed
as a deduction to Generex. At the subsequent sale of Common Stock received
through the exercise of a Non-ISO, all gain on the sale of the Common Stock will
be characterized as capital gain or loss. If the Common Stock has been held for
at least one year, the capital gain or loss will be taxed as long-term capital
gain or loss.
Awards under the 2001 Plan
The Board of Directors has granted options under the 2001 Plan as
follows through March 7, 2005 to the named executives, all executives as a
group, all non-executive directors as a group and all non-executive officer
employees as a group. The exercise prices of the options were fixed at the fair
market value of the underlying shares of Common Stock on the date of grant and
range from $94 per share to $8.70 per share.
Awards Granted Under Generex's 2001 Stock Option Plan
Name Dollar Value(1) Number of Options
- -------------------------------------------------- ----------------- -----------------
Anna E. Gluskin, President and Chief
Executive Officer $ 0 450,000
Mark Fletcher, Executive Vice President $ 0 250,000
and General Counsel
Rose C. Perri, Chief Operating Officer,
Treasurer and Secretary $ 0 400,000
All executives, as a group (3 persons) $ 0 1,100,000
Non-executive directors, as a group
(3 persons) ..................................... $ 0 590,000
All non-executive officer employees,
As a group (4 persons) .......................... $ 0 1,155,159
- ----------
(1) The dollar value is the closing price of the Common Stock at March 7, 2005
($.53) less the exercise price. The exercise prices of all listed above was in
excess of $.53. For purposes of calculating the dollar value, all of the options
were assumed to be exercisable as of March 7, 2005, notwithstanding any vesting
schedule associated with any of the grants.
In the table above, Dr. Bernstein's options are included in "All non-executive
officer employees As a group," and not in "Non-executive directors, as a group."
Plan Benefits
Generex issued a total of 450,000 options under the plan to Dr. Modi, a
former officer and director, pursuant to the consulting agreement under which
Dr. Modi was compensated for his services to Generex. Approval of the amendment
to the 2001 Plan at this year's annual meeting will constitute approval as well
to use the 2001 Plan to grant options to Dr. Modi in connection with the
termination of his service to Generex.
Pursuant to Generex's Employment Agreement with Dr. Gerald Bernstein,
Generex has agreed to grant Dr. Bernstein options to purchase 50,000 shares of
Common Stock each year during the term of his
17
employment., which expires in April, 2005. Generex has granted options to
purchase 55,159 shares to Dr. Bernstein under the 2001 Plan. Generex intends to
continue to use the 2001 Plan in the future to satisfy its obligations to grant
options under the agreement with Dr. Bernstein and any extensions of that
agreement. Approval of the amendment to the 2001 Plan at this year's annual
meeting will constitute approval as well to use the 2001 Plan to satisfy
Generex's obligations to grant options to Dr. Bernstein for so long as Common
Stock remains available for issuance under the 2001 Plan. Dr. Bernstein is a
director and an employee of Generex, but is not considered an executive officer
for this purpose.
Except for the options required to be issued under Dr. Modi's and
Dr. Bernstein's agreements, the benefits that will be received in the future
under the 2001 Plan, as amended, by particular individuals or groups are not
determinable at this time. However, Generex expects that options under the 2001
Plan will be continue to be issued annually to executives and non-executive
directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
THE PROPOSAL TO APPROVE THE AMENDMENT TO THE 2001 STOCK OPTION PLAN
18
PROPOSAL TO RATIFY THE APPOINTMENT OF
BDO DUNWOODY, LLP
AS GENEREX'S INDEPENDENT PUBLIC ACCOUNTANTS
(PROPOSAL 6)
The Board of Directors of Generex has selected BDO Dunwoody, LLP ("BDO")
to serve as the independent public accountants to audit the financial statements
of Generex and its subsidiaries for the fiscal year ending July 31, 2005. BDO
served as Generex's independent public accountants for the audit of Generex's
financial statements for the fiscal years ended July 31, 2003 and 2004.
Representatives of BDO will attend the annual meeting and will be available to
answer appropriate questions. They will have the opportunity to make a statement
at the annual meeting if they desire.
Effective July 1, 2003, Generex dismissed Deloitte & Touche, LLP ("Deloitte &
Touche") and engaged BDO to serve as the independent public accountants to audit
the financial statements of Generex for the fiscal year ending July 31, 2003.
The decision to appoint BDO as Generex's independent public accountants
beginning with the fiscal year ended July 31, 2003, replacing Deloitte & Touche,
was approved by the Audit Committee of the Board of Directors. Deloitte & Touche
did not decline to stand for re-election and Deloitte & Touche's reports on
financial statements for the two fiscal years preceding their replacement did
not contain an adverse opinion, disclaimer of opinion or qualification as to
uncertainty, audit scope or accounting principles. There had been no
disagreements with Deloitte & Touche at any time in the two fiscal years and any
subsequent interim period preceding their replacement on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure.
During the two fiscal years and any subsequent interim period preceding
their replacement, Deloitte & Touche did NOT advise Generex that:
o the internal controls necessary for Generex to develop reliable financial
statements did not exist;
o information had come to their attention that led them to believe that they
could no longer rely on management's representations or that made them
unwilling to be associated with the financial statements prepared by
management;
o they needed to expand the scope of their audit or that information existed
that had come to their attention during the last two fiscal years, which if
further investigated may (i) materially impact the fairness or reliability
of either a previously issued audit report or the underlying financial
statements, or the financial statements issued or to be issued covering the
fiscal period(s) subsequent to the date of the most recent financial
statements covered by an audit report (including information that may
prevent them from rendering any unqualified audit report on those financial
statements) or (ii) cause them to be unwilling to rely on management's
representations or be associated with Generex's financial statements; and
that due to their replacement or for any other reason, they did not so
expand the scope of their audit or conduct further investigation; or
o information had come to their attention that they had concluded materially
impacts the fairness or reliability of either (i) a previously issued audit
report or the underlying financial statements, or (ii) the financial
statements issued or to be issued covering the fiscal period(s) subsequent
to the date of the most recent financial statements covered by an audit
report (including information that, unless resolved to their satisfaction,
would prevent them from rendering an unqualified audit report on
19
those financial statements); and due to their replacement, or for any other
reason, the issue had not been resolved to their satisfaction prior to their
replacement.
If the stockholders do not ratify the appointment of BDO as independent
public accountants, the Audit Committee of the Board of Directors will
investigate the reasons for the rejection by the stockholders and the Audit
Committee will reconsider the appointment.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
THE APPOINTMENT OF BDO AS GENEREX'S
INDEPENDENT PUBLIC ACCOUNTANTS FOR THE FISCAL YEAR ENDING JULY 31, 2005.
20
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, 2003 and July 31, 2004 to its independent
auditors:
July 31, 2003 July 31, 2004
------------- -------------
Audit Fees ............................. $ 74,925(1) $ 185,672(4)
Audit-Related Fees ..................... $ 50,932(2) $ 42,360(5)
All Other Fees $ 0(3) $ 0(6)
(1) Represents charges of BDO Dunwoody, Generex's auditor for fiscal year
ended July 31, 2003.
(2) Represents amounts billed by Deloitte & Touche for review of financial
statements contained in Generex's Quarterly Reports on Form 10-Q prior
to their dismissal on July 1, 2003, and review of registration
statements incorporating by reference their reports.
(3) Neither Deloitte & Touche nor BDO Dunwoody billed amounts for any other
services.
(4) Represents charges of BDO Dunwoody, Generex's auditor for fiscal year
ended July 31, 2004.
(5) Represents amounts billed by Deloitte & Touche for review of financial
statements contained in Generex's Annual Reports on Form 10-K, and
review of registration statements incorporating by reference their
reports.
(6) Neither Deloitte & Touche nor BDO Dunwoody billed amounts for any other
services.
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.
21
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The business affairs of Generex are managed under the direction of the
Board of Directors. During the fiscal year ended July 31, 2004, Generex's Board
of Directors held 4 meetings and took action by unanimous consent 5 times.
During the fiscal year ended July 31, 2004, all of the directors attended all of
the Board of Directors meetings that were held.
On January 29, 2004, Mr. Levitch and Dr. Modi resigned from the Board of
Directors. Dr. Modi was initially retained by Generex in his position of
Vice President, Research and Development, but on August 26, 2004, Dr. Modi also
resigned from his position of Vice President, Research and Development. To fill
the vacancies left by Mr. Levitch and Dr. Modi, the Board of Directors,
including all of the independent directors, appointed Ms. Allport-Settle to the
Board of Directors on February 6, 2004 and appointed Mr. McGee to the Board of
Directors on March 16, 2004. Each of Ms. Allport-Settle and Mr. McGee is deemed
an independent director under NASDAQ Rule 4200(a)(15). Except for the periods of
time between the resignation of Mr. Levitch and Dr. Modi, respectively, and the
appointments of Ms. Allport-Settle and Mr. McGee, respectively, during fiscal
year 2004, the Board of Directors consisted of seven members. The Company's
director Michael Rosen has decided not to stand for reelection at the annual
meeting, but will continue as a director until the meeting. The Board of
Directors has nominated Peter Amanatides for election as a director at the
annual meeting to replace Mr. Rosen. Mr. Amanatides will be an independent
director. A majority of the current directors as of this date meet and, assuming
Mr. Amanaitides election, following the annual meeting will meet, the definition
of independence under the NASDAQ SmallCap Market listing requirements. Generex
continues to evaluate additional candidates for independent directors. In
accordance with the Bylaws of Generex, 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 shareholders.
The Board of Directors has established two committees, the Audit
Committee and the Compensation Committee. Generex has not established a
Nominating Committee.
The Audit Committee, which was established on March 1, 2000, met 2 times
during the fiscal year ended July 31, 2004. 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 Reports 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 auditor 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
and, as amended, is reproduced as Appendix A to Generex's Proxy Statement filed
with the Securities and Exchange Commission on January 23, 2004. The Audit
Committee Charter is also available on Generex's website-www.generex.com.
During fiscal 2004, the Audit Committee was initially composed of
Mr. Barratt, who is the chairman of the Audit Committee, Mr. Rosen and our
former director, Mr. Levitch. As a result of Mr. Levitch's resignation, Brian T.
McGee was appointed to the audit committee in March, 2004. The Audit
22
Committee is currently composed of Mr. Rosen, Mr. Barratt and Mr. McGee. All of
the members of the Audit Committee attended all of the meetings that they were
eligible to attend.
The Compensation Committee was formed on July 30, 2001 and met 2 times
during the fiscal year ended July 31, 2004. The Compensation Committee was
formed to set policies for compensation of the Chief Executive Officer and the
other executive officers of Generex. The Compensation Committee periodically
compares Generex's executive compensation levels with those of companies with
which Generex believes that it competes for attraction and retention of senior
caliber personnel. Under NASDAQ rules effective as of the date of the annual
meeting, the Compensation Committee will either determine or recommend to the
Board of Directors the compensation of all executive officers.
At the commencement of fiscal 2004, the Compensation Committee was
composed of Mr. Rosen, Mr. Barratt and our former director, Mr. Levitch.
