DEF 14A 1 gnbt101317sched14a.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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SCHEDULE 14A

 

(Rule 14a-101)

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities

Exchange Act of 1934

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Filed by the Registrant ☒                                            Filed by a Party other than the Registrant ☐

 

Check the appropriate box:

 

☐ Preliminary Proxy Statement

Confidential, For use of the Commission only (as permitted by Rule 14a-6(e)(2))

☒ Definitive Proxy Statement

☐ Definitive Additional Materials

☐ Soliciting Material Pursuant to §240.14a-12

 

GENEREX BIOTECHNOLOGY CORPORATION

(Name of Registrant as Specified In Its Charter)

 

Payment of Filing Fee (Check the appropriate box):

☒ 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

10102 USA Today Way

Miramar, Florida, USA 33025

 

 

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD NOVEMBER 21 2017

 

Dear Stockholder:

 

You are cordially invited to attend the annual meeting of stockholders of Generex Biotechnology Corporation ("Generex") that will be held on November 21, 2017, at 10:00 a.m. (local time), at 10102 USA Today Way. Miramar, Florida 33025, for the following purposes, as set forth in the accompanying Proxy Statement:

 

 

1.To elect eight directors;

 

2.To approve an amendment to our Restated Certificate of Incorporation to increase the authorized number of shares of common stock from 2,450,000 shares to 750,000,000 shares;

 

3.To approve an amendment to our Restated Certificate of Incorporation to change our name to NuGenerex Biotechnology Holdings, Inc.;

 

4.To approve the adoption of our 2017 Equity Incentive Plan;

 

5.To approve the adjournment of the annual meeting, if necessary, to solicit additional proxies to vote in favor of the proposals set forth in Item 2;

 

6.To ratify the appointment of MNP LLP as independent public accountants for the year ending July 31, 2017; and

 

7.To conduct any other business as may properly come before the annual meeting or any adjournment or postponement thereof.

 

The Board of Directors has established the close of business September 28, 2017, as the record date for the determination of stockholders entitled to receive notice of, and to vote at, the annual meeting and any adjournment or postponement thereof. Generex is complying with the Securities and Exchange Commission rule that permits us to furnish proxy materials to stockholders on the Internet. This Notice and the Proxy Statement are being made available to stockholders on or about October 12, 2017.

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON November 21, 2017: The proxy statement for the annual meeting of stockholders will be made available to stockholders on the Internet at www.generex.com/proxy.and www.proxyvote.com.

 

 
 

 

Your vote is very important. Whether or not you plan to attend the annual meeting of stockholders, we urge you to vote and to submit your proxy over the Internet, by telephone or by mail. If you are a registered stockholder and attend the meeting, you may revoke the proxy and vote your shares in person. If you hold your shares through a bank or broker and want to vote your shares in person at the meeting, please contact your bank or broker to obtain a legal proxy.

 

By order of the Board of Directors,    
     
/s/ Mark A. Fletcher    
Mark A. Fletcher    
Secretary    
     
October 12, 2017    

 

 
 

GENEREX BIOTECHNOLOGY CORPORATION

10102 USA TODAY WAY

MIRAMAR, FLORIDA, USA 33025

 

PROXY STATEMENT

 

TABLE OF CONTENTS

 

  Page
About the Annual Meeting and Voting at the Meeting 1
Election of Directors (Item 1 on the Proxy Card) 6
Executive Officers 10
Independence and Compensation of Directors 12
Director Independence 12
Non-Employee Directors’ Compensation 13
Corporate Governance 13
Code of Ethics 14
Board Structure; Risk Oversight; Risk Assessment of Compensation Policies and Practices 14
Board Meetings; Annual Meeting Attendance 14
Audit Committee 14
Compensation Committee 15
Corporate Governance and Nominating Committee 15
Director Nominations by Stockholders 15
Communications with Directors 15
Executive Compensation 15
Compensation Discussion and Analysis 15
Other Benefit Plans 20
Compensation Committee Report 20
Executive Compensation Tables 20
Compensation Elements; Employment Agreements and Agreements Providing Payments Upon Retirement, Termination or Change in Control for Named Executives 22
Approval of an Amendment to Generex’s Restated Certificate of Incorporation to Increase the Number of Authorized Shares of Common (Item 2 on the Proxy Card) 23
Approval of an Amendment to Generex’s Restated Certificate of Incorporation to change the corporate name (Item 3 on the Proxy Card) 27
Approval of the 2017 Equity Incentive Plan (Item 4 on the Proxy Card) 28
Approval of the Adjournment of the Annual Meeting, If Necessary to Solicit Additional Proxies for Proposals Set Forth in Item 1 (Item 5 on the Proxy Card) 35
Ratification of the Appointment of MNP LLP as Generex’s Independent Public Accountants for Fiscal Year 2017 (Item 6 on the Proxy Card) 36
Audit Matters 36
Fees Paid to Generex’s Independent Public Accountants 36
Policy for Pre-Approval of Audit and Non-Audit Services 37
Report of the Audit Committee 37
Security Ownership of Certain Beneficial Owners and Management 38
Certain Transactions 39
Change in Control 39
Section 16(a) Beneficial Ownership Reporting Compliance 41
Other Information 42
Stockholder Proposals for the Next Annual Meeting 42
Appendix A – Audit Committee Charter A-1
Appendix B – Form of Certificate of Amendment to Restated Certificate of Incorporation B-1
Appendix C-1– Hema Diagnostic Systems Financial Statements C-1-1
Appendix C-2 – Hema Diagnostic Systems Information C-2-1
Appendix D – 2017 Equity Incentive Plan D-1

 

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ABOUT THE ANNUAL MEETING AND VOTING AT THE MEETING

 

Why am I being furnished this Proxy Statement?

 

This Proxy Statement is provided to the stockholders of Generex in connection with the solicitation by our Board of Directors of proxies for use at our annual meeting of stockholders to be held November 21, 2017 at 10:00 a.m. (local time), at 10102 USA Today Way. Miramar, Florida 33025and any adjournments or postponements thereof.

 

What are the items of business for the meeting?

 

The items of business for the meeting are as follows:

 

To elect eight directors
To approve an amendment to our Restated Certificate of Incorporation to increase the authorized number of shares of common stock from 2,450,000 shares to 750,000,000 shares;
To approve an amendment to our Restated Certificate of Incorporation to change our name to NuGenerex Biotechnology Holdings, Inc.;
To approve the adoption of our 2017 Equity Incentive Plan;
To approve the adjournment of the annual meeting, if necessary, to solicit additional proxies to vote in favor of the proposals set forth in Item 2 on the proxy card;
To ratify the appointment of MNP LLP as independent public accountants for the year ending July 31, 2017; and
To conduct any other business as may properly come before the annual meeting or any adjournment or postponement thereof.

 

Who is soliciting my proxy?

 

The Board of Directors is soliciting your proxy in order to provide you with an opportunity to vote on all matters scheduled to come before the meeting whether or not you attend the meeting in person.

 

What if I received in the mail a Notice of Internet Availability of Proxy Materials?

 

In accordance with rules adopted by the Securities and Exchange Commission (SEC), we are providing access to our proxy materials over the Internet. Accordingly, on or about October 6, 2017, we are mailing to our record and beneficial stockholders a Notice of Internet Availability of Proxy Materials, which contains instructions on how to access our proxy materials over the Internet. If you received a Notice of Internet Availability of Proxy Materials, you will not receive a printed copy of our proxy materials by mail unless you request one. You may request a printed copy of our proxy materials for the Annual Meeting. If you wish to receive a printed copy of our proxy materials, you should follow the instructions for requesting those materials included in the Notice of Internet Availability of Proxy Materials.

 

Who is entitled to vote?

 

You may vote if you owned shares of Generex’s common stock as of the close of business on September 28, 2017, which is the record date. You are entitled to one vote for each share of common stock that you own. As of September 28, 2017, we had 1,065,093 shares of common stock outstanding.

 

The holders of our Series I Preferred Stock are entitled to vote in the election of directors (Item 1) and on the proposal to authorize additional shares of common stock (Item 2). On those proposals, holders of the Series I Preferred Stock, as a class, are entitled to cast a number of votes equal to fifty percent (50%) of the total number of votes entitled to be cast at the Annual Meeting by all other outstanding shares of the Company’s capital stock. The holders of the Series I Preferred Stock are Joseph Moscato, our CEO, and Lawrence Salvo, a member of our Board. They have agreed vote in favor of the election of Company management’s slate of directors and the Company’s proposal to increase the authorized number of shares of common stock.

 

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How do I vote before the meeting?

 

If you hold your shares in your own name as the stockholder of record, you have three options for voting and submitting your proxy before the meeting:

 

By Internet — We encourage you to vote and submit your proxy over the Internet at www.proxyvote.com.
By Telephone — You may vote and submit your proxy by calling 1-800-690-6903.
By Mail — If you received your proxy materials by mail, you may vote by completing, signing and returning the enclosed proxy card.

 

If you are a street-name stockholder, you will receive instructions from your bank, broker or other nominee describing how to vote your shares. Certain of these institutions offer telephone and Internet voting. Please refer to the information forwarded by your bank, broker or other nominee to see which options are available to you.

 

We provide Internet and telephone proxy voting to allow you to vote your shares on-line or by telephone, with procedures designed to ensure the authenticity and correctness of your proxy vote instructions. However, please be aware that you must bear any costs associated with your Internet or telephone access, such as usage charges from Internet access providers and telephone companies.

 

What shares can I vote?

 

You may vote all shares owned by you as of the close of business on September 28, 2017, the record date. These shares include:

 

Shares held directly in your name as the stockholder of record; and
Shares of which you are the beneficial owner but not the stockholder of record (typically referred to as being held in “street name”). These are shares that are held for you through a broker, trustee or other nominee such as a bank.

May I vote at the meeting?

 

You may vote your shares at the meeting if you attend in person. If you hold your shares through an account with a bank or broker, you must obtain a legal proxy from the bank or broker in order to vote at the meeting. Even if you plan to attend the meeting, we encourage you to vote your shares by proxy over the Internet, by telephone or by mail.

 

How do I revoke my proxy?

 

You may revoke your proxy at any time before the polls close at the meeting.

 

If you are the record holder of your shares, you may change you vote by:

 

Signing another proxy card with a later date and returning it to us prior to the meeting.
Voting again over the Internet or by telephone prior to 11:59 p.m., Eastern Time, on November 20. 2017.
Attending the meeting and notifying the election official that you wish to revoke your proxy and vote in person.
Sending a written notice to us that you are revoking your proxy. Notices may be sent to 4145 North Service Road, Suite 200, Burlington, Ontario Canada L7L 6A3. Our telephone number is (416) 364-2551.

 

If your shares are held by your broker or bank as a nominee or agent, you should follow the instructions provided by your broker or bank for revoking your proxy.

 

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Will my shares be voted if I do not return my proxy?

If your shares are registered directly in your name, your shares will not be voted if you do not vote over the Internet, vote by telephone, return your proxy, or vote by ballot at the annual meeting.

 

If your shares are held in “street name,” your brokerage firm, under certain circumstances, may vote your shares for you if you do not return your proxy. Brokerage firms have authority to vote customers’ un-voted shares on some routine matters. It is possible that brokers will not have discretionary voting authority with respect to Item 1 to approve the authorization of additional shares; in which case, if you do not instruct your broker how to vote with respect to Item 1, your broker may not vote with respect to those matters. We encourage you to provide voting instructions to your brokerage firm by giving your proxy. This ensures your shares will be voted at the Special Meeting according to your instructions. You should receive directions from your brokerage firm about how to submit your proxy to them at the time you receive this Proxy Statement.

 

What if I return my proxy card but do not provide voting instructions?

 

If you are a stockholder of record and you do not specify your vote on each proposal individually when submitting a proxy via the Internet or by telephone, or if you sign and return a proxy card without giving specific voting instructions, your shares will be voted as follows:

 

FOR the election of the nominees for director named on page 6 of this Proxy Statement;
FOR the approval of the amendment to our Restated Certificate of Incorporation to increase the authorized number of shares of common stock from 2,450,000 shares to 750,000,000 shares;
FOR the approval of amendment to our Restated Certificate of Incorporation to change our name to NuGenerex Biotechnology Holdings, Inc.;
FOR the adoption of our 2017 Equity Incentive Plan;
FOR the approval of the adjournment of the Generex annual meeting, if necessary, to solicit additional proxies for the proposals set forth in Item 2 (increase in the number of authorized shares of common stock) on the proxy card;
FOR the ratification of the appointment of MNP LLP as independent public accountants for the year ending July 31, 2017; and
In accordance with the best judgment of the individuals named as proxies on the proxy card on any other matters properly brought before the meeting.