Consequent upon Mr. Levitch's resignation from the Board of Directors in January
2004, the Board of Directors determined to restructure the Compensation
Committee. Accordingly, in May 2004, Mr. McGee and Ms. Allport-Settle were
appointed to the Compensation Committee in the place of Mr. Barrett and
Mr. Rosen. However, all decisions made on behalf of the Compensation Committee
with respect to compensation for fiscal 2004 were made by the former members of
the committee. Ms. Allport-Settle and Mr. McGee will make compensation decisions
on behalf of the Compensation Committee beginning in fiscal 2005. Currently,
there is no chairman of the Compensation Committee. All of the members of the
Compensation Committee attended all of the meetings of the Compensation
Committee.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee reviewed and discussed Generex's audited financial
statements for the fiscal year ended July 31, 2004 with management. The Audit
Committee discussed with BDO Dunwoody, LLP, Generex's independent public
accountants for the fiscal year ended July 31, 2004, the matters required to be
discussed by Statement on Auditing Standards No. 61, as modified. The Audit
Committee received the written disclosures and the letter from BDO Dunwoody, LLP
required by Independence Standards Board Standard No. 1 (Independence
Discussions with Audit Committees), and discussed with BDO Dunwoody, 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, 2004.
Submitted by the Audit Committee
John P. Barratt (Chairman)
J. Michael Rosen
Brian T. McGee
The foregoing Report of the Audit Committee shall not be deemed to be soliciting
material, to be filed with the Securities and Exchange Commission (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.
23
AUDIT COMMITTEE FINANCIAL EXPERT
The Board of Directors at Generex has determined that at least one person
serving on its Audit Committee is an "audit committee financial expert" as
defined under Item 401(h) of Regulation S-K. Mr. Barratt, a member of the Audit
Committee, is an audit committee financial expert and is independent as that
term is used in Item 7(d)(3)(iv) of Schedule 14A under the Securities Exchange
Act of 1934, as amended and NASDAQ Rules 4200(a)(15) and 4350(d).
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
Compensation Philosophy. The goals of Generex's compensation program are to
attract and retain talented executives, to motivate these executives to achieve
Generex's business goals, to align executive and stockholder interests and to
recognize individual contributions as well as overall business results.
The key elements of Generex's executive compensation are base salary, cash
bonuses, stock bonuses and stock options. While the elements of compensation are
considered separately, the Compensation Committee ultimately looks to the value
of the total compensation package provided by Generex to the individual
executive.
At the end of the July 31, 2001 fiscal year, the Compensation Committee
conducted a review of Generex's executive compensation program. This review
included a comprehensive report from an independent executive compensation
consultant that compared Generex's total executive compensation, including base
salaries, cash bonuses and stock options, to a peer group of publicly traded
biotechnology companies. For the fiscal year ended July 31, 2001, the
Compensation Committee targeted total cash compensation for Generex executives
to the median of the peer group. For the fiscal year ended July 31, 2002, the
Compensation Committee targeted total cash compensation for executives at the
higher end of the peer group. In setting this policy, the Compensation Committee
took into account Generex's relatively lean management structure and the number
of roles filled by each officer. After the end of the July 31, 2003 fiscal year,
the Compensation Committee determined that notwithstanding substantial efforts
made on Generex's behalf by the executive officers and the substantial
challenges faced by Generex given its stage of development, the salaries
received by the executive officers, having been "brought to market" the previous
year, represented the higher end of the compensation range for executives at
similar development stage companies. The Committee therefore determined that the
salaries represented appropriate cash compensation, and awarded no bonuses for
2004. During all relevant periods, Dr. Modi's compensation has been based on his
contract. The contract provides for a predetermined salary and achievement based
bonuses. Although Dr. Modi resigned from his position as Vice President,
Research and Development, in accordance with Dr. Modi's agreement with Generex,
the termination of Dr. Modi's agreement is effective the date which is twelve
(12) months after delivery to Generex of Dr. Modi's notice of termination.
Accordingly, Generex will continue to pay Dr. Modi's salary and other
compensation in accordance with the consulting agreement until August 25, 2005.
Base Salaries. Prior to 2001, Generex historically paid very modest base
salaries to its executive officers, relying on option grants to supplement the
low base salaries. The Compensation Committee implemented increases for fiscal
2002 to bring the base salaries of Generex's executives in line with base
salaries of Generex's principal competitors. The Compensation Committee has
determined that since 2002 Generex's executive salaries are comparable to
similarly situated executive officers in the biotechnology industry.
Accordingly, neither Ms. Gluskin's nor Ms. Perri's salary was increased for
fiscal 2004. The Compensation Committee is currently reviewing salaries in
respect of fiscal 2005.
24
Cash Bonuses. In 2002, the Compensation Committee adopted performance objectives
for determining bonuses of executive officers on a going forward basis.
Executive officer bonuses were, and continue to be, based on the executive's
position within Generex, Generex's attainment of the objectives and individual
contributions to the attainment of the objectives. The Compensation Committee
meets each year to determine such year's bonuses. Although Generex had achieved
a number of its objectives during fiscal 2003, the Compensation Committee
determined not to award bonuses for fiscal 2003. The Compensation Committee is
currently reviewing cash bonuses in respect of fiscal 2004.
As discussed above, the Compensation Committee determined that the salaries (and
in the case of Mark Fletcher, guaranteed bonus) received by the executive
officers during fiscal 2004 represented appropriate cash compensation.
Therefore, no cash bonuses were awarded to the executive officers for fiscal
2004, other than Mr. Fletcher's guaranteed bonus. At the same time, the
Committee decided to continue its plan, which was developed in fiscal 2004,
during 2005 that would tie potential executive bonuses to measurable and
realistic milestones. Under his agreement with Generex, Mr. Fletcher receives a
guaranteed bonus of $30,000 per annum, payable in quarterly installments, while
he is employed by Generex. Dr. Modi's consulting agreement currently provides
for bonuses based on specific milestones, which Generex will be obligated to pay
until August 25, 2005.
Stock Options. The purpose of stock option grants is to provide an additional
incentive to Generex employees, including executive officers, to contribute
materially to the growth of Generex. Stock options are granted to align the
interests of the recipients with the interests of stockholders. In November
2003, the Committee granted to each of Ms. Gluskin and Ms. Perri options for
100,000 shares for fiscal year 2004. Dr. Modi receives options for 150,000
shares each year under the terms of his consulting agreement with Generex.
Chief Executive Officer Compensation. Ms. Gluskin's compensation for the fiscal
year ended July 31, 2004 was determined in accordance with the compensation
policies described above. Ms. Gluskin was paid a cash salary of approximately
$350,000, which the Committee deemed appropriate compensation, and received no
cash bonus for 2004. Ms. Gluskin was granted an option for 100,000 shares. The
compensation paid to Ms. Gluskin for fiscal 2004 was considered to give
appropriate incentives to Ms. Gluskin to continue to promote the strategic
objectives of Generex and to enhance stockholder value.
Deductibility of Compensation. Section 162(m) of the Internal Revenue Code does
not allow public companies to take a Federal income tax deduction for
compensation paid to certain executive officers, to the extent that compensation
exceeds $1 million for any such officer in any fiscal year. This limitation does
not apply to compensation that qualifies as "performance-based compensation"
under the Code. The Board of Directors believes that at the present time it is
quite unlikely that the compensation paid to any executive officer will exceed
$1 million in any fiscal year. Therefore, the Board of Directors has not taken
any measures to date specifically to qualify any of the compensation paid to its
executive officers as "performance-based compensation" under the Code.
Submitted by the Compensation Committee
John P. Barratt
J. Michael Rosen
The foregoing Report of the Compensation Committee on Executive Compensation and
the Performance Graph on page 22 shall not be deemed to be soliciting material,
to be filed with the SEC or to be
25
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.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (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 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, 2004 were filed on a timely basis.
EXECUTIVE OFFICERS AND DIRECTORS
Anna E. Gluskin 53 Chairman, President, Chief Executive
Officer and Director
Rose C. Perri 37 Chief Operating Officer, Acting Chief
Financial Officer, Treasurer,
Secretary and Director
Gerald Bernstein, M.D. 71 Director, Vice President Medical Affairs
Mark Fletcher, Esquire 39 Executive Vice President and General Counsel
J. Michael Rosen 53 Director
John P. Barratt 60 Director
Mindy J. Allport-Settle 37 Director
Brian T. McGee 43 Director
All directors are elected to hold office until the next annual meeting of
stockholders following election and until their successors are duly elected and
qualified. Executive officers are appointed by the Board of Directors and serve
at the discretion of the Board of Directors.
Anna E. Gluskin -- Director since September 1997. Ms. Gluskin has served as the
President and Chief Executive Officer of Generex since October 1997 and the
Chairman since November 2002. She held comparable positions with Generex
Pharmaceuticals, Inc. from its formation in 1995 until its acquisition by
Generex in October 1997.
Rose C. Perri -- Director since September 1997. Ms. Perri has served as
Treasurer and Secretary of Generex since October 1997, and as Chief Operating
Officer since August 1998. She was an officer of Generex Pharmaceuticals, Inc.
from its formation in 1995 until its acquisition by Generex in October 1997.
Effective November 2002, Ms. Perri became acting Chief Financial Officer.
Gerald Bernstein, M.D. -- Director since October 2002. Dr. Gerald Bernstein has
served as Vice President of Generex since October 1, 2001. Dr. Bernstein acts as
a key liaison for Generex on medical and scientific affairs to the medical,
scientific and financial communities and consults with Generex under a
consulting agreement on research and medical affairs and on development
activities. Dr. Bernstein has been an associate clinical professor at the
Albert Einstein College of Medicine in New York and an attending physician at
Beth Israel Medical Center, Lenox Hill Hospital and Montefore
26
Medical Center, all in New York, since 1999. He was president of the American
Diabetes Association from 1997 to 1998.
J. Michael Rosen - A Director since August 2000, Mr. Rosen has decided not to
stand for reelection at the annual meeting.. Mr. Rosen has been a principal in a
number of related travel management and hotel marketing businesses since 1978.
The principal companies in this group, all of which are headquartered in
Ontario, are Uniworld Travel & Tours, Inc., Nevada Vacations, Inc., Casino
Vacations, Inc. and Casino Tours, Inc. Mr. Rosen presently serves as the
President or a Vice President, and the Chief Financial Officer, of each of these
companies. Mr. Rosen is an accountant by training, and was engaged in the
private practice of accounting prior to 1978.
Mark Fletcher, Esq. -- Mr. Fletcher has served as our Executive Vice President
and General Counsel since April 2003. 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.
John P. Barratt -- Director since March 2003. Mr. Barratt is Court appointed
Responsible Person and Liquidation Manager of Beyond.com Corporation,
Debtor-in-Possession, a US Chapter 11 Bankruptcy Case. Prior to his appointment
in 2002, he had served as Chief Operating Officer of Beyond.com, since 2000.