 If you are a beneficial owner of shares registered in the name of your broker, bank or other nominee, and you do not provide the broker or other nominee that holds your shares with voting instructions, the broker or other nominee will determine if it has the discretionary authority to vote on the particular matter.

 

What does it mean if I receive more than one Notice of Internet Availability of Proxy Materials or one proxy card?

 

Your shares are probably registered in more than one account. You should vote all of your shares. We encourage you to consolidate all of your accounts by registering them in the same name, social security number and address. For assistance consolidating accounts where you are the stockholder of record, you may contact our transfer agent, Broadridge Financial Solutions, at 1-800-733-1121.

 

May stockholders ask questions at the meeting?

 

Yes. Generex representatives will answer stockholders’ questions of general interest at the end of the meeting.

 

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How many votes must be present to hold the meeting?

 

Generally, In order for us to conduct our meeting, a majority of our outstanding shares of common stock as of September 28, 2017 must be present in person or by proxy at the meeting. This is referred to as a quorum. If a quorum is not present, we expect that the annual meeting will be adjourned until we obtain a quorum. Under our By-laws, the holders of a majority of the voting rights for a particular proposal must be present at the meeting for a quorum to exist as to that proposal. Since our Series I Preferred Stock is entitle to vote in the election of directors (Item 1 on the Proxy Card) and on the proposal to increase the authorized capital stock (Item 2 on the Proxy Card), a quorum for those matters will consist of a majority of the votes represented outstanding common stock and Series I Preferred Stock.

 

Your shares are counted as present at the meeting if you attend the meeting and vote in person or if you properly return a proxy by mail. Shares voted by banks or brokers on behalf of beneficial owners are also counted as present at the meeting. In addition, abstentions and broker non-votes will be counted for purposes of establishing a quorum with respect to any matter properly brought before the meeting. Broker non-votes occur on a matter when a bank or broker is not permitted under applicable rules and regulations to vote on a matter without instruction from the beneficial owner of the underlying shares and no instruction has been given.

 

How many votes are needed for each proposal and how are the votes counted?

 

The eight nominees for director receiving the highest number of votes FOR election will be elected as directors (Item 1 on the Proxy Card). This is called a plurality. Abstentions and broker non-votes are not counted for purposes of electing directors. The holders of the Company’s Series I Convertible Preferred Stock is entitled to vote on the election of members of the Board of Directors, and the holders of the Series I Preferred Stock, as a class, are entitled to cast a number of votes on such proposal equal to fifty percent (50%) of the total number of votes entitled to be cast at the Annual Meeting by all other outstanding shares of the Company’s capital stock. The holders of the Series I Preferred Stock have agreed to vote in favor of the election of Company management’s slate of directors.

The favorable vote of a majority of the votes represented by our outstanding common stock and Series I Preferred Stock outstanding will be required for the approval of the authorization of additional shares (Item 2 on the Proxy Card). The favorable vote of a majority of our shares of common stock outstanding will be required for the approval of the change in our corporate name (Item 3 on the Proxy card). We believe that Item 1 may be considered a non-routine matter, therefore brokers will not be permitted to vote if the beneficial owners do not provide voting instructions on those matters. The holders of the Company’s Series I Preferred Stock are entitled to vote on the proposal to authorize additional shares of common stock, and the holders of the Series I Preferred Stock, as a class, are entitled to cast a number of votes on such proposal equal to fifty percent (50%) of the total number of votes entitled to be cast at the Annual Meeting by all other outstanding shares of the Company’s capital stock. The holder of the Series I Preferred Stock have agreed vote in favor the Company’s proposal to increase the authorized number of shares of common stock.

 

The affirmative vote of the majority of shares present in person or represented by proxy at the meeting and entitled to vote on the particular proposal will be required for:

 

The approval of the adoption of our 2017 Equity Incentive Plan (Item 4 on the Proxy Card);
the adjournment of the annual meeting, if necessary, to solicit additional proxies to vote in favor of the proposal set forth in Item 1 (Item 5 on the Proxy Card);
the ratification of the appointment of MNP LLP as independent public accountants for the year ending July 31, 2017 (Item 6 on the Proxy Card); and
any other proposal that might properly come before the meeting.  

Abstentions and Broker non-votes will not be counted toward the tabulation of votes cast on Item 2. The effect of an abstention or broker non-vote is the same as that of a vote against Item 1, the proposal to increase our authorized common stock and Item 2, the proposal to change our corporate name.

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How will proxies be voted on other items or matters that properly come before the meeting?

If any other items or matters properly come before the meeting, the proxies received will be voted on those items or matters in accordance with the discretion of the proxy holders.

 

Is Generex aware of any other item of business that will be presented at the meeting?

 

The Board of Directors does not intend to present, and does not have any reason to believe that others will present, any item of business at the annual meeting other than those specifically set forth in the notice of the meeting. However, if other matters are properly brought before the meeting, the persons named on the enclosed proxy will have discretionary authority to vote all proxies in accordance with their best judgment.

 

Who can answer any questions I may have about the annual meeting of stockholders and voting my shares?

 

Shareholders may contact Alliance Advisors, Generex's proxy solicitation agent for the annual meeting of stockholders, toll-free at (877) 777-5092.

 

Where do I find the voting results of the annual meeting?

We will report the voting results in a current report on Form 8-K within four business days after the end of the annual meeting.

Who bears the costs of soliciting these proxies?

We have hired Alliance Advisors to assist us in soliciting proxies in connection with the annual meeting. We will pay Alliance’s fees, which we expect to be approximately $9,000, plus all expenses for such services. In addition, our directors, officers, and employees may solicit proxies by telephone, e-mail, and in person, without additional compensation. Upon request, we will also reimburse brokerage houses and other custodians, nominees, and fiduciaries for their reasonable out-of-pocket expenses for distributing proxy materials to stockholders. All costs and expenses of any solicitation, including the cost of preparing this proxy statement and posting it on the Internet and mailing the Notice of Internet Availability of Proxy Materials, will be borne by Generex.

 

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ELECTION OF DIRECTORS

(Item 1 on the Proxy Card)

 

 

How many directors will be elected at the meeting?

 

Eight directors are to be elected at the Annual Meeting of stockholders. Our bylaws state that the Board shall consist of between three to nine members. Proxies cannot be voted for a greater number of persons than the number of nominees set forth in this proxy statement.

 

What is the term of office for each director elected at the meeting?

 

All directors will be elected to hold office until the next annual meeting of stockholders following election and until their successors are duly elected and qualified.

 

Who are the nominees for election as directors?

 

The persons named below have been approved by our full Board of Directors as nominees for election as directors. All of the nominees currently serve as our directors.

 

Mr. Moscato, Mr. Ro, Dr. Lyman. Mr. Salvo and Dr. Eagle became directors in January of 2017. Mr. McGee first joined the Board in 2004 and Dr. Anderson joined in 2011. Mr. Centofanti is not currently a director and is being nominated for the first time. All of our directors hold office until the next annual meeting of stockholders and their successors are duly elected and qualify. Executive officers serve at the request of the board of directors.

 

Name Age Office(s) held
Joseph Moscato 54  Chief Executive Officer, President, Chairman of the Board
Andrew Ro 47  Chief Investment Officer, Senior VP of Investments, Director
Dr. Gary H. Lyman, MD, MPH 71  Director
Dr. Craig Eagle, MD 55  Director
Dr. James M. Anderson, Jr., MD 69  Director
Brian T. McGee 56  Director
Kevin Centofanti    Director
Lawrence Salvo 65  Director

 

Set forth below is a brief description of the background and business experience of each of our current directors being nominated for a new term and the individuals being nominated for the first time.

 

Current Director Nominees:

 

Joseph Moscato. Mr. Moscato serves as the Company’s Chief Executive Officer, President, and Chairman of the Board.  

 

Mr. Moscato has over 30 years of experience in healthcare, sales and marketing, distribution management, and finance.  Mr. Moscato brings his marketing and advertising acumen to drug discovery and diagnostic & treatment development and commercialization.  Since 2009, Mr. Moscato has been working as an exclusive consultant to the Company.  Mr. Moscato has originated and negotiated several licensing deals with the top biopharmaceutical companies; has advised on equity financings totaling over $300 million, and has implemented the broad strategic vision for the Company.  Mr. Moscato has worked and consulted for Pfizer in several capacities from sales and marketing to new drug discovery & development for licensing.  He has worked with other biopharmaceutical companies such as GlaxoSmithKline, Johnson & Johnson, Parke-Davis, Amgen and others.  Mr. Moscato has consulted for several healthcare focused private equity, hedge funds and family offices.

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Mr. Moscato also owned several advertising and marketing agencies focused on media, entertainment, and healthcare with clients ranging from Motorola, Chadmoore Wireless, Nextel, Cannon, Sharp, GlaxoSmithKline, Pfizer, and other biopharmaceutical companies.  Mr. Moscato’s agency was acquired by William Douglas McAdams, one of the largest independent healthcare advertising and marketing agencies.

 

Andrew Ro. Mr. Ro serves as the Company’s Chief Investment Officer and a Director.

 

Mr. Ro has over 20 years’ experience in the financial markets ranging from trading global futures and equity markets, senior secured debt, convertible securities, private investments in public equities (PIPEs) and investing. Mr. Ro was a Consultant and Registered Representative with boutique investment and merchant banks where he consulted and advised US and international companies on capital markets, operational, and regulatory issues as well as being involved in capital raising, mergers & acquisitions, and strategic implementation. Mr. Ro was a Partner with an active Investment Fund where he was involved in originating, structuring, negotiating and closing financing transactions providing growth capital, acquisition financing, recapitalization, restructuring and general working capital to late-stage venture, distressed and middle market companies across all industries and sectors. Mr. Ro originated and structured over $2 billion in total commitments and managed a portfolio of over $650 million in investments. Mr. Ro graduated from George Mason University with a Bachelor in Science in Economics. He also held Series 3, Series 7, and Series 63 licenses.

 

Dr. Gary H. Lyman, MD, MPH, FASCO, FRCP (Edin). Dr. Lyman serves as an independent Director.

 

Dr, Lyman is Co-Director of the Hutchinson Institute for Cancer Outcomes Research and Member of the Public Health Sciences and Clinical Research Divisions at the Fred Hutchinson Cancer Research Center. He is also Professor of Medicine as well as Adjunct Professor in the Schools of Public Health and Pharmacy at the University of Washington.

 

Dr Lyman received his undergraduate and medical degree from the State University of New York in Buffalo and completed his Internal Medicine Residency at the University of North Carolina in Chapel Hill and Hematology/Oncology Fellowship at the Roswell Park Memorial Institute. Dr Lyman subsequently pursued a Postdoctoral Fellowship in Biostatistics at the Harvard School of Public Health and the Dana Farber Cancer Center. After joining the faculty of the University Of South Florida College Of Medicine, Dr Lyman served as Assistant, Associate and then full Professor of Medicine and Director of Medical Oncology. Shortly after his arrival, Dr Lyman began working with Lee Moffitt and leadership of the University to develop plans for the eventual H Lee Moffitt Cancer Center and Research Institute where he served as the founding Chief of Medicine and Director of the Division of Medical Oncology as well as Associate Chairman of the Department of Medicine at USF. During this period, he also served as Professor of Medicine and Professor of Epidemiology and Biostatistics at the University of South Florida. Upon leaving the Moffitt in 2000,

 

Dr Lyman has held positions as Thomas Ordway Endowed Professor of Medicine and Cancer Center Director at the Albany Medical College and subsequently Professor of Medicine, Associate Cancer Center Director and Director of Health Services and Outcomes Research at the University of Rochester and Strong Memorial Hospital. Prior to relocating to his present position, Dr Lyman served as Professor of Medicine and Director of Comparative Effectiveness and Outcomes Research-Oncology at Duke University and the Duke Cancer Institute and a Senior Fellow at the Duke Center for Clinical Health Policy Research.

 

Dr Lyman is active with the American Society of Clinical Oncology serving recently on the ASCO Board of Directors chairing the Guideline Methodology Committee and several individual guidelines including those related to Prevention and Treatment of Venous Thromboembolism in Cancer, Sentinel Node Biopsy in Early-Stage Breast Cancer and Melanoma, Use of Antiemetics in Patients Receiving Cancer Chemotherapy and Appropriate Chemotherapy Dosing in Obese Patients with Cancer. Dr Lyman is also a member of the Value of Cancer Care Task Force and Cancer Research Committee along with several additional roles within the Society. In 2010 Dr Lyman received the ASCO Statesman Award. He is also active in the American Association for Cancer Research and the Institute of Medicine as well as the American Society of Hematology where he serves on the Quality and Guideline Oversight Committees and Chairs the forthcoming guideline on cancer and thrombosis. Finally, Dr Lyman is active with SWOG serving as Executive Office for the SWOG NCORP and Symptom Management and Quality of Life Committee.

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Dr Lyman is Editor-In-Chief of Cancer Investigation and on the Editorial Board of the Journal of Clinical Oncology, the Journal of Global Oncology and several other specialty journals. In addition to serving as a Fellow of ASCO, Dr Lyman is a Fellow of the Royal College of Physicians (Edinburgh), the American College of Physicians, and the American College of Preventive Medicine. His research interests include precision medicine based on personalized cancer treatment and supportive care, comparative effectiveness and outcomes research related to biomarkers and targeted therapies, mathematical and statistical prognostic and predictive models, advanced methods of evidence synthesis in support of clinical practice guidelines and population studies of patterns of cancer treatment and the impact of health disparities on the quality of cancer care. Dr Lyman has authored or edited more than 15 books and nearly 600 articles in the scientific literature.

 

Dr. Craig Eagle, MD. Dr. Eagle serves as an independent Director.

 

Dr. Eagle serves as Vice President of Strategic Alliances and Partnerships for the Oncology business unit at Pfizer Inc. In 2003, Dr. Eagle led the worldwide development of Celecoxib in oncology to oversee the global research program. He was responsible for the global research plans and teams for Irinotecan and Dalteparin. Since 2007, he served as Head of the Oncology Therapeutic Area Global Medical Group for Pfizer, including the US oncology business. Dr. Eagle led, or been directly involved with, teams that resulted in eight new products or indications. He has led integration of the Pfizer/Wyeth oncology businesses and portfolio.

 

Dr. Eagle has a wealth of oncology experience. He joined Pfizer Australia in 2001 as part of the medical group. In Australia, his role involved leading and participating in scientific research, regulatory and pricing & re-imbursement negotiations for compounds in therapeutic areas including oncology, anti-infectives, respiratory, arthritis and pain management.

 

Dr. Eagle has been a Member of Scientific Advisory Board at Generex Biotechnology Corp. since August 2010. He has been a Member of Strategic Advisory Board at Provectus Pharmaceuticals, Inc. since August 2011. He has been a Director of Regenicin, Inc. since September 7, 2010. He has been a Director at Assured Pharmacy Inc. since June 2009.

 

Dr. Eagle attended Medical School at the University of New South Wales, Sydney, Australia and received his general internist training at Royal North Shore Hospital in Sydney. He completed his hemato-oncology and laboratory hematology training at Royal Prince Alfred Hospital in Sydney. He was granted Fellowship in the Royal Australasian College of Physicians (FRACP) and the Royal College of Pathologists Australasia (FRCPA). After his training, Dr. Eagle performed basic research at the Royal Prince of Wales hospital to develop a new monoclonal antibody to inhibit platelets.

 

Dr. James H. Anderson, Jr., MD. Dr. Anderson serves as an independent Director.

 

Dr. Anderson has served as Director of the Company since June 2011. Dr. Anderson has previously served as Chairman of the Corporate Governance and Nominating Committee and a member of the Generex Compensation and Audit Committees, and has served on the Generex Scientific Advisory Board since October, 2010. Dr. Anderson is a diabetologist and endocrinologist who has been in the pharmaceutical industry for over 25 years. He is currently CEO and President of Symcopeia, a private drug discovery and development company focused on new mechanisms of action for the treatment of diabetes mellitus, and diabetes related obesity and cardiovascular diseases. Dr. Anderson also serves as medical director of PTS Diagnostics, a cardiometabolic medical device company. From 2005 to 2009, Dr. Anderson served as Senior Medical Director for Diabetes and Cardiometabolic Medicine with Eli Lilly and Company and had medical responsibility for diabetes and cardiometabolic drug development, and drove the clinical development, registration and launch of two families of diabetes care products, Humulin® and Humalog. At Eli Lilly, Dr. Anderson contributed to the inventions of the first recombinant DNA produced human insulin analog products, led multiple clinical drug development projects, was responsible for 6 US NDAs and had clinical responsibility for all insulin products worldwide. Dr. Anderson is an elected Fellow of the Faculty of Pharmaceutical Medicine of the Royal Colleges of Physicians of the UK, was a founding board member of the American Association of Pharmaceutical Physicians and is a Fellow of the American College of Endocrinology. Dr. Anderson has been active in the American Diabetes Association and is a member of the International Diabetes Federation, the European Association for the Study of Diabetes, and the Endocrine Society. Dr. Anderson is a founding editorial board member of two journals for diabetes, and serves on the editorial boards or as a reviewer for 5 other diabetes/endocrine journals. Dr. Anderson is a Clinical Associate Professor of Medicine for the Division of Endocrinology and Metabolism at the Indiana University School of Medicine and was awarded an M.D. from the LSU School of Medicine. Dr. Anderson attained the rank of Lieutenant Colonel in the US Army Medical Corps and during his military career, he served as the Chairman, Department of Clinical Investigation at the Army’s largest healthcare center, and Chief of the Medical Division of the US Army Medical Research Institute for Infectious Diseases. The Board believes that Dr. Anderson’s extensive experience in the pharmaceutical industry, his experience in the diabetes and endocrinology fields, combined with his business experience and judgment, provide our Board with valuable scientific and operational expertise.

 

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Brian T. McGee. Mr. McGee serves as an independent Director.

 

Mr. McGee has served as director of Generex since 2004. Mr. McGee has served as Chairman of the Generex Audit Committee and a member of the Generex Compensation and Corporate Governance and Nominating Committees. Mr. McGee has been a partner of Zeifmans LLP ("Zeifmans") since 1995. Mr. McGee began working at Zeifmans shortly after receiving a B.A. degree in Commerce from the University of Toronto in 1985. Zeifmans is a Chartered Accounting firm based in Toronto, Ontario. A significant element of Zeifmans’ business is public corporation accounting and auditing. Mr. McGee is a Chartered Accountant. Throughout his career, Mr. McGee has focused on, among other areas, public corporation accounting and auditing. In 1992, Mr. McGee completed courses focused on International Taxation and Corporation Reorganizations at the Canadian Institute of Chartered Accountants and in 2003, Mr. McGee completed corporate governance courses on compensation and audit committees at Harvard Business School. In April 2004 Mr. McGee received his CPA designation from The American Institute of Certified Public Accountants. Mr. McGee has received a certificate in International Financial Reporting Standards issued by The Institute of Chartered Accountants in England and Wales in 2010. The Board believes that Mr. McGee’s knowledge and understanding of accounting and finance, his education and training in accounting and corporate governance, and his extensive experience in the accounting industry.

 

Lawrence Salvo. Mr. Salvo served as Generex Executive VP of Diagnostics and President of Hema Diagnostic Systems until March 2017, and therefore is not independent.

 

Mr. Salvo has over 20 years of experience in the design and development of rapid medical diagnostic tests for infectious diseases and over 30 years has successfully been directly involved in the management of international distribution and sales including high technology areas in electro-optics and other technical design applications. During that time, Mr. Salvo has developed and maintained substantial and long-term relationships within the People’s Republic of China as well as throughout South and Central America and into the African Continent. His experience includes direct interaction with such international organizations as the WHO, the Global Fund, USAID, the European Union and with multiple supply-chain management groups and multiple NGO’s. Mr. Salvo has been the primary force behind the concept of the design and development of the patented delivery systems of Hema Diagnostic Systems, which are incorporated into many of the current and future RDT’s for various infectious diseases as well as detection applications. These delivery systems continue to evolve and expand the application of rapid testing and are configured for human and veterinary uses.

 

Mr. Salvo is the founder of Hema Diagnostic Systems which grew out of the predecessor company, International Diagnostics and Medical Supply and has also been directly responsible for all international negotiations. Since leaving Hema Diagnostic Systems, Mr. Salvo has engaged in consulting activities. Mr. Salvo brings the full weight of his international experience, development and design expertise along with his substantial knowledge of the international RDT markets acquired from throughout the world. He is a graduate from St. Vincent de Paul Major Seminary, Boynton Beach, Florida

 

New Director Nominee:

 

Kevin Centofanti. If elected, Mr. Centofanti will not be an independent director.

 

Mr. Centofanti is the President of Brooks, Houghton & Company, Inc. and its affiliates, a middle market merchant bank. Additionally, he is a Registered Principal of Brooks, Houghton Securities, Inc., a member of FINRA and SIPC.  As an experienced executive and deal maker in the United States and internationally, he focuses on creating shareholder value and growth for corporate clients.  He has extensive experience working with senior management of public and private companies to determine and act upon the best corporate finance options available (capital raising, mergers and acquisitions, and general advisory) to realize growth.  Previously, he was a Senior Managing Director of the firm involved in all aspects of its investment banking business. Areas of particular interest to him include healthcare, food and beverage, business services, manufacturing, and intellectual property. Before joining BHC, he was a Partner at The Nassau Group where he focused on technology and special situations for the firm, advising clients on mergers, acquisitions, divestitures/sales and on a wide range of capital raising initiatives. Previously, Mr. Centofanti was a Managing Director at WR Hambrecht + Co., a merchant and investment bank. At WR Hambrecht, Mr. Centofanti focused on advising a variety of companies on public and private capital raising, mergers, acquisitions, and sales. Prior to WR Hambrecht, Mr. Centofanti was at Daiwa Securities America, an international investment bank. He founded that firm's private equity group, which concentrated primarily on funding emerging growth companies in the technology and healthcare industries.

 

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Mr. Centofanti received B.S. degrees in Pharmacy and Business from SUNY at Buffalo, and an M.B.A. in Finance and International Business from Columbia University. Also, he holds the CFA designation.  Additionally, he holds Series 7, Series 24, Series 63 and Series 79 licenses.

 

Are there any family relationships among Generex’s officers and directors?

 

There are no family relationships among our officers and directors.

 

What if a nominee is unable or unwilling to serve?

 

If, for any reason, any of the nominees shall become unavailable for election, the shares represented by proxies may be voted for any substitutes proposed by the Corporate Governance and Nominating Committee and approved by the Board of Directors. At this time, the Board of Directors knows of no reason why any of the nominees might be unavailable to serve.

 

What if I return my proxy card or submit a proxy by Internet or telephone but do not provide voting instructions with respect to the election of directors?

 

If you are a stockholder of record and you do not specify your vote on the election of directors when submitting a proxy via the Internet or by telephone, or if you sign and return a proxy card without giving specific voting instructions, the individuals named in the accompanying proxy intend to vote all proxies received by them for the nominees listed above unless otherwise instructed.

 

If you are a beneficial owner of shares registered in the name of your broker, bank or other nominee and you do not instruct your broker how to vote with respect to the nominees listed above, your broker may not vote with respect to the election of directors.

 

What if I do not wish to vote for a particular nominee?

 

If you do not wish your shares to be voted for any of the nominees, you may so indicate.

 

How does the Board of Directors recommend that I vote?

 

The holders of the Company’s Series I Preferred Stock are entitled to vote on the election of members of the Board of Directors, and the holders of the Series I Preferred Stock, as a class, are entitled to cast a number of votes on such proposal equal to fifty percent (50%) of the total number of votes entitled to be cast at the Annual Meeting by all other outstanding shares of the Company’s capital stock. The holders of the Series I Preferred Stock have agreed vote in favor of the election of Company management’s slate of directors.

 

EXECUTIVE OFFICERS

 

The following table sets forth information regarding our executive officers. All of our officers and directors took the offices below on January 18, 2017.

 

Name Age Office(s) held
Joseph Moscato 54 Chief Executive Officer, President, Chairman of the Board
Andrew Ro 47 Chief Investment Officer, Senior VP of Investments, Director
Mark Corrao 59 Chief Financial Officer, Treasurer
Dr. Jason Terrell, MD 36 Chief Scientific Officer, Chief Medical Officer
Mark Fletcher, Esq. 51 Executive Vice President & General Counsel, Secretary
Richard Purcell 57 Senior VP of Research & Drug Development
Dr. Jacob Dagan, PhD 72 Executive Vice President Business Development

 

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Set forth below is a brief description of the background and business experience of each of our current executive officers who are not directors of the Company. The background of executive officers who are also directors is set forth above.