From January 1996 to September 2000, Mr. Barratt served as partner-in-residence
for the Quorum Group of Companies, an international investment partnership
specializing in providing debt and equity capital to the emerging high growth
technology sector. From 1988 to December 1995, Mr. Barratt was Executive Vice
President and Chief Operating Officer of Coscan Development Corporation. He
previously held a number of senior-level management positions, including Deputy
Chief Executive of Lloyds Bank Canada. Mr. Barratt also currently serves on the
Board of Directors and is Chairman of the Credit Committee and member of the
Audit Committee for the Bank of China (Canada), and as a director and a member
of the Audit Committee of GLP NT Corporation and BNN Split Corporation. Mr.
Barratt also serves on the Advisory Board of Brascan SoundVest Diversified
Income Fund and Brascan SoundVest Total Return Fund and was also recently
appointed to the Advisory Board of Brascan SoundVest Rising Distribution Split
Trust.
Mindy J. Allport-Settle -- Director since February 2004. Ms. Allport-Settle has
been President and Chief Executive Officer of Integrated Development, LLC
("Integrated") since 1998. Integrated is an independent consulting firm to the
pharmaceutical industry, providing informed guidance in operational, project and
contract management, new business development and regulatory compliance. In
addition to her position with Integrated, Ms. Allport-Settle has been a
Vice-President of Impact Management Services, Inc. ("IMS") since 2003, which
also provides consulting services to the pharmaceutical industry. In her current
positions at Integrated and IMS, Ms. Allport-Settle has worked with several
major pharmaceutical companies. From 2001 to 2002, Ms. Allport-Settle was
Director of Client Services for Scriptorium Publishing Service. From 1992 to
1994, Ms. Allport-Settle was an Eye Bank Technician/Organ Procurement Surgeon
for NC Eye & Human Tissue Bank; and from 1991 to 1998, Ms. Allport-Settle was a
Freelance Writer and Photographer. Ms. Allport-Settle is currently working on
her M.B.A. in Global Management at the University of Phoenix and expects to
receive her degree in 2005.
Brian T. McGee - Director since March 2004. Mr. McGee has been a partner of
Zeifman & Company, LLP ("Zeifman") since 1995. Mr. McGee began working at
Zeifman shortly after receiving a B.A.
27
degree in Commerce from the University of Toronto in 1985. Zeifman is a
Chartered Accounting firm based in Toronto, Ontario. A significant element of
Zeifman's 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.
OTHER KEY EMPLOYEES AND CONSULTANTS
Slava Jarnitskii is our Financial Controller. He began his employment with
Generex Pharmaceuticals in September 1996 and has been in the employment of
Generex since its acquisition of Generex Pharmaceuticals in October 1997. Before
his employment with Generex Pharmaceuticals, Mr. Jarnitskii received a Masters
of Business Administration degree from York University in September 1996.
Dr. Robert E. Humphreys, M.D., Ph.D., is currently Executive Vice-President and
Chief Operating Officer of our subsidiary, Antigen Express, Inc. Dr. Humphreys
founded Antigen in 1996 and was its President. He has extensive experience in
the National Institute of Health, arthritis, cancer and diabetes study sections.
Dr. Humphreys is an inventor on (six) 6 awarded US patents and has over 150
peer-reviewed publications. Prior to founding Antigen, Dr. Humphreys was
Professor of Medicine and Pharmacology at University of Massachusetts Medical
School. He received his M.D. and Ph.D. degrees from Yale University and was a
post-doctoral fellow in biochemistry at Harvard University. He also received his
clinical training at Bethesda Naval Hospital and was an Officer at the Naval
Medical Research Institute.
Eric von Hofe, PhD, is currently a Vice President of Technology Development of
our subsidiary, Antigen Express, Inc. 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. 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 twenty-eight articles in peer- reviewed journals and he
has been an inventor on four patents. Dr. von Hofe was 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.
Dr. Minzhen Xu is Vice President - Biology of Antigen. Dr. Xu received an M.D.
from Shanghai Medical University in China and a Ph.D. in immunology from
University of Massachusetts Medical School. He has been with Antigen since its
inception and is Generex's chief experimentalist.
NOMINATION OF DIRECTORS
Generex currently does not have a nominating committee. Nominations for the
election of directors at annual meetings have generally been handled by the full
Board of Directors, which has never exceeded seven members. In order to comply
with newly implemented NASDAQ rules, Generex is maintaining the size of its
Board of Directors at seven members, four of whom will be independent.
Accordingly, due to the relatively small size of its Board of Directors, Generex
does not foresee the need to establish a separate nominating committee. Future
candidates for director will either be (i) recommended by a
28
majority of the independent directors for selection by the Board of Directors or
(ii) discussed by the full Board of Directors and approved for nomination by the
affirmative vote of a majority of the Board of Directors, including the
affirmative vote of a majority of the independent directors, as required by the
new NASDAQ rules. A board resolution providing this nominating process will be
in place on the date of the annual meeting.
As a small company, Generex has generally used an informal process to identify
and evaluate director candidates. Although Generex believes that indentifying
and nominating highly skilled and experienced director candidates is critical to
its future, Generex has not engaged, nor does it believe that it is necessary at
this time to engage, any third party to assist it in identifying director
candidates. Generex has encouraged both independent directors and directors that
are not independent to identify nominees for the Board of Directors. Generex
believes that as a result, it is presented with a more diverse and experienced
group of candidates for discussion and consideration.
During the evaluation process, Generex seeks to identify director candidates
with the highest personal and professional ethics, integrity and values. Generex
seeks candidates with diverse experience in business, finance, pharmaceutical
and regulatory matters, and other matters relevant to a company such as Generex.
Additionally, Generex requires that director nominees have sufficient time to
devote to its affairs.
Generex will consider candidates that are put forward by its stockholders. The
name, together with the business experience and other relevant background
information of a candidate, should be sent to Mark Fletcher, the Executive
Vice-President and General Counsel 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 independent directors
for their 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. Other than candidates
submitted by its directors and executive officers, Generex has never received a
proposed candidate for nomination from any large long-term shareholder.
Generex has not, to date, implemented a policy or procedure by which its
stockholders can communicate directly with its directors. Generex is currently
reviewing alternative policies and procedures for such communication and intends
to have a policy in place before the end of fiscal year 2004. All of the then
directors of Generex attended its last annual meeting of stockholders.
DIRECTOR NOMINEES
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 Amended and Restated Bylaws. A copy of these Bylaw requirements
will be provided upon request in writing to Mark Fletcher, the Executive
Vice-President and General Counsel of
29
Generex, at Generex's principal executive offices located at 33 Harbour Square,
Suite 202, Toronto, Ontario, Canada M5J 2G2.
30
STOCK PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative total return on
Generex's common stock with cumulative total returns of the NASDAQ Stock Market
(U.S. Companies) and the NASDAQ Biotechnology Index for the period commencing
May 5, 2000 (the date Generex's common stock was first listed for trading on the
NASDAQ National Market) and ending on July 31, 2004. The graph assumes that $100
was invested on May 5, 2000, in Generex's common stock, the stocks in the NASDAQ
Stock Market (U.S. Companies) and the stocks comprising the NASDAQ Biotechnology
Index, and that all dividends were reinvested. Generex's common stock has been
trading on the NASDAQ SmallCap Market since June 5, 2003.
[INSERT GRAPH HERE]
31
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth, for Generex's last three fiscal years, all
compensation awarded to, earned by or paid to the chief executive officer
("CEO") and the three most highly compensated executive officers of Generex
other than the CEO whose salary and bonus payments exceeded $100,000 for the
fiscal year ended July 31, 2004.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
----------------------------------- -------------------------------------
AWARDS PAYOUTS
------------------------ -------
Restricted Securities All
Year Salary Other Stock Underlying Other
Name and Principal Ended ($) Bonus Annual Award(s) Options LTIP Compensation
Position July 31 (3) ($) Compensation ($) (#) Payouts ($)
- ------------------------ --------- ------- ------- ------------ ---------- ---------- ------- ------------
Anna E. Gluskin (1), 2004 350,000 0 * 0 100,000(4) 0 0
President and Chief 2003 350,000 0 * 0 350,000(5) 0 0
Executive Officer 2002 350,000 125,000 * 0 0 0 0
Rose C. Perri (1), 2004 295,000 0 * 0 100,000(4) 0 0
Chief Operating 2003 295,000 0 * 0 300,000(5) 0 0
Officer, acting Chief 2002 250,000 100,000 * 0 0 0 0
Financial Officer,
Treasure and Secretary
Pankaj Modi (2), 2004 282,519 0 * 0 150,000(6) 0 0
Vice President, 2003 262,000 0 * 0 150,000(6) 0 0
Research and Development 2002 262,500 0 * 0 150,000 0 0
Mark Fletcher, 2004 100,000 30,000(7) * 0 0 0 0
Executive Vice 2003 100,000 15,000(7) * 0 250,000(8) 0 0
President and General
Counsel
* Perquisites and other personal benefits, securities or other property received
by each executive officer did not exceed the lesser of $50,000 or 10% of such
executive officer's salary and bonus.
(1) Portions of the cash compensation paid to Ms. Gluskin and Ms. Rose Perri are
attributable to amounts paid indirectly through a management services agreement
with a corporation of which, at July 31, 2004, Ms. Gluskin Ms. Rose Perri were
equal owners.
32
(2) All of the cash compensation paid to Dr. Modi is paid indirectly to him
through a corporation owned 100% by him.
(3) 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 weighted average Canadian/U.S. dollar exchange rate for the
years ended July 31, 2004, 2003 and 2002, respectively.
(4) These options were granted under the Generex Biotechnology Corporation 2001
Stock Option Plan on November 18, 2003 with effect as of November 18, 2003.
(5) These options were granted under the Generex Biotechnology Corporation 2001
Stock Option Plan on November 26, 2002 with effect as of November 26, 2002.
(6) Granted as of July 31, 2004 pursuant to the terms of Dr. Modi's consulting
agreement. These options were granted under the Generex Biotechnology
Corporation 2001 Stock Option Plan.
(7) Mr. Fletcher's employment agreement guarantees him a bonus of $30,000
annually, payable in quarterly installments.
(8) Granted on March 19, 2003 with effect as of April 21, 2003 pursuant to the
terms of Mr. Fletcher's employment agreement. These options were granted under
the Generex Biotechnology Corporation 2001 Stock Option Plan.
33
OPTION GRANTS DURING THE 2004 FISCAL YEAR
The following tables set forth information related to options to purchase common
stock granted to the CEO and the named executive officers during the fiscal year
ended July 31, 2004.
Potential realizable value at
assumed annual rates of stock
Individual grants appreciation for option term
--------------------------------------- -------------------------------
Percent of
total
Number of granted to
Securities options
Underlying employees Exercise
Options in fiscal Price Expiration
Name granted (#) year (%) ($/Sh) Date 5%($) 10%($)
- --------------- ----------- ---------- -------- ---------- ------- --------
Anna E. Gluskin 100,000(1) 4.4% $ 1.62 11/24/08 $44,758 $98,903
Rose C. Perri 100,000(1) 4.4% $ 1.62 11/24/08 $44,758 $98,903
Pankaj Modi 150,000(2) 6.5% $ 1.10 7/31/09 $45,586 $100,734
(1) These options were granted under the Generex Biotechnology Corporation 2001
Stock Option Plan on November 24, 2003 with effect as of November 24, 2003.
(2) Granted on October 26, 2004 with effect as of July 31, 2004 pursuant to the
terms of Dr. Modi's consulting agreement. These options were granted under the
Generex Biotechnology Corporation 2001 Stock Option Plan.
FISCAL YEAR END OPTION VALUES
No options were exercised by the CEO or the named executive officers during the
fiscal year ended July 31, 2004. The following table provides information
relating to the number and value of options held by the CEO and the named
executive officers at fiscal year end.
34
Number of
securities Value of
underlying unexercised
unexercised options at July 31,
options at July 31, 2004
2004 ($)
Shares Acquired Value Realized (#) Exercisable/ Exercisable(1)/
Name on Exercise (#) ($) Unexercisable Unexercisable
- ------------------ ---------------- -------------- -------------------- -------------------
Anna E. Gluskin -0- -0- 750,000/0 0/0
Rose C. Perri -0- -0- 650,000/0 0/0
Pankaj Modi -0- -0- 900,000/0 0/0
Mark Fletcher -0- -0- 250,000/0 0/0
- ----------
(1) Based on the closing price of common stock ($0.74) on November 22, 2004.
OTHER BENEFIT PLANS
We have no long-term incentive plans or defined benefit or actuarial pension
plans, and have not repriced any options previously granted to the above named
officers.
DIRECTORS' COMPENSATION; OTHER COMPENSATION
Directors who are not officers or employees of Generex receive cash compensation
of $10,000 each fiscal quarter. Mr. Barratt received $10,000 upon becoming
director, applicable to the quarter in which his service began. Each outside
director received options exercisable for 70,000 shares for fiscal 2004.
Dr. Modi is compensated through a consulting agreement that was originally
entered into as of October 1, 1996, that was amended and supplemented as of
January 7, 1998, and that was further amended and supplemented as of December
31, 2000. The parties to the agreement are Dr. Modi, Generex and Generex
Pharmaceuticals, Inc., a wholly-owned subsidiary of Generex. An amendment to Dr.
Modi's consulting agreement was approved by the Board of Directors in January
2002 granting Dr. Modi cash bonuses upon the occurrence of certain events in
connection with the extension of the joint venture with Elan to include
Morphine. All references to the consulting agreement in the following discussion
relate to the agreement, as amended and supplemented.
Pursuant to the terms of the consulting agreement, Dr. Modi held the position of
Vice President, Research and Development of Generex and Generex Pharmaceuticals,
and both Generex and Generex Pharmaceuticals are jointly and severally
responsible for the payment to Dr. Modi of all amounts due under the consulting
agreement. The agreement provides for Dr. Modi's term of service to extend
through July 31, 2010, subject to termination without cause by Dr. Modi or
Generex at any time after January 1, 2003 upon 12 months' prior written notice.
In connection with amending and supplementing the consulting agreement in
January 1998, Generex issued 1,000 shares of Special Voting Rights Preferred
Stock ("Special Preferred Stock") to Dr. Modi, comprising all of the outstanding
shares of Special Preferred Stock. Special Preferred Stock does not generally
carry the right to vote, but does have the following special voting rights:
35
o the holders of Special Preferred Stock have the right to elect a majority
of Generex's Board of Directors if a change of control occurs; and
o the holders of Special Preferred Stock have the right to approve any
transaction that would result in a change of control.
A "change of control" is deemed to occur if Generex's founders (namely, Ms.
Gluskin, Dr. Modi or Ms. Rose Perri), or directors appointed or nominated with
the approval of Generex's founders, should cease to constitute at least 60% of
Generex's directors, or if any person becomes either Chairman of the Board of
Directors or Chief Executive Officer of Generex without the prior approval of
the founders. If a change of control were to occur, Dr. Modi would thereafter be
able to elect a majority of the directors. No change of control has occurred to
date.
The consulting agreement provides for an annual base compensation of $250,000 a
year, effective as of August 1, 2000, subject to certain cost-of-living
increases. In addition, Dr. Modi is entitled to receive certain bonus
compensation during the term of the agreement. Dr. Modi also has the right to
receive certain additional bonus payments based upon agreements entered into by
Generex for rights granted to third parties to develop, manufacture and/or
market products based upon ideas, improvements, designs or discoveries made or
conceived by Dr. Modi.
The consulting agreement provides for Dr. Modi to be granted options to purchase
150,000 shares of common stock in each of the next ten fiscal years, starting
with the fiscal year ended July 31, 2001. The options may be granted only under
option plans of Generex that have been approved by the stockholders.
On August 26, 2004, Dr. Modi resigned effective immediately from his position as
Vice President, Research and Development. At such time, Dr. Modi also gave
twelve (12) months prior written notice of termination of his consulting
agreement. Accordingly, Dr. Modi will continue to receive salary and other
compensation from Generex in accordance with his consulting agreement until
August 25, 2005.
Dr. Bernstein is compensated through an employment agreement, dated April 1,
2002, between Dr. Bernstein and Generex. Pursuant to the terms of the employment
agreement, Dr. Bernstein holds the position of Vice President of Medical
Affairs. The employment agreement provides for Dr. Bernstein's term of service
to extend through March 31, 2005, subject to (i) termination without cause by
Dr. Bernstein or Generex upon 90 days' prior written notice and (ii) for cause
by Generex immediately upon the giving of notice.
The employment agreement provides for an annual base compensation of $150,000 a
year, effective as of April 1, 2002. During each year of the employment
agreement, Dr. Bernstein may receive cash bonuses at the discretion of the Board
of Directors and is entitled to receive options to purchase 50,000 shares of
common stock.
Mr. Fletcher is compensated through an employment agreement, dated March 17,
2003, between Mr. Fletcher and Generex. Pursuant to the terms of the employment
agreement, Mr. Fletcher holds the position of Executive Vice President and
General Counsel. The employment agreement provides for Mr. Fletcher's term of
service to extend through March 16, 2008, subject to (i) termination without
cause by Generex upon 30 days' prior written notice and (ii) for cause by
Generex immediately upon the giving of notice.
36
The employment agreement provides for an annual base compensation of $100,000 a
year, effective as of March 17, 2003. During each year of the employment
agreement, Mr. Fletcher shall receive a cash bonus of $30,000, payable in
quarterly installments, and may receive additional cash bonuses at the
discretion of the Board of Directors. Upon entering into the employment
agreement Mr. Fletcher received options to purchase 250,000 shares of common
stock.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Effective July 30, 2001, decisions regarding executive compensation were made by
the Compensation Committee of the Board of Directors. Brian T. McGee and Mindy
J. Allport-Settle are the members of the Compensation Committee.
No executive officer of Generex has served on the board of directors or
compensation committee of any other entity that has or has had one or more
executive officers serving as a director of Generex (excluding entities that are
wholly owned by one or more of the executive officers).
37
EXISTING STOCK COMPENSATION PLANS
The following table sets forth as of July 31, 2004 information regarding our
existing compensation plans and individual compensation arrangements pursuant to
which our equity securities are authorized for issuance to employees or
non-employees (such as directors, consultants and advisors) in exchange for
consideration in the form of services:
Number of
securities
remaining available
Number of for future issuance
securities to be under equity
issued upon Weighted-average compensation plans
exercise of exercise price of (excluding
outstanding outstanding securities
options, warrants options, warrants reflected in column
Plan Category and rights and rights (a))
- ------------------------------------- ----------------- ----------------- --------------------
(a) (b) (c)
Equity compensation plans approved by
security holders
1998 Stock Option Plan 643,500 $ 5.00 0
2000 Stock Option Plan 1,229,500 $ 7.50 770,500
2001 Stock Option Plan 7,433,159 $ 1.98 566,841
----------------- ----------------- --------------------
TOTAL 9,306,159 $ 2.92 1,337,341
Equity compensation plans not
approved by security holders 0 0 0
TOTAL 9,306,159 $ 2.92 1,337,341
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The tables on the following pages sets forth information regarding the
beneficial ownership of the common stock by:
o Our executive officers and directors;
o All directors and executive officers as a group; and
o Each person known to us to beneficially own more than five percent (5%) of
our outstanding shares of common stock.
38
The information contained in these tables is as of February 21, 2005. At that
date, Generex had 35,733,643 shares of common stock outstanding. In addition to
common stock, Generex has outstanding 1,000 shares of Special Voting Rights
Preferred Stock. All of the shares of Special Voting Rights Preferred Stock are
owned by Dr. Pankaj Modi.
A person is deemed to be a beneficial owner of shares if he has the power to
vote or dispose of the shares. This power can be exclusive or shared, direct or
indirect. Except as discussed in the footnotes to the table, the beneficial
owners have sole power to vote the shares of common stock beneficially owned by
them. 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.
39
BENEFICIAL OWNERSHIP
NAME OF BENEFICIAL OWNER NUMBER OF SHARES PERCENT OF CLASS
- -------------------------------------------------------------------------------- -------------------- ------------------
(i) Directors and Executive Officers
John P. Barratt(1) ............................................................. 210,000 *
Gerald Bernstein, M.D.(2) ...................................................... 63,628 *
Mark Fletcher(3) ............................................................... 263,360 *
Anna E. Gluskin(4) ............................................................. 1,703,794 4.8%
Pankaj Modi, Ph.D.(5) .......................................................... 1,850,200 5.2%
Rose C. Perri(6) ............................................................... 4,750,202 13.4%
J. Michael Rosen(7) ............................................................ 288,730 *
Mindy Allport-Settle(8) ........................................................ 70,000 *
Brian McGee(8) ................................................................. 70,000 *
Officers and directors as a group (9 persons)(9) .............................. 8,316,247 21.9%
(ii) Other Beneficial Owners (and their addresses)
Cityplatz Limited (10) ......................................................... 2,663,934 7.1%
P.O. Box 175
12-14 Finch Road
Douglas
Isle of Man
IM99 1TT
Omicron Master Trust (11) ...................................................... 4,514,313 11.5%
210 Seventh Ave., 39th Floor
New York, NY 10019
Iroquois Capital, L.P. (12)..................................................... 2,511,971 6.7%
641 Lexington Ave., 26th Floor
New York, NY 10022
EBI, Inc. In Trust(13) ......................................................... 1,441,496 4.1%
c/o Miller & Simons
First Floor, Butterfield Square
P.O. Box 260
Providencials
Turks and Caicos Islands
British West Indies
GHI, Inc. In Trust(14).......................................................... 1,907,334 5.5%
c/o Miller & Simons
First Floor, Butterfield Square
P.O. Box 260
Providencials
Turks and Caicos Islands
British West Indies
40
* Less than one percent.
(1) Includes 70,000 options granted on March 19, 2003, 70,000 options granted on
October 30, 2003 and 70,000 options granted on October 26, 2004 under Generex's
2001 Stock Option Plan (the "2001 Plan").
(2) Includes shares issuable upon exercise of 50,000 options granted in
November, 2002, 5,159 options granted on December 31, 2001 and 5,000 options
granted on January 3, 2000, under the 2001 Plan and pursuant to Dr. Bernstein's
Employment Agreement with Generex and his prior consulting agreement.