 

Dr. Jason B. Terrell, MD. Dr. Terrell serves as the Company’s Chief Scientific Officer and Chief Medical Officer.

 

Dr. Terrell has extensive expertise in the pharmaceutical and medical diagnostic device industry in the areas of business development, clinical trial organization, regulatory affairs and commercialization strategies. Dr. Terrell has served as medical director and chief medical officer for several public and private companies like VolitionRx, a NYSE traded international medical diagnostic company. Dr. Terrell previously served as a Corporate Medical Director for Any Lab Test Now, the nation’s largest direct to consumer medical testing franchise, where he supervised clinical operations for over 70 locations throughout the United States. Dr. Terrell is a summa cum laude graduate from Hardin-Simmons University with a degree in Biochemistry. He graduated as recipient of the Holland Medal of Honor for the top graduate in the School of Science and Mathematics. Dr. Terrell was honored with the Hardin-Simmons University Outstanding Young Alumni Award and currently serves on the University’s Board of Development. Dr. Terrell attended The University of Texas School of Medicine in Houston and received General Medicine Internship and Pathology Residency training at the Texas Tech University Health Sciences Center.

 

Dr. Jacob Dagan, Ph.D. Dr. Dagan serves as the Company’s Executive Vice President, Business Development.

 

Dr. Dagan is a senior executive, with more than 25 years of proven success, in: healthcare management, corporate and product development, in the US. Combining extensive experience, in operations, marketing, sales and hospital management, with strong bio medical scientific skills. In 2005 founded with partners ProMed Capital, LLC, an investment organization investing in Israeli medical device startups. Since 2006 invest in eight companies, and six more are in the pipe line. In each company, hands on involvement as active manager, board member or chairman of the board. Continues to own and operate Medical Service Options (MSO-Israel). Member on the Board of Governors of the Technion-Israel Institute of Technology.

 

In 2013 founded three startups and applied for patent protection for each, covering the fields of New Laser printer, Orthodental brace for bone stimulation and an oral drug delivery device. In 2015 moved back to the USA and started MSO-USA, involved as CEO of two Israeli startups, Meditemp and AlfaRhythm. In 2016 started a corporation for contract development and manufacturing of medical and health related lasers. Currently acts as CEO of a multi-specialty surgical corporation in the City of New York.

 

Past Director of BioMedical Engineering at Sheeba Medical Center and Associate Professor of Bio-Medical Engineering at Tel Aviv University. Held senior management positions with Sharplan Lasers, developing the field of applications of Lasers in Medicine. Has been involved in fund raising and strategy consulting to Bio-Medical, Bio-Technology companies and on the Board or in operating responsibilities of several start-ups in Israel and the USA.
Received Doctorate from Columbia University focusing on Nuclear Medicine applications in Cardiology B.Sc in Mechanical and Nuclear Engineering and an MSc in Nuclear Sciences from the Technion, Israel Inst. of Technology.

 

Richard Purcell. Mr. Purcell serves as the Company’s Senior Vice-President of Research & Drug Development.

 

Mr. Purcell has over 30 years of experience in consulting and advising emerging biopharmaceutical and technology companies on new business strategy, operations management, clinical development of novel compounds, data solutions for clinical and medical applications, patient engagement & communication, medical education for professionals and consumers, and data analytics for outcomes research. Mr. Purcell oversaw strategic planning, clinical operations, data management, regulatory filings, and R&D and was involved with business development and out-licensing activities for the company’s technology platform.

 

He started his career as a molecular biologist, where he developed and patented a second generation TPA with increased half-life. He also worked at a major pharmaceutical company where he conducted primary research and published several manuscripts on the topics of AIDS and immunomodulators. Mr. Purcell also headed the Life Sciences Consulting Group for Kline and Company, where he conducted market, technology and business analysis for the commercial development of pharmaceutical and biotechnology products for therapeutic and diagnostic applications.

 

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Rich graduated with a degree in Biochemical Sciences from Princeton University, and attended Rutgers Graduate School of Management majoring in marketing and finance. He is a member of NJTC, HIMSS, the Patient-Centered Primary Care Collaborative, the Drug Information Association and the Licensing Executives Society. He is also an Adjunct Professor of Biology at Monmouth University where he developed and teaches The Business of Biotechnology.

 

Mark Corrao. Mr. Corrao serves as the Company’s Chief Financial Officer, Treasurer.

 

Mr. Corrao has experience in financial management with a proven track record of raising capital and extraordinary bottom line management. He has been involved in the initial registration of numerous public companies and subsequent SEC quarterly and annual reporting and has developed, authored and presented numerous business plans and models inclusive of budgets, forecasts, cash flow, cash management and investment strategies. From 2012 to present he has been a Managing Director and CFO of The Mariner Group LLC, which has merged with the CFO Squad, creating a much larger and diverse multi-talented organization. The CFO Squad is a financial and business advisory firm providing outsourced and part-time CFO services for emerging to midsized companies (both private and public) in a wide range of businesses and industries. He has been the Chief Financial Officer and a director for a pharmaceutical company specializing in the research and development of novel and new therapeutic agents designed to reduce oxidative stress and act as immune modulators and Neuroprotectants. From 2010-12, he served as Chief Financial Officer of New York Business Efficiency Experts, Inc. which provides professional services in the financial areas of accounting, taxation, auditing, venture capital and SEC registrations (reporting). He served as a Director and Chief Financial Officer for a manufacturer of proprietary software for the prevention of identity theft and the protection of computer systems from unauthorized access. Additionally, Mr. Corrao is currently the CFO for a software company.

 

Mark A. Fletcher, Esq. Mr. Fletcher serves as the Company’s Executive Vice President & General Counsel, Secretary.

 

Mr. Fletcher served as our President and Chief Executive Officer from September, 2010 through January 17, 2017. Mr. Fletcher served as a member of the Board of Directors from March 2011 through January 17, 2017. Mr. Fletcher was our Executive Vice-President and General Counsel from April, 2003 until September, 2010, and he resumed those roles as of January 17, 2017. Prior to joining Generex, Mr. Fletcher was engaged in the private practice of law as a partner at Goodman and Carr LLP, a leading Toronto law firm. Mr. Fletcher was previously 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.

 

 

INDEPENDENCE AND COMPENSATION OF DIRECTORS

 

Director Independence

 

The Board of Directors currently consists of seven members, four of whom are “independent” as defined under applicable rules of the SEC and The Nasdaq Stock Market LLC. The independent members of the Board of Directors are:

 

Dr. James Anderson, Jr., MD
Dr. Craig Eagle, MD
Brian T. McGee
Dr. Gary Lyman, MD, MPH
During the fiscal year ended July 31, 2016, and prior to January 17, 2017, the board consisted of three members, Mr. McGee, Dr. Anderson, and Mark Fletcher. Mr. Fletcher, our former CEO and now our Executive Vice-President and General Counsel, was not independent.

 

For a director to be considered independent, the Board must determine that the director has no relationship which, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.

 

All members of the Audit Committee, the Compensation Committee and the Corporate Governance and Nominating Committee must be independent directors under NASDAQ rules. Members of the Audit Committee also must satisfy a separate SEC independence requirement, which provides that they may not accept directly or indirectly any consulting, advisory or other compensatory fee from the Company or any of its subsidiaries other than their directors’ compensation. In addition, under SEC rules, an Audit Committee member who is an affiliate of the issuer (other than through service as a director) cannot be deemed to be independent.

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Due to the Company’s exceptional circumstances throughout fiscal 2016, including the attrition of directors over the last two fiscal years and the Company’s limited operations and diminished financial condition, the Board’s established standing Audit Committee, Compensation Committee and Corporate Governance and Nominating Committee ceased functioning as such during fiscal year 2016. During that year, and through January 17, 2017, the full Board acted in the capacity of these committees as necessary, except to the extent that Mr. Fletcher abstained from determinations regarding executive compensation for the principal executive officers.

We have not re-constituted our Compensation Committee or Corporate Governance and Nominating Committee since the changes in our management and addition of directors on January 17, 2017. We anticipate reconstituting these committees shortly after the Annual Meeting. Our Audit Committee consists of Mr. McGee and Mr. Ro. Mr. Ro is not independent, and therefore the Company is non-compliant with the Nasdaq audit committee rules at his time. From January 18, 2017 through May 24, 2017, Andrew Greene also served on the audit committee. Mr. Greene was not independent. The Company expects to appoint other independent directors to the Audit Committee and remove Mr. Ro from the Audit Committee shortly after the Annual Meeting, to enable the Audit Committee to comply with audit committee independence rules in time to review the company’s financial statements and Annual Report on Form 10-K for the fiscal year ending July 31, 2017.

Non-Employee Directors' Compensation

 

Our non-employee directors waived all compensation in our last fiscal year in light of our financial condition; thus, no cash or other compensation was paid to any of our directors in the fiscal year ended July 31, 2017.

 

Directors who are officers or employees of Generex or its subsidiaries do not receive separate consideration for their service on the Board of Directors. The compensation received by Mr. Fletcher as an employee of Generex is shown in the Summary Compensation Table elsewhere in this proxy statement. The compensation received by our former director Dr. von Hofe as an employee of our subsidiary Antigen Express, Inc. is shown in the Director Compensation Table below under “All Other Compensation”.

 

 

Fiscal Year 2017 Director Compensation

 

No cash fees, stock awards, stock options or other compensation was paid or awarded to any Generex non-employee director in Fiscal 2017. Directors who are also officers of the Company received compensation for their services as officers described below in the Summary Compensation Table on page 21.

 

Following the Annual Meeting, the Board of Directors will repopulate its Compensation Committee which will review and approve a compensation program for the Company’s non-employee directors in respect of the fiscal year ending July 31, 2018, which compensation program will be disclosed in a Form 8-K Current Report filed by the Company with the SEC.

 

 

 

CORPORATE GOVERNANCE

 

Code of Ethics

 

Generex has adopted a code of ethics that applies to its directors and the following executive officers: the President, Chief Executive Officer, Chief Financial Officer (principal financial/accounting officer), Chief Operating Officer, any Vice-President, Controller, Secretary, Treasurer and any other personnel performing similar functions. We also expect any consultants or advisors whom we retain to abide by this code of ethics. The Generex Code of Ethics has been posted on Generex's Internet web site - www.generex.com.

 

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Board Structure; Risk Oversight; Risk Assessment of Compensation Policies and Practices

 

The business affairs of Generex are managed under the direction of our Board of Directors. The Board is actively involved in oversight of risks that could affect Generex. In the past, this oversight was conducted primarily through the separate standing committees of the Board. In fiscal 2016, due to the Company’s then exceptional circumstances, including the attrition of directors over the last two fiscal years and the Company’s limited operations and diminished financial condition, the Board’s established standing Audit Committee, Compensation Committee and Corporate Governance and Nominating Committee ceased functioning. Thus, the full Board has retained responsibility for oversight of risks. The Board satisfies this responsibility through regular reports directly from officers responsible for oversight of particular risks within Generex. The Board believes its administration of its risk oversight function has not affected the Board's leadership structure. We have not re-constituted our Compensation Committee or Corporate Governance and Nominating Committee since the changes in our management and addition of directors on January 17, 2017. We anticipate reconstituting these committees shortly after the Annual Meeting. Our Audit Committee consists of Mr. McGee and Mr. Ro. Mr. Ro is not independent, and therefore the Company is non-compliant with Nasdaq the audit committee rules at his time. The Company expects to appoint other independent directors to the Audit Committee and remove Mr. Ro from the Audit Committee shortly after the Annual Meeting, to enable the Audit Committee comply with the Nasdaq audit committee independence rules.

 

Board Meetings; Board Committees

 

During the fiscal year ended July 31, 2017, the Board of Directors met on 4 occasions and took action by consent on 1 occasion. Other than Dr. Lyman, no director participated in less than 75% of the meetings. There were no committee meetings during fiscal 2017.

 

Audit Committee

 

During fiscal 2017, the full Board acted as the Audit Committee. We have recently re-constituted the Audit Committee with Mr. McGee as Chairman, and Mr. Ro.