(3) Includes 250,000 shares issuable upon the exercise of an option granted on
March 19, 2003 with effect as of April 21, 2003 under the 2001 Plan.
(4) Includes 953,667 shares owned of record by GHI, Inc. that are beneficially
owned by Ms. Gluskin, 100,000 shares issuable upon the exercise of an option
granted under Generex's 1998 Stock Option Plan (the "1998 Plan"), 200,000 shares
issuable upon the exercise of an option granted under Generex's 2000 Stock
Option Plan (the "2000 Plan"), and 450,000 shares issuable upon exercise of an
option granted under the 2001 Plan.
(5) Includes 150,000 shares issuable upon the exercise of an option granted
under the 1998 Plan and 150,000 shares issuable upon the exercise of an option
granted under the 2000 Plan. Also includes 600,000 shares issuable upon the
exercise of options granted under the 2001 Plan. Dr. Modi also owns all the
1,000 outstanding shares of Generex's Special Voting Rights Preferred Stock.
This stock is not convertible into Common Stock.
(6) Includes 953,667 shares owned of record by GHI, Inc. that are beneficially
owned by Ms. Rose Perri, 100,000 shares issuable upon the exercise of an option
granted under the 1998 Plan, 150,000 shares issuable upon the exercise of an
option granted under the 2000 Plan, and 400,000 shares issuable upon exercise of
an option under the 2001 Plan. Also includes the shares and options that are
owned by the estate of Mr. Mark Perri, of which Ms. Rose Perri is executor and
beneficiary, but is not considered to beneficially own for some purposes: 45,914
shares previously owned of record by Mr. Mark Perri; 1,100,000 shares owned of
record by EBI, Inc. (of which Mr. Mark Perri was beneficial owner); 305,332
shares held of record by brokerage accounts and options for 200,000 shares which
survived Mr. Perri's death. Also includes 341,496 shares owned of record by EBI,
Inc., which Ms. Rose Perri may be deemed to beneficially own because of the
power to vote the shares but which are beneficially owned by other stockholders
because they are entitled to the economic benefits of the shares. Ms. Rose Perri
is also deemed to beneficially own an additional 953,667 shares owned of record
by GHI, Inc. by holding the right to vote such shares. These shares are also
beneficially owned by Ms. Gluskin.
(7) Includes 20,000 shares issuable upon the exercise of an option granted under
the 2000 Plan, and 190,000 shares issuable upon exercise of options granted
under the 2001 Plan. Also includes 7,943 shares owned by a company of which Mr.
Rosen is an officer and indirect 25% owner; Mr. Rosen may be deemed to
beneficially own these shares because he shares voting power and investment
power with respect to such shares.
(8) Includes 70,000 options granted on October 26, 2004 .
(9) Includes 3,170,159 shares issuable upon the exercise of options. Includes
1,441,496 shares owned of record by EBI, Inc. but beneficially owned or deemed
to be beneficially owned by Ms. Rose Perri.
41
Includes 1,907,334 shares owned of record by GHI, Inc. but beneficially owned by
Ms. Gluskin or Ms. Rose Perri.
(10) Includes 1,024,590 shares issuable upon exercise of an Additional
Investment Right and 1,639,344 shares issuable upon exercise of warrants. The
Additional Investment Right and each Warrant held by Cityplatz contain a
provision stating that it is not exercisable to the extent the exercise would
result in the holder's beneficially owning more than 9.9% of Generex's
outstanding common stock.
(11) Includes 819,672 shares outstanding, 1,219,512 shares issuable upon
conversion of 6% Secured Convertible Debentures, 1,655,457 shares issuable upon
exercise of warrants and 819,672 shares issuable upon exercise of an Additional
Investment Right. The Additional Investment Right and each Debenture and Warrant
held by Omicron contain a provision stating that it is not
exercisable/convertible to the extent the exercise/conversion would result in
the holder's beneficially owning more than 9.9% of Generex's outstanding common
stock.
(12) Includes 226,885 shares outstanding, 1,219,512 shares issuable upon
conversion of 6% Secured Convertible Debentures, 655,738 shares issuable upon
exercise of warrants and 409,836 shares issuable upon exercise of an Additional
Investment Right. The Additional Investment Right and each Debenture and Warrant
held by Iroquois contain a provision stating that it is not
exercisable/convertible to the extent the exercise/conversion would result in
the holder's beneficially owning more than 9.9% of Generex's outstanding common
stock.
(13) All these shares were previously beneficially owned by Mr. Mark Perri but
are now deemed to be beneficially owned by Ms. Rose Perri because she has the
sole power to vote the shares. With respect to 1,100,000 of the shares owned of
record by EBI, Inc., Ms. Rose Perri also has investment power and otherwise is
entitled to the economic benefits of ownership.
(14) Ms. Gluskin and Ms. Rose Perri each own beneficially 953,667 of the shares
owned of record by GHI, Inc. by reason of their ownership of investment power
and other economic benefits associated with such shares. The shares beneficially
owned by Ms. Gluskin also are deemed to be beneficially owned by Ms. Rose Perri
because she has the sole power to vote the shares.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Generex acquired Generex Pharmaceuticals, Inc. in October 1997. Prior to
Generex's acquisition of Generex Pharmaceuticals, it was a private Canadian
corporation majority-owned and controlled by Mr. Mark Perri, Ms. Rose Perri and
Ms. Gluskin. Unless otherwise indicated, the transactions described below
occurred prior to the acquisition of Generex Pharmaceuticals or pursuant to
contractual arrangements entered into prior to that time. Generex presently has
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. Generex presently has a policy
requiring the approval by the Audit Committee for any transactions in which a
director has a material interest apart from such director's interest in Generex.
Real Estate Financing Transactions: In May 1997, EBI, Inc., a company
controlled by Mr. Mark Perri, acquired shares of common stock of Generex
Pharmaceuticals for $3 million (CAD) which, based on the exchange rate then in
effect, represented approximately $2.1 million (US). Generex Pharmaceutical's
use of those funds was restricted to acquiring an insulin research facility.
Subsequently this restriction was eased to permit use of the funds to acquire
properties used for manufacturing
42
Generex Pharmaceutical's oral insulin product and other proprietary drug
delivery products, and related testing, laboratory and administrative services.
Under the terms of the investment, Generex Pharmaceuticals was required to lend
these funds back to EBI until they were needed for the purposes specified. The
entire amount was loaned back to EBI and was outstanding at July 31, 1997.
During the period ended July 31, 1998, a total of $2,491,835 (CAD) was repaid by
EBI. There was a repayment of approximately $33,000 made in the year ended July
31, 2004. There were no repayments made in the years ended July 31, 2003, 2002
and 2001. The balance due from EBI at July 31, 2004, was approximately $349,294
(US) based on the exchange rate then in effect. These funds are due on demand by
Generex Pharmaceuticals, provided they are used for the purchase and/or
construction or equipping of oral insulin manufacturing and testing facilities.
The amounts repaid by EBI were used primarily to purchase and improve certain of
the real estate and buildings owned by Generex Pharmaceuticals.
Related Party Transactions: Between November 1995 and July 31, 1998,
companies owned and controlled by Mr. Mark Perri, Ms. Rose Perri and Ms. Gluskin
incurred a net indebtedness of $629,234 to Generex Pharmaceuticals, excluding
the indebtedness of EBI described in the preceding paragraph. This indebtedness
arose from cash advances and the payment by Generex Pharmaceuticals of expenses
incurred by these companies, net of repayments and payment of expenses on behalf
of Generex Pharmaceuticals. At July 31, 1999, these companies' net indebtedness
to Generex Pharmaceuticals, exclusive of the EBI indebtedness described above,
was $284,315. At July 31, 2000, this balance had been reduced to zero. The
transactions between Generex Pharmaceuticals and entities owned and controlled
by Mr. Mark Perri, Ms. Rose Perri and Ms. Gluskin were not negotiated at
arms-length, and were not on normal commercial terms. No interest was charged on
any of the advances, and the transactions were of far greater financial benefit
and convenience to Mr. Mark Perri, Ms. Rose Perri and Ms. Gluskin than to
Generex Pharmaceuticals. These transactions and financing arrangements were
mostly initiated prior to the transaction in which Generex acquired Generex
Pharmaceuticals, and no such transactions have taken place since January 1,
1999.
We utilize a management company to manage all of our real properties.
The property management company is owned by Ms. Rose Perri, Ms. Gluskin and the
estate of Mr. Mark Perri, our former Chairman of the Board. For the fiscal years
ended July 31, 2004, 2003 and 2002, Generex has paid the management company
$40,180, $33,237 and $37,535 respectively, in management fees.
Loans to Executive Officers: On May 3, 2001, Ms. Rose Perri, Ms. Gluskin
and Mr. Mark Perri were advanced $334,300 each, in exchange for promissory
notes. These notes bore interest at 8.5 percent per annum and were payable in
full on May 1, 2002. These notes were guaranteed by a related company owned by
these officers and secured by a pledge of 2,500,000 shares of Generex's common
stock owned by this related company. On June 3, 2002, Generex's Board of
Directors extended the maturity date of the loans to October 1, 2002. The other
terms and conditions of the loans and guaranty remained unchanged and in full
force and effect. As of July 31, 2002, the balance outstanding on these notes,
including accrued interest, was $1,114,084. Subsequent to July 31, 2002,
pursuant to a decision made as of August 30, 2002, these loans were satisfied by
application of the pledged stock, at a value of $1.90 per share, which
represented the lowest closing price during the sixty days prior to August 30,
2002.
Brokerage Payment: On August 7, 2002, Generex Pharmaceuticals purchased
real estate with an aggregate purchase price of approximately $1,525,000, from
an unaffiliated party. In connection with that transaction, Angara Enterprises,
Inc., a licensed real estate broker that is an affiliate of Ms. Gluskin,
received a commission from the proceeds of the sale to the seller, in the amount
of 3% of the purchase
43
price, or $45,714. Management believes that this is less than the aggregate
commission which would have been payable if an unaffiliated broker had been
used.
Joint Venture with Elan: In January 2001, Generex established a joint
venture with Elan International Services, Ltd. ("EIS") and Elan Corporation, plc
("Elan"). Pursuant to the Securities Purchase Agreement, dated January 16, 2001,
between Generex, Elan and EIS, EIS has the right to nominate one director to
Generex's Board of Directors for so long as EIS or its affiliates own at least
1.0% of the issued and outstanding shares of common stock. Dr. Lieberburg was
the nominee of EIS thereunder. Dr. Lieberburg resigned effective August 1, 2002
because he felt that due to the increasing demands of his position with Elan
Corporation, he could no longer devote the time and attention necessary to serve
as a director of Generex. On December 21, 2004, Generex entered into a
Termination Agreement with Elan and EIS, whereby Generex, Elan and EIS agreed to
terminate their joint venture and the rights and obligations of each party
thereunder, including EIS' right to nominate a director to Generex's Board of
Directors. EIS had not exercised its right to have a representative on the Board
of Directors since August 2002.
OTHER INFORMATION
Annual Report
Generex has enclosed its Annual Report for the year ended July 31, 2004,
with this proxy statement, which includes Generex's Annual Report to the
Securities and Exchange Commission on Form 10-K for the fiscal year ended July
31, 2004, without exhibits. 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 annual
meeting of stockholders for the fiscal year ended July 31, 2005, must be
received by Generex at 33 Harbour Square, Suite 202, Toronto, Ontario, Canada
M5J 2G2, no later than December 6, 2005 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 Securities and Exchange Commission in order to be eligible for inclusion in
the proxy materials for such meeting. The annual meeting for the fiscal year
ended July 31, 2005 is scheduled to take place in February 2006.
For business to be properly brought before the 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 Amended and Restated Bylaws. A copy of these Bylaw requirements
44
will be provided upon request in writing to the Secretary at the principal
offices of Generex located at 33 Harbour Square, Suite 202, Toronto, Ontario,
Canada M5J 2G2.
If there should be any change in the foregoing submission deadlines,
Generex intends to publicly disseminate information concerning the change.
Corporate Governance Documents
Generex amended its Audit Committee Charter on October 30, 2003. The
Audit Committee Charter, as amended, is reproduced in Appendix A to this Proxy
Statement. In addition, the Audit Committee Charter, the Compensation Committee
Charter and the Generex Code of Ethics have been posted on Generex's Internet
website - www.generex.com.
Other Matters
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.
Solicitation of Proxies
All costs and expenses of this solicitation, including the cost of
preparing and mailing this proxy statement will be borne by Generex. In addition
to the use of the mails, certain directors, officers and regular employees of
Generex may solicit proxies personally, or by mail, telephone or otherwise, but
such persons will not be compensated for such services. Arrangements will be
made with brokerage firms, banks, fiduciaries, voting trustees or other nominees
to forward the soliciting materials to each beneficial owner of stock held of
record by them, and Generex will reimburse them for their expenses in doing so.
45
APPENDIX 1
AMENDED
GENEREX BIOTECHNOLOGY CORPORATION
2001 STOCK OPTION PLAN
The purpose of the Generex Biotechnology Corporation 2001 Stock Plan
(the "Plan") is to provide (i) designated employees of Generex Biotechnology
Corporation (the "Company") and its subsidiaries, (ii) certain consultants and
advisors who perform services for the Company or its subsidiaries and (iii)
non-employee members of the Board of Directors of the Company (the "Board") with
the opportunity to receive grants of incentive stock options and nonqualified
stock options (collectively, "Options"). The Company believes that the Plan will
encourage the participants to contribute materially to the growth of the
Company, thereby benefiting the Company's stockholders, and will align the
economic interests of the participants with those of the stockholders.
1. Administration
(a) Committee. The Plan shall be administered and interpreted by the
Compensation Committee (the "Committee") of the Board, which consists of two or
more persons who are "outside directors" as defined under Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code"), and related Treasury
regulations and "non-employee directors" as defined under Rule 16b-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). However, the
Board may ratify or approve any Option grants as it deems appropriate.
(b) Committee Authority. The Committee shall have the sole authority
to (i) determine the individuals to whom Options shall be granted under the
Plan, (ii) determine the type, size and terms of the Options to be made to each
such individual, (iii) determine the time when the Options will be granted and
the duration of any applicable exercise period, including the criteria for
exercisability and the acceleration of exercisability, (iv) amend the terms of
any previously issued Option and (v) deal with any other matters arising under
the Plan.
(c) Delegation. The Committee may delegate certain of its duties to
one or more of its members or to one or more agents as it may deem advisable.
The Committee may employ attorneys, agents, consultants, accountants or other
persons, and shall be entitled to rely upon the advice, opinions or valuations
of such persons.
(d) Committee Determinations. The Committee shall have full power
and authority to administer and interpret the Plan, to make factual
determinations and to adopt or amend such rules, regulations, agreements and
instruments for implementing the Plan and for the conduct of its business as it
deems necessary or advisable, in its sole discretion. The Committee's
interpretations of the Plan and all determinations made by the Committee
pursuant to the powers vested in it hereunder shall be conclusive and binding on
all persons having any interest in the Plan or in any awards granted hereunder.
All powers of the Committee shall be executed in its sole discretion, in the
best interest of the Company, not as a fiduciary, and in keeping with the
objectives of the Plan and need not be uniform as to similarly situated
individuals.
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2. Shares Subject to the Plan
(a) Shares Authorized. Subject to adjustment as described below, the
aggregate number of shares of common stock of the Company ("Company Stock") that
may be issued or transferred under the Plan or upon which awards under the Plan
may be granted is 8,000,000 shares. The maximum aggregate number of shares of
Company Stock that shall be subject to Options granted under the Plan to any
individual during any calendar year shall be 400,000 shares.. The shares may be
authorized but unissued shares of Company Stock or reacquired shares of Company
Stock, including shares purchased by the Company on the open market for purposes
of the Plan. If and to the extent Options granted under the Plan terminate,
expire, or are canceled, forfeited, exchanged or surrendered without having been
exercised, the shares subject to such Options shall again be available for
purposes of the Plan, unless otherwise provided by the Committee.
(b) Adjustments. If there is any change in the number or kind of
shares of Company Stock outstanding by reason of (i) stock dividend, spinoff,
recapitalization, stock split or combination or exchange of shares, (ii) merger,
reorganization or consolidation, (iii) reclassification or change in par value
or (iv) any other extraordinary or unusual event affecting the outstanding
Company Stock as a class without the Company's receipt of consideration, or if
the value of outstanding shares of Company Stock is substantially reduced as a
result of a spinoff or the Company's payment of an extraordinary dividend or
distribution, the maximum number of shares of Company Stock available under the
Plan, the maximum number of shares of Company Stock that any individual
participating in the Plan may be granted in any year, the number of shares
covered by outstanding Options, the kind of shares issued under the Plan, and
the price per share or the applicable market value of such Options may be
appropriately adjusted by the Committee to reflect any increase or decrease in
the number of, or change in the kind or value of, issued shares of Company Stock
to preclude, to the extent practicable, the enlargement or dilution of rights
and benefits under such Options; provided, however, that any fractional shares
resulting from such adjustment shall be eliminated. Any adjustments determined
by the Committee shall be final, binding and conclusive.
3. Eligibility for Participation
(a) Eligible Persons. All employees of the Company and its
subsidiaries ("Employees") and members of the Board who are not Employees
("Non-Employee Directors") shall be eligible to participate in the Plan.
Consultants and advisors who perform services for the Company or any of its
subsidiaries ("Key Advisors") shall be eligible to participate in the Plan if
the Key Advisors render bona fide services to the Company or its subsidiaries,
the services are not in connection with the offer and sale of securities in a
capital-raising transaction and the Key Advisors do not directly or indirectly
promote or maintain a market for the Company's securities.
(b) Selection of Optionees. The Committee shall select the
Employees, Non-Employee Directors and Key Advisors to receive Options and shall
determine the number of shares of Company Stock subject to a particular Option
in such manner as the Committee determines. Employees, Key Advisors and
Non-Employee Directors who receive Options under this Plan shall hereinafter be
referred to as "Optionees."
4. Granting of Options
(a) Option Agreements. All Options shall be subject to the terms and
conditions set forth herein and to such other terms and conditions consistent
with this Plan as the Committee deems
2
appropriate and as are specified in writing by the Committee to the individual
in a grant instrument or an amendment to the grant instrument (the "Option
Agreement"). The Committee shall approve the form and provisions of each Option
Agreement.
(b) Number of Shares. The Committee shall determine the number of
shares of Company Stock that will be subject to each Option.
(c) Type of Option and Price.
(i) The Committee may grant Options that are intended to
qualify as "incentive stock options" within the meaning of Section 422 of the
Code ("Incentive Stock options") or Options that are not intended so to qualify
("Nonqualified Stock Options") or any combination of Incentive Stock Options and
Nonqualified Stock Options, all in accordance with the terms and conditions set
forth herein. Incentive Stock Options may be granted only to Employees of the
Company or a parent or subsidiary (within the meaning of Section 424(f) of the
Code). Nonqualified Stock Options may be granted to Employees, Non-Employee
Directors and Key Advisors. Unless otherwise provided in the Option Agreement,
any Option granted under this Plan to an Employee is intended to be an Incentive
Stock Option.
(ii) The purchase price (the "Exercise Price") of Company
Stock subject to an Option shall be determined by the Committee and may be equal
to or less than the Fair Market Value (as defined below) of a share of Company
Stock on the date the Option is granted; provided, however, that (x) the
Exercise Price of an Incentive Stock Option shall be equal to the Fair Market
Value of a share of Company Stock on the date the Incentive Stock Option is
granted and (y) an Incentive Stock Option may not be granted to an Employee who,
at the time of grant, owns stock possessing more than ten percent of the total
combined voting power of all classes of stock of the Company or any parent or
subsidiary of the Company, unless the Exercise Price per share is not less than
110% of the Fair Market Value of Company Stock on the date of grant.
(iii) The Fair Market Value per share shall be the closing
price of the Company Stock on the relevant date or (if there were no trades on
that date) the latest preceding date upon which a sale was reported.
(d) Option Term. The Committee shall determine the term of each
Option. The term of any Option shall not exceed ten years from the date of
grant, which date of grant is determined by the Committee. However, an Incentive
Stock Option that is granted to an Employee who, at the time of grant, owns
stock possessing more than ten percent of the total combined voting power of all
classes of stock of the Company, or any parent or subsidiary of the Company, may
not have a term that exceeds five years from the date of grant.
(e) Exercisability of Options. Options shall become exercisable in
accordance with such terms and conditions, consistent with the Plan, as may be
determined by the Committee and specified in the Option Agreement. Unless a
different vesting schedule is specified by the Committee in an Option Agreement,
Options granted under this Plan shall vest in one-half increments on each annual
anniversary of the date of grant over a period of two years. The Committee may
accelerate, and may provide in the Option Agreement for the acceleration of, the
exercisability of any or all outstanding Options at any time for any reason.
3
(f) Reload Options. In the event that shares of Company Stock are
used to exercise an Option, the terms of such Option may provide for the grant
of additional Options, or the Committee may grant additional Options, to
purchase a number of shares of Company Stock equal to the number of whole shares
used to exercise the Option and the number of whole shares, if any, withheld in
payment of any taxes. Such Options shall be granted with an Exercise Price equal
to the Fair Market Value of the Company Stock on the date of grant of such
additional Options, or at such other Exercise Price as the Committee may
establish, for a term not longer than the unexpired term of the exercised Option
and on such other terms as the Committee shall determine.
(g) Limit on Incentive Stock Options. Each Incentive Stock Option
shall provide that, if the aggregate Fair Market Value of the stock on the date
of the grant with respect to which Incentive Stock Options are exercisable for
the first time by an Optionee during any calendar year, under the Plan or any
other stock option plan of the Company or a parent or subsidiary, exceeds
$100,000, then the Option, as to the excess, shall be treated as a Nonqualified
Stock Option.