 

The Audit Committee reviews and discusses with Generex's management and its independent auditors the audited and unaudited financial statements contained in Generex's Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. Although Generex's management has the primary responsibility for the financial statements and the reporting process, including the system of internal controls and disclosure controls and procedures, the Audit Committee reviews and discusses the reporting process with management on a regular basis. The Audit Committee also discusses with the independent auditors their judgments as to the quality of Generex's accounting principles, the reasonableness of significant judgments reflected in the financial statements and the clarity of disclosures in the financial statements, as well as such other matters as are required to be discussed with the Audit Committee under generally accepted auditing standards. Our Board of Directors has determined that at least one person, Mr. McGee, serving on the Audit Committee is an "audit committee financial expert" as defined under Item 407(d)(5)(ii) of Regulation S-K. The Audit Committee has adopted a written charter, A copy of the Audit Committee Charter is attached as Appendix A to this proxy statement.

 

Compensation Committee

 

In fiscal 2017, the full Board assumed the responsibilities of the Compensation Committee except that Mr. Fletcher did not participate in determinations regarding the compensation to be paid him in his role as a named executive officer of the Company.

 

The Compensation Committee had responsibility for reviewing and recommending to the Board of Directors compensation programs and policies for our President and Chief Executive Officer, our Chief Operating Officer and Secretary, and our Chief Financial Officer and Treasurer, who comprised Generex’s executive management team during the first half of 2017, and will have responsibility for reviewing and recommending compensation programs and policies for officers appointed in January 2017.

 

The Compensation Committee does not delegate its authority. Executive officers (other than Mr. Fletcher) do not attend meetings of the Compensation Committee. The Compensation Committee does not have a charter. It has the authority to use a compensation consultant to assist the Compensation Committee in the evaluation of the compensation of our executive management team and other executive officers and to consult with other outside advisors to assist in its duties to the Company, but in fiscal 2016 it did not engage any compensation consultants or engage in benchmarking activities. The Compensation Committee does not have a written charter.

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Corporate Governance and Nominating Committee

 

In fiscal 2017, we did not have a separate standing Corporate Governance and Nominating Committee, and no action was taken by the full Board functioning as the Committee.

 

The Corporate Governance and Nominating Committee will consider candidates whom the stockholders of Generex put forward. The name, together with the business experience and other relevant background information of a candidate, should be sent to Mark Fletcher, Secretary of Generex, at Generex’s offices located at 4145 North Service Road, Suite 200, Burlington, Ontario, Canada L7L 6A3. Mr. Fletcher will then submit such information to the chair of the Corporate Governance and Nominating Committee for the Committee’s review and consideration. The process for determining whether to nominate a director candidate put forth by a stockholder is the same as that used for reviewing candidates submitted by directors. After full consideration, the stockholder proponent will be notified of the decision of the committee.

 

The Corporate Governance and Nominating Committee is responsible for seeking to identify director candidates with the highest personal and professional ethics, integrity and value and diverse experience in business, finance, pharmaceutical and regulatory matters, and other matters relevant to a company such as Generex and who have sufficient time to devote to the company’s affairs. The charter of the Corporate Governance and Nominating Committee sets forth the policy with regard to the consideration of diversity in identifying director nominees and calls for periodic review of director recruitment and selection protocols so that diversity remains a component of any director search. The Corporate Governance and Nominating Committee is charged with developing a formal list of qualifications for members of the Board of Directors as mandated by its charter and criteria to assist the Board in attaining diversity of background and skills in director candidates, but the Committee has yet to develop such a list or criteria. To date, the Corporate Governance and Nominating Committee has not engaged any third party to assist it in identifying director candidates.

 

In accordance with our bylaws, the Board of Directors is permitted to increase the number of directors and to fill the vacancies created by the increase until the next annual meeting of stockholders.

 

Director Nominations by Stockholders

 

Any stockholder entitled to vote for the election of directors may nominate a person for election to the Board of Directors at an annual meeting of stockholders. Any stockholder wishing to do so must submit a notice of such nomination in writing to the Secretary of Generex at Generex’s offices located at 4145 North Service Road, Suite 200, Burlington, Ontario, Canada L7L 6A3 not less than 60 nor more than 90 days prior to such annual meeting. In the event that less than 70 days’ notice or prior disclosure of the date of the meeting is given or made to stockholders, notice of nomination by a stockholder to be timely must be received not later than the close of business on the 10th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. The stockholder's notice of nomination must provide information about both the nominee and the nominating stockholder, as required by Generex's bylaws. A copy of these bylaw requirements will be provided upon request in writing to Mark Fletcher, Secretary of Generex, at Generex’s offices located at 4145 North Service Road, Suite 200, Burlington, Ontario, Canada L7L 6A3.

 

Communications with Directors

 

Interested parties who wish to make any concerns known to non-management directors may submit communications at any time in writing to: Mark Fletcher, Secretary of Generex, Generex Biotechnology Corporation, at Generex’s offices located at 4145 North Service Road, Suite 200, Burlington, Ontario, Canada L7L 6A3. The Secretary will determine, in his good faith judgment, which communications will be relayed to the non-management directors.

 

 

EXECUTIVE COMPENSATION

 

Compensation, Discussion & Analysis

 

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Compensation Philosophy

 

We did not have sufficient resources to pay any cash compensation to our named executive officers in fiscal 2017 or subsequently through the date of this Proxy Statement, and did not pay compensation of any kind to our executive officers in fiscal 2017 or 2016 other than salaries for the period from August 1, 2015 through October 23, 2015 and certain options issued in October, 2015, in satisfaction of accrued and unpaid salary, as discussed in detail below.

 

The following discussion of our philosophy assumes we have the resources to follow that philosophy.

 

We are a development stage company focused on research, development, and commercialization of our proprietary drug delivery platform for administration of large molecule drugs to the oral cavity through a hand-held aerosol spray applicator. We are in the process of developing proprietary formulations of drugs that can be delivered through an oral spray thereby eliminating the need for injections and have focused on our Oral-lyn™ insulin formulation, which is administered as a spray into the oral cavity. Our majority owned subsidiary, Hema Diagnostic Systems, LLC, markets and distributes rapid test devices for infectious diseases. We also have a subsidiary, Antigen Express, which focuses on developing proprietary immuno-medicines.

 

In addition to our existing businesses, our strategic plan is to acquire full ownership, or controlling interests, in companies with promising pharmaceutical and related products in development.

  

As a development stage company, our future depends on the ability of our executives to obtain necessary regulatory approvals to launch products in key markets such as the United States, Canada, and Europe, as well as furthering the development of products in our pipeline through the clinical trial and regulatory processes. Attracting, retaining, and motivating key executives who can lead Generex through these processes is critical to our success. We have a small executive team that works together closely. Our executives perform multiple roles and need to be able to respond to changing market dynamics quickly.

 

For these reasons, we seek to ensure that our compensation programs are competitive with similarly sized companies with which we compete for executive talent. The goals of our executive compensation program are to attract and retain top executives, to motivate executives to achieve our business objectives, to align executive and shareholder interests, and to recognize individual contributions and overall business success.

 

The Compensation Committee of the Board of Directors evaluates the types and amounts of compensation that it believes are appropriate for our policy making executives. We refer herein to these executives as the “named executives.” In prior years, before our recent change in management, we identified our President and Chief Executive Officer, Chief Operating Officer and Chief Financial Officer as our named executives. We have also included Dr. von Hofe, the President of our subsidiary, Antigen Express. We expect to reassess this when our Compensation Committee is re-formed.

 

In addition to the compensation of our named executives, the Compensation Committee also reviews and approves the compensation of members of our senior management.

 

Historically, the key components of our executive compensation have been base salary, cash bonuses, and equity incentives, including stock bonuses, restricted stock, and stock options awarded at the discretion of our Compensation Committee and Board of Directors. As a development stage company, we have reviewed compensation of our named executives annually and at the discretion of the Compensation Committee as warranted by our financial condition and achievement of our business goals. While the elements of compensation are considered separately, the Compensation Committee ultimately considers the value of the total compensation package provided to the individual named executive.

 

The Compensation Committee believes the company’s compensation program must take into account the following factors:

 

  past levels of compensation adjustments;
  the expected transition of the company from a development stage company to an operating company;

  the nature of the regulatory approval process for the Company’s products; and
  the potential for growth of the company in the event that regulatory approvals are obtained.

  

In fiscal 2016, the Compensation Committee did not implement any changes to base salaries for any of the named executives and did not award any equity incentive awards or cash bonuses to the named executives during fiscal 2016 for fiscal 2015 performance and contributions. The Compensation Committee has not made any determinations as to compensation or equity awards for the named executives with respect to performance or contributions for the fiscal year ended July 31, 2016.

 

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In administering the executive compensation program, our Compensation Committee has relied upon market data provided on a periodic basis by external consultants, as well as its own understanding and assessment of executive compensation trends. In its consideration of compensation for the named executives, the Compensation Committee has reviewed compensation data for pharmaceutical and biotechnology companies in the past, market data provided by external compensation consultants, compensation data compiled by a third-party compensation data firm and publicly available executive compensation data for publicly traded companies.

 

Use of Compensation Consultant and Benchmarking

 

In the fiscal year ended July 31, 2017, the Compensation Committee did not engage any compensation consultants or engage in benchmarking activities. The Compensation Committee last undertook a comprehensive review of compensation and engaged a compensation consultant in November 2009.

 

Determination of Compensation

 

In prior years, the Compensation Committee typically made compensation determinations, including any increases in base salary for the next calendar year and any bonuses in respect of the prior fiscal year, before or during the first calendar quarter of each year. The Compensation Committee followed such a schedule in order to eliminate the need to award retroactive salary increases. In addition, the Compensation Committee has typically reviewed compensation arrangements in the first calendar quarter to ensure that compensation levels are appropriate in light of Generex’s financial position and performance at that time. Due to the financial position of the Company, the Committee did not follow such a schedule in fiscal 2016, as there were no salary changes or bonus awards made. The company last made changes and awarded bonuses prior to the end of fiscal 2013. Because of the Company’s financial position, no increases were made to base salary, nor were any cash bonuses or stock incentive awards granted to the named executives during fiscal 2016 or 2017.

   

Components of Compensation

 

Base Salary

 

Base salary provides a fixed amount of compensation necessary to retain key executives. It is guaranteed compensation to the named executives for performance of core duties. Historically, base salaries for the named executives may be adjusted upon recommendation by the Compensation Committee and ratification by the Board of Directors, and annual base salaries for the named executives have been reviewed periodically relative to the base pay levels for each executive’s position based on the peer group. The Compensation Committee last undertook such a review in November 2009. Levels of base salary were generally targeted at the market’s second quartile (51% – 75%), but also reflect the compensation goals adopted by the Compensation Committee, operational goals determined by management, the named executive’s individual performance, contribution of the named executive to overall corporate performance, and the level of responsibility of the named executive with respect to his or her specific position. The level of base salary also reflects multiple titles and additional responsibilities of the named executives driven by the operational needs of the company.

  

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Cash Bonuses

 

Historically, performance-based compensation has been a key component of our compensation philosophy. In the past, cash bonuses have been provided to attract, motivate, and retain highly qualified executives on a competitive basis and provide financial incentives that promote company success. From time to time in the past, the Compensation Committee has granted bonuses to reward achievement relative to specific performance objectives. In awarding bonuses, the Compensation Committee considers various factors, including the named executive’s position within Generex, attainment of specific business objectives and performance milestones, and the named executive’s individual contributions thereto. The Committee exercises discretion with respect to the weight that it gives to these and other factors in determining bonuses. The Compensation Committee also retains discretion with respect to whether any bonuses are paid to the named executives, the amounts of any such bonuses, and the form of any such bonuses.

 

The Compensation Committee did not grant or accrue any bonuses in fiscal 2017, in consideration of the financial position of the Company.

 

Long-Term Incentives and Equity Awards

 

Historically, our compensation program has included long-term incentive compensation in the form of equity grants subject to a vesting schedule. We believe such incentive compensation further aligns the interests of management with those of stockholders and enhances shareholder value. Currently, we do not have any long-term cash incentive programs in place for the named executives.

  

Long-term equity incentive grants have been discretionary. In determining whether such grants are warranted, the Compensation Committee has considered our compensation strategy, market practice concerning long-term incentives provided to executives at peer companies and within the broader market, and the named executive’s specific roles within Generex. Typically, equity incentive awards were granted subject to vesting over a period of time and were not tied to specific performance measures.