5. Termination of Employment, Disability or Death
(a) General Rule. Except as provided below, an Option may only be
exercised while the Optionee is employed by, or providing service to, the
Company as an Employee, Key Advisor or member of the Board. In the event that an
Optionee ceases to be employed by, or provide service to, the Company for any
reason other than (i) termination by the Company without Cause (as defined
below), (ii) voluntary termination by the Optionee, (iii) Disability (as defined
below) or (iv) death, any Option held by the Optionee shall terminate
immediately (unless the Committee specifies otherwise). In addition,
notwithstanding any other provision of this Plan, if the Committee determines
that the Optionee has engaged in conduct that constitutes Cause at any time
while the Optionee is employed by, or providing service to, the Company or after
the Optionee's termination of employment or service, any Option held by the
Optionee shall immediately terminate and the Optionee shall automatically
forfeit all shares underlying any exercised portion of an Option for which the
Company has not yet delivered the share certificates, upon refund by the Company
of the Exercise Price paid by the Optionee for such shares. Upon any exercise of
an Option, the Company may withhold delivery of share certificates pending
resolution of an inquiry that could lead to a finding resulting in a forfeiture.
(b) Termination Without Cause; Voluntary Termination. In the event
that an Optionee ceases to be employed by, or provide service to, the Company as
a result of (i) termination by the Company without Cause (as defined below) or
(ii) voluntary termination by the Optionee, any Option which is otherwise
exercisable by the Optionee shall terminate unless exercised within 90 days
after the date on which the Optionee ceases to be employed by, or provide
service to, the Company (or within such other period of time as may be specified
by the Committee), but in any event no later than the date of expiration of the
Option term. Except as otherwise provided by the Committee, any of the
Optionee's Options that are not otherwise exercisable as of the date on which
the Optionee ceases to be employed by, or provide service to, the Company shall
terminate as of such date.
(c) Termination Because Disabled. In the event the Optionee ceases
to be employed by, or provide service to, the Company because the Optionee is
Disabled, any Option which is otherwise exercisable by the Optionee shall
terminate unless exercised within one year after the date on which the Optionee
ceases to be employed by, or provide service to, the Company (or within such
other period of time as may be specified by the Committee), but in any event no
later than the date of expiration of the Option term. Except as otherwise
provided by the Committee, any of the Optionee's Options which are
4
not otherwise exercisable as of the date on which the Optionee ceases to be
employed by, or provide service to, the Company shall terminate as of such date.
(d) Death. If the Optionee dies while employed by, or providing
service to, the Company or within 90 days after the date on which the Optionee
ceases to be employed or provide service on account of a termination specified
in Section 5(b) above (or within such other period of time as may be specified
by the Committee), any Option that is otherwise exercisable by the Optionee
shall terminate unless exercised within one year after the date on which the
Optionee dies or otherwise ceased to be employed by, or provide service to, the
Company (or within such other period of time as may be specified by the
Committee), but in any event no later than the date of expiration of the Option
term. Except as otherwise provided by the Committee, any of the Optionee's
Options that are not otherwise exercisable as of the date on which the Optionee
dies or otherwise ceased to be employed by, or provide service to, the Company
shall terminate as of such date.
(e) Definitions.
(i) The term "Company" shall mean the Company and its parent
and subsidiary corporations or other entities, as determined by the Committee.
(ii) "Employed by, or provide service to, the Company" shall
mean employment or service as an Employee, Key Advisor or member of the Board
(so that an Optionee shall not be considered to have terminated employment or
service until the Optionee ceases to be an Employee, Key Advisor and member of
the Board), unless the Committee determines otherwise.
(iii) "Disability" shall mean an Optionee's becoming disabled
under the Company's long-term disability plan, or, if the Optionee is not
covered under such plan or no such plan is maintained, and in the case of an
Incentive Stock Option, "Disability" shall mean an Optionee's becoming disabled
within the meaning of Section 22(e)(3) of the Code.
(iv) "Cause" shall mean, except to the extent specified
otherwise by the Committee, a finding by the Committee that the Optionee has:
(i) breached his or her employment or service contract with the Company; (ii)
engaged in disloyalty to the Company, 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 the Company to persons not entitled to receive such
information; (iv) breached any written confidentiality, non-competition or
non-solicitation agreement between the Optionee and the Company; or (v) has
engaged in such other behavior detrimental to the interests of the Company as
the Committee determines.
6. Exercise of Options.
(a) Notice of Exercise. A Optionee may exercise an Option that has
become exercisable, in whole or in part, by delivering a notice of exercise to
the Company.
(b) Payment of Exercise Price. Along with the notice of exercise,
the Optionee shall pay the Exercise Price for an Option as specified by the
Committee (i) in cash, (ii) with the approval of the Committee, by delivering
shares of Company Stock owned by the Optionee (including Company Stock acquired
in connection with the exercise of an Option, subject to such restrictions as
the Committee deems appropriate) valued at Fair Market Value on the date of
exercise, (iii) with the approval of the Committee, by surrender of outstanding
awards under the Plan or (iv) by such other method as the
5
Committee may approve. Shares of Company Stock used to exercise an Option shall
have been held by the Optionee for the requisite period of time to avoid adverse
accounting consequences to the Company with respect to the Option.
(c) Payment of Tax. The Optionee shall pay the amount of any
withholding tax due at the time of exercise.
7. Deferrals
The Committee may permit or require an Optionee to defer receipt of the
delivery of shares that would otherwise be due to such Optionee in connection
with any Option. If any such deferral election is permitted or required, the
Committee shall, in its sole discretion, establish rules and procedures for such
deferrals.
8. Withholding of Taxes
(a) Required Withholding. All Options under the Plan shall be
subject to applicable federal (including FICA), state, local and other tax
withholding requirements. The Company shall have the right to deduct from any
amounts paid to the Optionee, any federal, state, local or other taxes required
by law to be withheld with respect to such Options. The Company may require that
the Optionee or other person receiving or exercising Options pay to the Company
the amount of any federal, state, local or other taxes that the Company is
required to withhold with respect to such Options, or the Company may deduct
from other wages paid by the Company the amount of any withholding taxes due
with respect to such Options.
(b) Election to Withhold Shares. If the Committee so permits, an
Optionee may elect, in the form and manner prescribed by the Committee, to
satisfy the Company's income tax withholding obligation with respect to Options
paid in Company Stock by having shares withheld up to an amount that does not
exceed the Optionee's minimum applicable withholding tax rate for federal
(including FICA), state, local and other tax liabilities.
9. Transferability of Options
(a) Nontransferability of Options. Except as provided below, only
the Optionee may exercise rights under an Option during the Optionee's lifetime.
A Optionee may not transfer those rights except (i) by will or by the laws of
descent and distribution or (ii) with respect to Nonqualified Stock Options, if
permitted in any specific case by the Committee, pursuant to a domestic
relations order or otherwise as permitted by the Committee. When an Optionee
dies, the personal representative or other person entitled to succeed to the
rights of the Optionee ("Successor Optionee") may exercise such rights. A
Successor Optionee must furnish proof satisfactory to the Company of his or her
right to receive the Option under the Optionee's will or under the applicable
laws of descent and distribution.
(b) Transfer of Nonqualified Stock Options. Notwithstanding the
foregoing, the Committee may provide that an Optionee may transfer Nonqualified
Stock Options to family members, or one or more trusts or other entities for the
benefit of or owned by family members, consistent with the applicable securities
laws, according to such terms as the Committee may determine; provided that the
Optionee receives no consideration for the transfer of an Option and the
transferred Option shall continue to be subject to the same terms and conditions
as were applicable to the Option immediately before the transfer.
6
10. Change of Control of the Company
As used herein, a "Change of Control" shall be deemed to have occurred
if:
(a) Unless the Board approves such acquisition, any "person" (as
such term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes a
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, in a single transaction or series of transactions, of securities
of the Company representing more than 20 percent of the voting power of the then
outstanding securities of the Company; provided that a Change of Control shall
not be deemed to occur as a result of a change of ownership resulting from the
death of a stockholder, and a Change of Control shall not be deemed to occur as
a result of a transaction in which the Company becomes a subsidiary of another
corporation and in which the stockholders of the Company, immediately prior to
the transaction, will beneficially own, immediately after the transaction,
shares entitling such stockholders to more than 20 percent of all votes to which
all stockholders of the parent corporation would be entitled in the election of
directors (without consideration of the rights of any class of stock to elect
directors by a separate class vote);
(b) A merger or consolidation of the Company is consummated with
another corporation where the stockholders of the Company, immediately prior to
the merger or consolidation, will not beneficially own, immediately after the
merger or consolidation, shares entitling such stockholders to more than 80
percent of all votes to which all stockholders of the surviving corporation
would be entitled in the election of directors (without consideration of the
rights of any class of stock to elect directors by a separate class vote);
(c) A sale or other disposition of all or substantially all of the
assets of the Company occurs;
(d) A liquidation or dissolution of the Company occurs; or
(d) Shares of the Company's Special Voting Rights Preferred Stock
are outstanding and a "Change of Control" under the terms and conditions of such
securities occurs.
11. Consequences of a Change of Control
(a) Notice and Acceleration. Unless the Committee determines
otherwise, any outstanding Options that are not yet exercisable or vested shall
become exercisable or vested as of the Change of Control. The Committee shall
provide notice to Optionees of the Change of Control as soon as practicable.
(b) Assumption of Options. Upon a Change of Control where the
Company is not the surviving corporation (or survives only as a subsidiary of
another corporation), unless the Committee determines otherwise, all outstanding
Options that are not exercised shall be assumed by, or replaced with comparable
options or rights by, the surviving corporation (or a parent or subsidiary of
the surviving corporation).
(c) Other Alternatives. Notwithstanding the foregoing, subject to
subsection (d) below, in the event of a Change of Control, the Committee may
take one or both of the following actions with respect to any or all outstanding
Options: (i) the Committee may require that Optionees surrender their
outstanding Options in exchange for a payment by the Company, in cash or Company
Stock as
7
determined by the Committee, in an amount equal to the amount by which the then
Fair Market Value of the shares of Company Stock subject to the Optionee's
unexercised Options exceeds the Exercise Price of the Options; or (ii) the
Committee may, after giving Optionees an opportunity to exercise their
outstanding Options, terminate any or all unexercised Options at such time as
the Committee deems appropriate. Such surrender or termination or settlement
shall take place as of the date of the Change of Control or such other date as
the Committee may specify.
(d) Limitations. Notwithstanding anything in the Plan to the
contrary, in the event of a Change of Control, the Committee shall not have the
right to take any actions described in the Plan (including without limitation
actions described in subsection (c) above) that would make the Change of Control
ineligible for pooling of interests accounting treatment or that would make the
Change of Control ineligible for desired tax treatment if, in the absence of
such right or action, the Change of Control would qualify for such treatments
and the Company intends to use such treatments with respect to the Change of
Control.
12. Requirements for Issuance or Transfer of Shares
(a) Limitations on Issuance or Transfer of Shares. No Company Stock
shall be issued or transferred in connection with any Option hereunder unless
and until all legal requirements applicable to the issuance or transfer of such
Company Stock have been complied with to the satisfaction of the Committee. The
Committee shall have the right to condition any Option made to any Optionee
hereunder on such Optionee's undertaking in writing to comply with such
restrictions on his or her subsequent disposition of such shares of Company
Stock as the Committee shall deem necessary or advisable, and certificates
representing such shares may be legended to reflect any such restrictions.