 

Equity grants have historically been made through stock options under our various plans, including Generex’s 2001 Stock Option Plan, as amended, and the Amended and Restated 2006 Stock Plan, which also allows grants of restricted stock. We consider the costs to the Company of granting stock options under Statement of Financial Accounting Standard (SFAS) 123(R) as compared to the costs to named executives of higher income tax liabilities associated with the granting of restricted stock.

 

There were no discretionary awards of options to purchase shares of our common stock to our named executives in fiscal 2017, with the exception of the following. In fiscal 2016. the Company granted options to purchase, in the aggregate, 15,393,363 shares of our common stock to the its CEO, COO, CFO and former director Dr. von Hofe in full and final payment of obligations to pay such individuals deferred salary accrued during up to October 15, 2015. The options were issued in lieu of cash payment of compensation amounts due to such individuals. The number of options granted to each individual was equal to the dollar amount of deferred salary or fees due to such individual divided by $0.015. The stock options had an exercise price equal to $0.001 per share and were made pursuant to the terms of the Company's 2006 Stock Plan. The options were fully vested at on October 26, 2015 and will expire on the fifth anniversary of the date of grant. The grants were valued at the amount of deferred compensation owed to each such individual.

 

The number of options that the Compensation Committee recommended, and the Board of Directors approved, in respect of the above salary deferrals in 2016 described above were as follows:

 

Named Executive  No. of Shares
Underlying Options
Mr. Fletcher   4,448 
Mr. Fellows   1,668 
Dr. von Hofe   7,611 
Dr. Brusegard   1,668 

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Benefits and Perquisites

 

Named executives may participate in benefit plans that are offered generally to salaried employees such as short and long term disability, health and welfare benefits, and paid time off.

 

We provide very limited perquisites. During fiscal 2017, we did not provide any material perquisites.

 

We do not offer deferred compensation plans, defined benefit plans, supplemental executive retirement plans, supplemental life insurance, benefit restoration plans, or tax gross-ups on change-in-control benefits.

 

Employment and Severance Agreements

 

We do not have employment agreements, plans or arrangements, with any of our named executives whether written or unwritten, relating to compensation, termination of employment or a change in control. There are no benefits currently made available to our named executives which are in addition to benefits available generally to salaried employees.

 

We anticipate entering into employment agreements with all of our officers following the Annual Meeting. We expect the employment agreements to provide for cash compensation as well as significant equity awards and incentives.

 

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Other Benefit Plans

 

We have no defined benefit or actuarial pension plans.

 

As of the end of fiscal 2017, Mark Fletcher held stock options or restricted stock granted pursuant to either the 2001 Stock Option Plan or the 2006 Stock Plan. No other executive officers held options at the end of 2017. The 2001 Plan provides that outstanding options will become immediately exercisable and vested upon a change in control, unless the Board of Directors or its designee determines otherwise. In the event that Generex will not be the surviving corporation, the Board or its designee has flexibility under the 2001 Plan to determine how to treat stock options. The 2001 Plan does not condition the acceleration and vesting of stock options in such an event upon an option holder’s termination of employment; however, the terms of the 2001 Plan provide that, unless otherwise provided by the Board or its designee, an option holder can exercise outstanding options after the date of his or her termination of employment only if the option holder voluntarily terminated employment with Generex or was terminated without cause by Generex. Under the terms of the 2006 Plan, unvested stock options and restricted stock will become exercisable or unrestricted, as applicable, thirty days prior to the change-in-control event and such acceleration is not conditioned upon the termination of a participant’s employment with Generex. The 2006 Plan further provides that if Generex is not the surviving corporation as a result of a change in control, all outstanding options that are not exercised will be assumed by, or replaced with comparable options or rights by, the surviving corporation, and outstanding grants of restricted stock will be converted to similar grants of equity in the surviving corporation.

 

Tax and Accounting Considerations

 

Historically, the Compensation Committee has considered implications of tax and accounting requirements impacting compensation programs from the perspective of the Company and the individual named executives. The Compensation Committee may also consider sections of the tax code which impact Generex or individual taxpayers. For U.S. taxpayers, the Committee structures its programs to comply with Section 409A of the Internal Revenue Code.

 

Given the high individual income tax liabilities which result from the awarding of restricted stock to our executives who are all tax residents of Canada, the Compensation Committee expects to grant future equity awards in the form of stock options for the foreseeable future.

 

Compensation Committee Report

 

The full Board of Directors of Generex Biotechnology Corporation performing the functions of the Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the full Board of Directors commended and determined that the Compensation Discussion and Analysis be included in Generex’s Annual Report on Form 10-K for the year ended July 31, 2017 and in the proxy statement for the 2017 annual meeting.

 

THE BOARD OF DIRECTORS

 

Executive Compensation Tables

 

The following executive compensation tables pertain to the fiscal year ended July 31, 2016. Therefore, the tables contain information relating to the named executives who served as of the fiscal year end and refer to the positions held by such named executives as of July 31, 2017.

 

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 Summary Compensation Table

 

The following table provides information concerning compensation of Generex’s named executives for Generex’s last completed fiscal year ending July 31, 2017. In respect of that fiscal year, the named executives did not receive compensation in the form of non-equity incentive plan compensation or changes in pension value or non-qualified deferred compensation earnings. Therefore, the table below does not include columns for these types of compensation. The salaries indicated below represent the actual cash amounts paid. The Company did not have sufficient funds to pay the previously agreed upon base salaries. Option exercisable at $$1.00 per share (adjusted for the subsequent 1 for 1,000 reverse stock split) were issued in lieu of cash compensation to Mr. Fletched in fiscal 2016.

 

The cash compensation listed under “Bonus” for each officer in 2017 represents a one-time payment made in June, 2017. No other compensation was paid to any executive officer in the fiscal year ended July 31, 20172017

 

Name and Principal Position  Year  Salary  Bonus  Stock Awards  Option Awards  All Other Compensation  Total
Mark A. Fletcher, Executive VP,   2017   $—     $50,000   $—     $—     $ ==  $50,000 
General Counsel   2016   $71,462(1)  $—      —     $70,193    —     $141,655 
    2015   $ ■    $ __   —     $—      —     $ 
                                    
Joseph Moscato, President,   2017   $50,000   $—      —     $—     $—     $50,000 
Chief Executive Officer (2)   2016   $—     $—      —     $—      —     $—   
    2015   $—     $ __   —     $—      —     $—   
                                    
Mark Corrao,   2017   $10,000   $—     $—     $—     $—     $10,000 
Chief Financial Officer (3)   2016   $—     $—      —     $—      —     $—   
    2015   $—     $ __   —     $—      —     $—   
                                    
Andrew Ro,   2017   $10,000   $—     $—     $—     $—     $10,000 
Senior VP of Investments   2016   $—     $—      —     $—      —     $—   
    2015   $—     $ __   —     $—      —     $—   
                                    
Richard Purcell,   2017   $10,000   $—     $—     $—     $—     $10,000 
Senior  VP of R&D   2016   $—     $—      —     $—      —     $—   
    2015   $—     $ __   —     $—      —     $—   

   

 

*Cash compensation is stated in the table in U.S. dollars. To the extent any cash compensation was paid in Canadian dollars, it has been converted into U.S. dollars based on the average Canadian/U.S. dollar exchange rate for the year ended July 31, 2016.

 

All officers other than Mr. Fletcher assumed office in January, 2017.

 

(1)   This amount reflects an annualized base salary of $285,848.
(2)   Mr. Moscato assumed office in January, 2017, and has received no compensation.

(3)   CFO Squad, of which Mr. Corrao is a principal,  received  $37,500 in cash for accounting and financial services provided to the Company in Fiscal 2017.  

 

No stock options were awarded in the fiscal year ended July 31, 2017.

 

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Other Benefit Plans

 

We have no defined benefit or actuarial pension plans.

   

Outstanding Equity Awards at 2017 Fiscal Year-End

 

The following table provides information on the current holdings of stock options by the named executives. This table includes unexercised and unvested option awards as of July 31, 2017. Each equity grant is shown separately for each named executive. The vesting schedule for each outstanding award is set forth in the footnotes to the table. We do not have any current “stock awards” or “equity incentive plans” referred to in Regulation S-K Item 402(p)(2); thus, the columns relating to stock awards and equity incentive awards are not included in the table below.

 

    Option Awards

 

 

 

 

Name

 

 

 

 

 

Grant Date

    Number of Securities Underlying Unexercised Options (#) Exercisable       Number of Securities Underlying Unexercised Options (#) Unexercisable      

 

 

Option Exercise Price ($)(2)

   

 

 

Option Expiration Date

Mark E. Fletcher,
President and
Chief Executive Officer
  3-8-2010     300(1)(2)       0     $ 640     3-8-2020

 

(1)These options were granted on March 8, 2010 (pre-reverse stock split). The grants were made pursuant to the terms of our 2006 Stock Plan. The exercise price per share is equal to the closing price of Generex common stock on March 8, 2010. The options vested as follows: 33% of the options were exercisable on the date of grant; 33% of the options became exercisable on August 1, 2010, and the remaining 33% of the options became exercisable on August 1, 2011.
(2)Adjusted for our 1 for 1,000 reverse stock split.

 

 

No other executive officers held options as of July 31, 2017.

 

Compensation Elements; Employment Agreements and Agreements Providing Payments Upon Retirement, Termination or Change in Control for Named Executives

 

Historically, the key components of our executive compensation have been base salary, cash bonuses, and equity incentives, including stock bonuses, restricted stock, and stock options awarded at the discretion of our Compensation Committee and Board of Directors. As a development stage company, we have reviewed compensation of our executive management team from time to time and at the discretion of the Compensation Committee when warranted by our financial condition and achievement of our business goals.

 

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 APPROVAL OF AN AMENDMENT TO GENEREX’S RESTATED CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK

(Item 2 on the Proxy Card)

 

What am I voting on?

 You are voting on an amendment to our restated certificate of incorporation. Our Board of Directors adopted a resolution that authorizes, subject to stockholder approval, an amendment to our restated certificate of incorporation to increase our authorized common stock, $0.001 par value per share, from 2,450,000 shares to 750,000,000 shares. The additional common stock to be authorized by adoption of this amendment would have rights identical to our currently authorized and outstanding common stock. The number of authorized shares of our preferred stock, 1,000,000 shares, will not be affected by this amendment. The complete text of the increase in authorized capital resolution and amendment is set forth as Appendix B to this proxy statement. If this proposal is approved, the amendment will become immediately effective upon its filing with the Secretary of State of Delaware.

 Why is the amendment necessary?

As of September 28, 2017, of the 2,450,000 shares presently authorized under our restated certificate of incorporation, 1,065,093 shares of common stock were issued and outstanding.

In addition to the issued and outstanding shares, we have obligations to issue:

1,200,000 shares of common stock upon conversion of our outstanding Series H Preferred Stock issued on March 28, 2017, and 316,000 shares of common stock upon conversion Series I Preferred Stock issued on April 27, 2017. These transactions are described below under “Certain Transactions” beginning on page 39; and
up to 15,000,000 shares of common stock pursuant to a stock purchase warrant issuable in connecting with the January 17, 2017 acquisition of a controlling interest in Hema Diagnostic Systems, LLC.

 

We do not have sufficient authorized shares available to meet the above obligations.

In addition to meeting the above obligations, our Board of Directors believes that the proposed increase in the number of authorized shares of common stock will provide us with greater flexibility to use our common stock for general corporate purposes such as: 

funding all or some of our operating cash flow requirements;
funding research and development, including clinical studies;

strategic relationships and joint ventures;

funding capital projects and investments; and
providing equity incentives to employees, officers and directors.

We have no immediate requirements to use large numbers of shares of common stock to fund any financing, acquisition, strategic venture or capital project. However, we are actively in seeking these transaction, and our ability to do so could be constrained by the limited number of shares of common stock currently available. The currently limited number of shares of common stock that remain available for issuance under our restated certificate of incorporation, and the requirement to obtain stockholder approval for any increase in the authorized shares of common stock, could impact our ability to effect financings, acquisitions or strategic ventures as quickly as may be necessary, particularly in situations where we may face immediate funding needs or intense competition with other bidders, and could constrain our ability to obtain prompt access to capital markets as and when needed in the future. As the Company has historically relied on financing to fund its operations, the Company’s ability to continue operations could be adversely impacted if shareholders do not approve the increase in the number of authorized shares. Our Board of Directors believes that Generex’s ability to act in a timely and flexible manner is important to its competitive position.

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Approval of the proposed increase in the number of authorized shares would allow our Board of Directors to authorize the issuance of common stock without waiting for the next meeting of stockholders in order to increase the authorized capital. If, for any particular transaction, stockholder approval were required by law or otherwise deemed advisable by the Board of Directors, then the matter would be referred to the stockholders of Generex notwithstanding approval of the proposed increase in the number of authorized shares of common stock.

If the stockholders do not approve this proposal to increase the number of authorized shares, we will be substantially constrained in the size of transactions that we may undertake using common stock as the form of consideration. We may be required to immediately hold a special stockholders’ meeting to seek approval to increase the authorized number of shares of common stock for a particular transaction, which could cost us in excess of $150,000 in printing, distribution and mailing fees.

 Does the Company plan on issuing additional shares?

If the increase in authorize shares is approved, we expect to issue the additional shares summarized in the following table.

Recipient or Purpose 

Number of

Shares

Outstanding Stock Options   19,639 
Berkman Warrant & Shares of Common Stock   15,230,000 
Outstanding Series H Preferred Stock   1,200,000 
Series I Preferred Stock   316,000 
Total   16,765,639 

 

Berkman Warrant & Common Stock

As partial consideration for the acquisition of 51% of Hema Diagnostic Systems, LLC’s equity, the Company agreed to issue to Stephen Berkman, formerly Hema’s majority owner, a warrant to purchase 15,000,000 shares of Generex common stock and an aggregate of 230,000 shares of the Company’s common stock.

Certain historical and pro forma financial statements of Hema Diagnostic Systems, LLC are included as Appendix C-1 to this Proxy Statement. Other information relating to Hema Diagnostic Systems, LLC is included as Appendix C-2 to this Proxy Statement.

Series H and Series I Preferred Stock

We have issued 3,000,000 shares of Series H Preferred Stock which may be converted into 1,200,000 shares of common stock. Pursuant to a Securities Purchase Agreement with the purchaser of these shares of Series H Preferred Stock, we agreed to issue additional shares of Series H and Series I Preferred Stock convertible into additional shares of common stock. The purchaser did not timely close the purchase of the Series I Preferred Stock under the Securities Purchase Agreement, and the Company terminated the purchaser’s further rights under the Securities Purchase Agreement. Subsequently, we issued 391 shares of Series I Preferred Stock to Joseph Moscato, our CEO and 399 shares of Series I Preferred stock to Lawrence Salvo, the president of our subsidiary, Hema Diagnostics, for debt owed to them by the Company. These transactions are further described below under “Certain Transactions” beginning on page 39.

In March, 2017, we issued our Convertible Note Due March 6, 2018 (“Note”) in the principal amount of $674,854.96 convertible into common stock at a post-reverse split price of $1.00 per share. We repaid the Note in cash on July 17, 2017 (with a $75,000 late-payment fee)..

Will these new shares of common stock have preemptive rights?

 No. The additional shares of common stock for which we are seeking authorization would have the same rights and privileges as the shares of common stock presently outstanding. Holders of shares of common stock have no preemptive rights to subscribe to or for any additional shares of stock of Generex.

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Am I entitled to dissenters’ or appraisal rights in connection with the proposed amendment to the Restated Certificate of Incorporation?

 No. Under Delaware law, Generex’s stockholders are not entitled to dissenters’ or appraisal rights in connection with the proposed increase in the number of shares of common stock authorized for issuance under the restated certificate of incorporation.

What are the effects of the increase in the number of authorized shares of common stock?


 The following table shows the number of shares of common stock that (a) are authorized and issued and outstanding, as of September 28, 2017, (b) authorized and reserved for issuance upon the exercise of outstanding stock options and warrants (assuming vesting of all non-vested shares underlying such options and warrants) and upon conversion of all convertible securities as of September 28, 2017, (c) authorized and unreserved for issuance after the passage of the proposal set forth in Item 1, (d) would be authorized and issued and outstanding, after the passage of the proposal under Item 1, (e) authorized and reserved for issuance upon the exercise of outstanding stock options and warrants (assuming vesting of all non-vested shares underlying such options and warrants) and upon conversion of all convertible securities after the passage of the proposal set forth in Item 1, and (f) authorized and unreserved for issuance after the passage of the proposal under Item 1 based on our capitalization as of September 28, 2017.

 

As of September 28, 2017  Shares issued and outstanding  Shares Authorized and Reserved for Issuance  Shares Authorized and Unreserved  Total Authorized
Prior to Passage of Item 1   1,129,757    1,219,639    100,604    2,450,000 
Following Passage of Item 1   1,129,757    17,895,396    732,104,604    750,000,000 

 

Although the increase in the authorized number of shares of common stock will not, in and of itself, have any immediate effect on the rights of our stockholders, any the issuance of the reserved shares and future issuance of additional shares of common stock could affect our stockholders in a number of respects, including by: 

  • decreasing the existing stockholders’ percentage equity ownership and voting power, and
  • depending on the price at which such shares are issued, diluting the earnings per share and book value per share of outstanding shares of our common stock at such time.

In addition, although this proposed amendment to the restated certificate of incorporation is not motivated by anti-takeover concerns and is not considered by the Board of Directors to be an anti-takeover measure, the availability of additional authorized shares of common stock could enable the Board of Directors to issue shares defensively in response to a takeover attempt or to make an attempt to gain control of Generex more difficult or time-consuming. For example, shares of common stock could be issued to purchasers who might side with management in opposing a takeover bid that the Board of Directors determines is not in our best interests, thus diluting the ownership and voting rights of the person seeking to obtain control of Generex. In certain circumstances, the issuance of common stock without further action by the stockholders: 

  • may have the effect of delaying or preventing a change in control of Generex,
  • may discourage bids for our common stock at a premium over the prevailing market price, and
  • may adversely affect the market price of our common stock.

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As a result, increasing the authorized number of shares of our common stock could render more difficult and less likely: 

  • a hostile takeover,
  • a tender offer or proxy contest,
  • the assumption of control by a holder of a large block of our stock, and
  • the possible removal of our incumbent management.

We are not aware of any proposed attempt to take over Generex or of any present attempt to acquire a large block of our common stock. This proposal is not being made in response to any attempt of which Generex is aware to obtain control of the company or to accumulate the company’s common stock. Generex has no present intention to use the additional shares of common stock to oppose a takeover attempt or delay or prevent changes in the management of the company.

 When would the amendment be effective?

 If approved by the stockholders at the meeting, the proposed amendment to the restated certificate of incorporation will become effective upon the filing of a certificate of amendment with the Secretary of State of the State of Delaware. Generex intends to file the certificate of amendment as soon as practicable after the meeting; however, if, in the judgment of our Board of Directors, any circumstances exist that would make consummation of the proposed amendment inadvisable, our Board of Directors may abandon the proposed amendment at any time prior to the effectiveness of the filing of the certificate of amendment.

 How many votes are needed for this proposal and how are the votes counted?

The affirmative vote of a majority of the votes represented by our outstanding common stock and Series I Preferred Stock is required to approve the amendment to our restated certificate of incorporation to accomplish the increase in the number of authorized shares of common stock. The effect of an abstention or broker non-vote is the same as that of a vote against the proposal.

The holders of the Company’s Series I Preferred Stock are entitled to vote on the proposal to authorize additional shares of common stock, and the holders of the Series I Preferred Stock, as a class, are entitled to cast a number of votes on such proposal equal to fifty percent (50%) of the total number of votes entitled to be cast at the Annual Meeting by all other outstanding shares of the Company’s capital stock. The holders of the Series I Preferred Stock are officers of the Company or a subsidiary and have agreed vote in favor the Company’s proposal to increase the authorized number of shares of common stock.

 

How does the Board of Directors recommend that I vote?

 We recommend that you vote FOR the amendment to the restated certificate of incorporation to increase the number of shares that Generex is authorized to issue

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APPROVAL OF AN AMENDMENT TO GENEREX’S RESTATED CERTIFICATE OF INCORPORATION TO CHANGE OUR CORPORATE NAME TO NUGENEREX BIOTECHNOLOGY HOLDINGS, INC.

 

(Item 3 on the Proxy Card)

 

 

What am I voting on?

 You are voting an amendment to our restated certificate of incorporation. Our Board of Directors adopted a resolution which authorizes, subject to stockholder approval, an amendment to our restated certificate of incorporation to change our corporate name to NuGenerex Biotechnology Holdings, Inc. The complete text of the amendment is set forth as Appendix B to this proxy statement. If this proposal is approved, the amendment will become immediately effective upon its filing with the Secretary of State of Delaware.

Why is the Board of Directors Proposing a Change in the Corporate Name?

In January, 2017, we acquired a controlling interest in Hema Diagnostic Systems, Inc., with the intent to complete the acquisition of 100% of that Company. This is the first addition to our business since the acquisition of Antigen Express in 2003. The Board of Directors believes that a change in our name is appropriate to indicate our broader focus, while the name “NuGenerex” also retains a connection with our historical business activities.

When would the amendment be effective?

 If approved by the stockholders at the meeting, the proposed amendment to the restated certificate of incorporation will become effective upon the filing of a certificate of amendment with the Secretary of State of the State of Delaware. Generex intends to file the certificate of amendment as soon as practicable after the meeting; however, if, in the judgment of our Board of Directors, any circumstances exist that would make consummation of the proposed amendment inadvisable, our Board of Directors may abandon the proposed amendment at any time prior to the effectiveness of the filing of the certificate of amendment.

 How many votes are needed for this proposal and how are the votes counted?

The affirmative vote of a majority of the shares of common stock entitled to vote thereon is required to approve the amendment to our restated certificate of incorporation to accomplish the increase in the number of authorized shares of common stock. The effect of an abstention or broker non-vote is the same as that of a vote against the proposal.

 How does the Board of Directors recommend that I vote?

We recommend that you vote FOR the amendment to the restated certificate of incorporation to change our corporate name to NuGenerex Biotechnology Holdings, Inc.

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APPROVAL OF OUR 2017 EQUITY INCENTIVE PLAN

 

(Item 4 on the Proxy Card)

 

General Information

On April 17, 2006, the Board of Directors adopted our 2006 Stock Plan (“2006 Plan”), which reserved 10,000 shares (as adjusted for our recent reverse stock split) for issuance thereunder, and which was subsequently amended with shareholder approval to increase the shares reserved for issuance to 135,000. Since 2006, the Company has been granting option and stock awards pursuant to the 2006 Plan. The Company also previously granted options under its 2001 Stock Option Plan.

Our Board adopted, subject to shareholder approval, our 2017 Equity Incentive Plan (the “2017 Plan”). The 2017 Plan expands the types of awards available under the 2006 Plan and provides for the grant of incentive stock options, non-qualified stock options, and stock appreciation rights (“SARs”), restricted stock, restricted stock units, stock grants, performance shares, and performance share units. The 2017 Plan also permits the grant of awards that are intended to qualify for the “performance-based compensation” exception to the $1 million limitation on the deduction of compensation imposed by Section 162(m) of the Internal Revenue Code (the “Tax Code”). If it is approved by shareholders, the 2017 Plan will supersede and replace the Prior Plan, provided that the Prior Plan will remain in effect until all awards granted under it have been exercised, forfeited, canceled, expired or otherwise terminated.

In order to continue to have an appropriate supply of shares for equity incentives to recruit, hire and retain the talent required to successfully execute our business plans, the Company is asking the shareholders to approve the 2017 Plan which reserves 240,000,000 shares of common stock for grants, plus shares from any award granted under the Prior Plan that terminates, expires or lapses for any reason in the future will be available for reissuance under the 2017 Plan. While reserving 240,000,000 new shares under the 2017 Plan will increase the potential dilution to our current shareholders, the Board believes that our equity compensation plan will be well-managed and the flexibility to issue different types of awards such as RSUs may decrease the rate of dilution compared to issuances of stock options.

 

In preparing the 2017 Plan, the Company has taken into consideration current best practices with respect to equity-based compensation plans. In this regard, the 2017 Plan contains the following provisions, which we believe reflect best practices for equity-compensation plans: (i) prohibits the re-pricing of stock options and SARs without shareholder approval, (ii) prohibits the grant of stock options and SARs with discounted exercise prices, (iii) prohibits the recycling of awards tendered in payment of an option or withheld to satisfy tax obligations; (iv) contains a definition of change in control whereby potential acceleration of awards will only occur in the event of an actual change in control transaction; (v) includes, as a general rule, double-trigger vesting following a change in control; and (vi) imposes a $500,000 limit on the value of awards that may be granted to any one participant who is a non-employee director during any 12-month period

 

The Board of Directors recommends a vote FOR” approval of the 2017 Equity Incentive Plan

 

The following is a summary of the material terms of the 2017 Plan that may be of importance to you. The summary is qualified by reference to the full text of the 2017 Plan, which is attached to this proxy statement as Appendix D

 

Summary of Plan Features

 

Purpose

The Board believes that the 2017 Plan will promote the success and enhance the value of the Company by linking the personal interests of participants to those of Company shareholders. The Board also believes that the 2017 Plan will enhance the Company’s ability to attract and retain qualified persons to perform services for the Company, by providing incentives to such persons to put forth maximum efforts for the Company and by rewarding persons who contribute to the achievement of the Company’s economic objectives.