Certificates representing shares of Company Stock issued or transferred under
the Plan will be subject to such stop-transfer orders and other restrictions as
may be required by applicable laws, regulations and interpretations, including
any requirement that a legend be placed thereon.
(b) Lock-Up Period. If so requested by the Company or any
representative of the underwriters (the "Managing Underwriter") in connection
with any underwritten offering of securities of the Company under the Securities
Act of 1933, as amended (the "Securities Act"), an Optionee (including any
successors or assigns) shall not sell or otherwise transfer any shares or other
securities of the Company during the 30-day period preceding and the 180-day
period following the effective date of a registration statement of the Company
filed under the Securities Act for such underwritten offering (or such shorter
period as may be requested by the Managing Underwriter and agreed to by the
Company) (the "Market Standoff Period"). The Company may impose stop-transfer
instructions with respect to securities subject to the foregoing restrictions
until the end of such Market Standoff Period.
13. Cancellation and Recission of Options
(a) Unless the Option Agreement specifies otherwise, the Committee
may cancel, rescind, suspend, withhold or otherwise limit or restrict any
unexpired, unpaid or deferred Options at any time if the Optionee is not in
compliance with all applicable provisions of the Option Agreement and the Plan,
or if the Optionee engages in any "Detrimental Activity." For purposes of this
Section 16, "Detrimental Activity" shall include: (i) the rendering of services
for any organization or engaging directly or indirectly in any business which is
or becomes competitive with the Company, or which organization or business, or
the rendering of services to such organization or business, is or becomes
otherwise prejudicial to or in conflict with the interests of the Company; (ii)
the disclosure to anyone outside the Company, or the use in other than the
Company's business, without prior written authorization from the
8
Company, of any confidential information or material, in violation of the
Company's applicable agreement with the Optionee or of the Company's applicable
policy regarding confidential information and intellectual property; (iii) the
failure or refusal to disclose promptly and to assign to the Company, pursuant
to the Company's applicable agreement with the Optionee or to the Company's
applicable policy regarding confidential information and intellectual property,
all right, title and interest in any invention or idea, patentable or not, made
or conceived by the Optionee during employment by the Company, relating in any
manner to the actual or anticipated business, research or development work of
the Company, or the failure or refusal to do anything reasonably necessary to
enable the Company to secure a patent where appropriate in the United States and
in other countries; (iv) activity that results in termination of the Optionee's
employment for cause; (v) a violation of any rules, policies, procedures or
guidelines of the Company, including (but not limited to) the Company's business
conduct guidelines; (vi) any attempt (directly or indirectly) to induce any
employee of the Company to be employed or perform services elsewhere or any
attempt (directly or indirectly) to solicit the trade or business of any current
or prospective customer, supplier or partner of the Company; (vii) the
Optionee's being convicted of, or entering a guilty plea with respect to, a
crime, whether or not connected with the Company; or (viii) any other conduct or
act determined to be injurious, detrimental or prejudicial to any interest of
the Company.
(b) Upon exercise, payment or delivery pursuant to an Option, the
Optionee shall certify in a manner acceptable to the Company that he or she is
in compliance with the terms and conditions of the Plan. In the event an
Optionee fails to comply with the provisions of paragraphs (a)(i)-(viii) of this
Section 13 prior to, or during the six months after, any exercise, payment or
delivery pursuant to an Award, such exercise, payment or delivery may be
rescinded within two years thereafter. In the event of any such rescission, the
Optionee shall pay to the Company the amount of any gain realized or payment
received as a result of the rescinded exercise, payment or delivery, in such
manner and on such terms and conditions as may be required, and the Company
shall be entitled to set-off against the amount of any such gain any amount owed
to the Optionee by the Company.
(c) The Committee, in its sole discretion, may grant to an Optionee,
in exchange for the surrender and cancellation of an Option previously granted
to the Optionee, a new Option in the same or different form and containing such
terms, including without limitation a price that is higher or lower than any
price provided in the award so surrendered or cancelled.
14. Amendment and Termination of the Plan
(a) Amendment. The Committee may amend or terminate the Plan at any
time; provided, however, that the Committee shall not increase the aggregate
number of shares of Company Stock that may be issued or transferred under the
Plan or upon which awards under the Plan may be granted, or otherwise materially
amend the Plan, without stockholder approval if such approval is required in
order to comply with the Code or applicable laws, or to comply with applicable
stock exchange requirements.
(b) Termination of Plan. No Incentive Stock Option may be granted
more than ten years from the Plan's effective date. The Plan may be terminated
by the Committee at any time.
(c) Termination and Amendment of Outstanding Options. A termination
or amendment of the Plan that occurs after an Option is made shall not
materially impair the rights of an Optionee unless the Optionee consents or
unless the Committee acts under Section 20(b). The termination of the Plan shall
not impair the power and authority of the Committee with respect to an
outstanding Option.
9
Whether or not the Plan has terminated, an outstanding Option may be terminated
or amended under Section 20(b) or may be amended by agreement of the Company and
the Optionee consistent with the Plan.
(d) Governing Document. The Plan shall be the controlling document.
No other statements, representations, explanatory materials or examples, oral or
written, may amend the Plan in any manner. The Plan shall be binding upon and
enforceable against the Company and its successors and assigns.
15. Funding of the Plan
This Plan shall be unfunded. The Company shall not be required to
establish any special or separate fund or to make any other segregation of
assets to assure the payment of any Options under this Plan. In no event shall
interest be paid or accrued on any Option, including unpaid installments of
Options.
16. Rights of Participants
Nothing in this Plan shall entitle any Employee, Key Advisor,
Non-Employee Director or other person to any claim or right to be granted an
Option under this Plan. Neither this Plan nor any action taken hereunder shall
be construed as giving any individual any rights to be retained by or in the
employ of the Company or any other employment rights.
17. No Fractional Shares
No fractional shares of Company Stock shall be issued or delivered
pursuant to the Plan or any Option. The Committee shall determine whether cash,
other awards or other property shall be issued or paid in lieu of such
fractional shares or whether such fractional shares or any rights thereto shall
be forfeited or otherwise eliminated.
18. Headings
Section headings are for reference only. In the event of a conflict
between a title and the content of a Section, the content of the Section shall
control.
19. Effective Date of the Plan. Subject to approval by the Company's
stockholders, the Plan shall be effective as of May 4, 2001.
20. Miscellaneous
(a) Options in Connection with Corporate Transactions and Otherwise.
Nothing contained in this Plan shall be construed to (i) limit the right of the
Committee to grant Options under this Plan in connection with the acquisition,
by purchase, lease, merger, consolidation or otherwise, of the business or
assets of any corporation, firm or association, including Options to employees
thereof who become Employees of the Company, or for other proper corporate
purposes, or (ii) limit the right of the Company to grant stock options or make
other awards outside of this Plan. Without limiting the foregoing, the Committee
may grant an Option to an employee of another corporation who becomes an
Employee by reason of a corporate merger, consolidation, acquisition of stock or
property, reorganization or liquidation involving the Company or any of its
subsidiaries in substitution for a stock option or stock awards grant made by
such corporation. The terms and conditions of the substitute
10
Options may vary from the terms and conditions required by the Plan and from
those of the substituted stock incentives. The Committee shall prescribe the
provisions of the substitute grants.
(b) Compliance with Law. The Plan, the exercise of Options and the
obligations of the Company to issue or transfer shares of Company Stock under
Options shall be subject to all applicable laws and to approvals by any
governmental or regulatory agency as may be required. The Committee may revoke
any Option if it is contrary to law or modify an Option to bring it into
compliance with any valid and mandatory government regulation. The Committee may
also adopt rules regarding the withholding of taxes on payments to Optionees.
The Committee may, in its sole discretion, agree to limit its authority under
this Section.
(c) Governing Law. The validity, construction, interpretation and
effect of the Plan and Option Agreements issued under the Plan shall be governed
and construed by and determined in accordance with the laws of State of
Delaware, without giving effect to the conflict of laws provisions thereof.
11
GENEREX BIOTECHNOLOGY CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
APRIL 5, 2005
The undersigned stockholder of Generex Biotechnology Corporation (the
"Company") hereby appoints Anna E. Gluskin, Rose C. Perri and Mark A. Fletcher,
and each of them with full power of substitution, the true and lawful attorneys,
agents and proxy holders of the undersigned, and hereby authorizes them to
represent and vote, as specified herein, all of the shares of Common Stock of
Generex held of record by the undersigned on March 10, 2005, at the annual
meeting of stockholders of Generex to be held on April 5, 2005 (the "Annual
Meeting") at 10:00 a.m. at St. Lawrence Hall, 157 King Street East, Toronto
Ontario and any adjournments or postponements thereof.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED.
IN THE ABSENCE OF DIRECTION, THE SHARES WILL BE VOTED FOR THE PROPOSALS.
THE UNDERSIGNED ACKNOWLEDGES RECEIPT OF THE NOTICE OF ANNUAL MEETING OF
STOCKHOLDERS RELATING TO THE ANNUAL MEETING.
Item 1. To elect as directors, to hold office until the next meeting of
stockholders and until their successors are elected, the seven (7) nominees
listed below:
NOMINEES: John P. Barratt, Anna E. Gluskin, Rose C. Perri,
Gerald Bernstein, M.D., _________________,
Mindy Allport-Settle and Brian McGee.
o FOR ALL NOMINEES o WITHHOLD ALL NOMINEES o ____________________
For all nominees
except as noted
above
Item 2. To approve the potential issuance and sale of equity securities below
market price in excess of shares permitted to be issued without prior
stockholder approval under NASDAQ Marketplace Rules 4350(i)(1)(C) and (D).
o FOR o AGAINST o ABSTAIN
Item 3. To authorize the Board of Directors to issue shares of common stock in
excess of shares permitted to be issued without prior stockholder approval as
payment for outstanding Debentures or upon conversion of the outstanding
Debentures and upon exercise of other outstanding Securities.
o FOR o AGAINST o ABSTAIN
Item 4. To authorize the Board of Directors to temporarily or permanently reduce
the exercise price of some or all of Generex's Warrants to a price not less than
90% of the common stock's market price at the time the exercise prices are
reduced.
o FOR o AGAINST o ABSTAIN
Item 5. To ratify the appointment of BDO Dunwoody, LLP as Generex's independent
public accountants for the fiscal year ending July 31, 2005.
o FOR o AGAINST o ABSTAIN
NOTE: Please sign exactly as name appears hereon. Joint owners should each sign.
Trustees and others acting in a representative capacity should indicate the
capacity in which they sign and give their full title. If a corporation, please
indicate the full corporate name and have an authorized officer sign, stating
title. If a partnership, please sign in partnership name by an authorized
person.
Signature:
---------------------------
Signature:
---------------------------
Date:
---------------------------
PLEASE MARK, SIGN AND DATE
THIS PROXY AND RETURN IT
PROMPTLY WHETHER YOU PLAN
TO ATTEND THE MEETING OR
NOT. IF YOU DO ATTEND, YOU
MAY VOTE IN PERSON IF YOU
DESIRE.