 

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Administration

The 2017 Plan will be administered by the by the Compensation Committee until we reconstitute the Compensation Committee, which we expect to reconstitute shortly following the annual meeting. The Compensation Committee will be comprised of at least two independent members of the Board. Each Compensation Committee member must be a “non-employee director” as defined in Rule 16b-3 of the Securities Exchange Act, an “outside director” as defined in Section 162(m) of the Tax Code, and an “independent” director for purposes of the applicable Nasdaq Listing Rules. The Compensation Committee, by majority action, is authorized to interpret the 2017 Plan, to prescribe, amend, and rescind rules and regulations relating to the 2017 Plan, to provide for conditions and assurances deemed necessary or advisable to protect the interests of the Company, and to make all other determinations necessary or advisable for the administration of the 2017 Plan, to the extent they are not inconsistent with the 2017 Plan.

Subject to the express provisions of the 2017 Plan, the Compensation Committee will have the authority to determine the participants who are entitled to receive awards under the 2017 Plan, the types of awards, the times when awards shall be granted, the number of awards, the purchase price, exercise price, or base value, if any, the period(s) during which such awards shall be exercisable (whether in whole or in part), the restrictions applicable to awards, and the form of each award agreement. Neither the award agreement nor the other terms and provisions of any award must be identical for each participant. The Compensation Committee also will have the authority to modify existing awards, subject to specified provisions of the 2017 Plan and the listing requirements of Nasdaq, if and when we are listed on Nasdaq. The 2017 Plan prohibits the Compensation Committee from repricing any previously granted option or SAR without first obtaining shareholder approval.

In the case of awards made to non-employee directors, the Board, and not the Compensation Committee, shall administer the 2017 Plan.

Stock Subject to 2017 Plan

The total number of shares of common stock reserved under the 2017 Plan is 240,000,000. Subject to the express provisions of the 2017 Plan, if any award granted under the 2017 Plan or any award outstanding under the Prior Plan terminates, expires, or lapses for any reason, or is paid in cash, any stock subject to or surrendered for after the date the 2017 Plan is approved by shareholders, such award will again be stock available for the grant of an award under the 2017 Plan. The exercise of a stock-settled SAR, or broker-assisted “cashless” exercise of an option (or a portion thereof) will reduce the number of shares of stock available for issuance pursuant to the 2017 Plan by the entire number of shares of stock subject to that SAR or option (or applicable portion thereof), even though a smaller number of shares of stock will be issued upon such an exercise. Also, shares of stock tendered to pay the exercise price of an option or tendered or withheld to satisfy a tax withholding obligation arising in connection with an award will not become available for use under the 2017 Plan.

Individual Limitations on Awards

The maximum number of shares of common stock that may be granted to any one participant during any 12-month period with respect to one or more awards is 1,000,000. The aggregate grant date fair market value of awards granted to any one participant who is a non-employee director during any 12-month period with respect to one or more awards is $1,000,000.

As of October 2, 2017, the closing price of the Company’s stock in the over-the-counter market was $2.75 per share.

 

Eligibility

All employees, officers, non-employee directors of, and consultants to, the Company and its subsidiaries and other affiliates, as determined by the Compensation Committee, are eligible to participate in the 2017 Plan.

Awards Available Under the 2017 Plan

The following types of awards may be granted pursuant to the 2017 Plan: incentive stock options, nonqualified stock options, SARs, restricted stock, restricted stock units, performance shares, performance share units, stock grants and stock units.

Stock Options. The Compensation Committee may grant incentive stock options and non-qualified stock options under the 2017 Plan. Incentive stock options may be granted only to participants who are employees. The exercise price of all options granted under the 2017 Plan must be at least 100% of the fair market value of the Company’s common stock on the date granted and no option may be exercised more than ten (10) years from the date of grant. The Compensation Committee will determine how the exercise price of an option may be paid and the form of payment, including, without limitation, cash, shares of stock held for longer than six months (through actual tender or by attestation), any net- issuance arrangement or other property acceptable to the Compensation Committee (including broker- assisted “cashless exercise” arrangements), and how shares of stock will be delivered or deemed delivered to participants. A participant will have no rights as a shareholder with respect to options until the record date of the stock purchase.

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Stock Appreciation Rights. The Compensation Committee also may grant SARs under the 2017 Plan. SARs give the participant the right to receive the appreciation in value of one share of common stock of the Company. Appreciation is calculated as the excess of (i) the fair market value of a share of common stock on the date of exercise over (ii) the base value fixed by the Compensation Committee on the grant date, which may not be less than the fair market value of a share of common stock on the grant date. Payment for SARs shall be made in cash, stock, or a combination thereof. SARs are exercisable at the time and subject to the restrictions and conditions as the Compensation Committee approves, provided that no SAR may be exercised more than ten (10) years following the grant date.

Restricted Stock. The Compensation Committee may grant restricted stock under the 2017 Plan. A restricted stock award gives the participant the right to receive a specified number of shares of common stock at a purchase price determined by the Compensation Committee (including and typically zero).

 

Restrictions limit the participant’s ability to transfer the stock and subject the stock to a substantial risk of forfeiture until specific conditions or goals are met. The restrictions will lapse in accordance with a schedule or other conditions as determined by the Compensation Committee, which typically involve the achievement of specified performance targets and/or continued employment of the participant until a specified date. As a general rule, if a participant terminates employment when the restricted stock is subject to restrictions, the participant forfeits the unvested restricted stock.

Restricted Stock Units. The Compensation Committee also may grant restricted stock unit awards under the 2017 Plan. A restricted stock unit award gives the participant the right to receive common stock, or a cash payment equal to the fair market value of common stock (determined as of a specified date), in the future, subject to restrictions and a risk of forfeiture. The restrictions typically involve the achievement of specified performance targets and/or the continued employment or service of the participant until a specified date. Participants holding restricted stock units have no rights as a shareholder with respect to the shares of stock subject to their restricted stock unit award prior to the issuance of such shares pursuant to the award.

Stock Grant Awards. The Compensation Committee may grant stock grant awards upon such terms and conditions, and at any time, and from time to time, as the Committee shall determine. A stock grant award gives the participant the right to receive (or purchase at such price as determined by the Committee) shares of stock, free of any vesting restrictions. The purchase price, if any, for a stock grant award shall be payable in cash or in any other form of consideration acceptable to the Committee. A stock grant award may be granted or sold in respect of past services or other valid consideration, or in lieu of any cash compensation owed to a participant.

Stock Unit Awards. The Committee may grant stock unit awards upon such terms and conditions, and at any time, and from time to time, as the Committee shall determine. A stock unit award gives the participant the right to receive shares of stock, or a cash payment equal to the fair market value of a designated number of shares, in the future, free of any vesting restrictions. A stock unit award may be granted or sold in respect of past services or other valid consideration, or in lieu of any cash compensation owed to a participant.

Performance Shares. The Compensation Committee also may grant performance share awards under the 2017 Plan. A performance share award gives the participant the right to receive common stock of the Company if the participant achieves the performance goals specified by the Compensation Committee during a performance period specified by the Compensation Committee. Each performance share will have a value determined by the Compensation Committee at the time of grant.

Performance Share Units. The Compensation Committee also may grant performance share unit awards under the 2017 Plan. A performance share unit award gives the participant the right to receive common stock of the Company, a cash payment or a combination of stock and cash, if the participant achieves the performance goals specified by the Compensation Committee during a performance period specified by the Compensation Committee. Each performance share unit will have a value determined by the Compensation Committee at the time of grant.

Performance-Based Awards. When the Compensation Committee grants options, restricted stock, restricted stock units, stock grants, stock units, performance shares, performance share units or performance cash, it may designate the award as a performance-based award. Options and SARs granted pursuant to the 2017 Plan should, by their terms, qualify as performance-based awards. Performance- based awards are intended to qualify for the “performance-based compensation” exception to the limitations on the deduction of compensation imposed by Section 162(m) of the Tax Code.

 

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Section 162(m) of the Tax Code only applies to “covered employees” as that term is defined in Section 162(m) of the Tax Code. Therefore, only covered employees are eligible to receive awards that are designated as performance-based awards. The Compensation Committee has complete discretion regarding whether to grant awards to covered employees that qualify for the “performance-based compensation” exception. If the Committee designates a particular award as a performance-based award, the Compensation Committee will attempt to design and administer the award in a manner that will allow the award to qualify for the “performance-based compensation” exception under Section 162(m) of the Tax Code. Nevertheless, the requirements of this exception are complex and in some respects vague and difficult to apply. Consequently, we cannot guarantee that compensation that is intended to qualify for the “performance-based compensation” exception under Section 162(m) will in fact so qualify. The Compensation Committee may, in its discretion, grant awards under the 2017 Plan to covered employees that do not qualify for the exception.

The payment of options, restricted stock, restricted stock units, stock grants, stock units, performance shares, performance share units or performance cash that are designated as performance- based awards is contingent upon a covered employee’s achievement of pre-established performance goals during a specified performance period. Performance goals are based on any one or more pre-established performance criteria. The pre-established performance criteria are limited to the following: net operating income before taxes and extraordinary charges against income; earnings before interest, and taxes; earnings before interest, taxes, depreciation, and amortization; pre- or after-tax net earnings; sales growth; production levels; unit costs; operating earnings; operating cash flow; return on net assets; return on shareholders’ equity; return on assets; return on capital; stock price growth; shareholder returns; gross or net profit margin; earnings per share; price per share of stock; market share; revenue; income; safety objectives; environmental objectives; and completion of major projects. Any of the performance criteria may be measured either in absolute terms or as compared to any incremental increase or as compared to results of a peer group, indices, or any other basket of companies. Performance goals may be expressed in terms of overall Company performance, the performance of a division, affiliate, or the performance of an individual. Financial performance criteria may, but need not, be calculated in accordance with generally accepted accounting principles (“GAAP”) or any successor method to GAAP, including International Financial Reporting Standards. The Compensation Committee shall, within the time prescribed by Section 162(m) of the Tax Code, define in an objective fashion the manner of calculating the performance criteria it selects to use for a particular performance period for a particular participant.

With respect to any performance-based award granted to a covered employee that qualifies for the “performance-based compensation” exception to the Section 162(m) limitation, the Compensation Committee has the discretion to: select the length of the performance period, the type of performance- based awards to be issued, the kind and/or level of performance goal or goals and whether the performance goal or goals apply to the Company, an affiliate or any division or business unit of any of them, or to the individual participant or any group of participants. The Compensation Committee has the discretion to decrease, but not increase, the amount of compensation payable pursuant to any performance-based award. The Compensation Committee must certify in writing prior to the payment of any performance-based award that the performance goals and any other material terms and conditions precedent to such payment have been satisfied.

The performance criteria and other related aspects of the 2017 Plan will be subject to shareholder approval again in 2021 if (as is currently the case) shareholder approval is then required to maintain the tax-deductible nature of performance-based compensation under the 2017 Plan.

The maximum performance-based award (other than a performance cash award) payable to any one participant for any 12-month period is 1,000,000 shares of stock (or the equivalent cash value). The maximum If the performance period is less than or exceeds 12 months, the dollar and share limits expressed in this paragraph shall be reduced or increased proportionally.

Restrictions

The Compensation Committee may impose such restrictions on any awards under the 2017 Plan as it may deem advisable, including restrictions under applicable federal securities law, under the requirements of any stock exchange upon which the Company’s common stock is then listed and under any blue sky or state securities law applicable to the awards.

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Change in Control

In the event of a participant’s termination of employment without “cause” or “good reason” (as those terms are defined in the 2017 Plan), within 12 months following a change in control, all awards that are outstanding and unvested shall become fully vested and exercisable and all restrictions on such outstanding awards shall lapse as of the date of termination.

Non-transferability

Unless otherwise determined by the Compensation Committee, no award granted under the 2017 Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, otherwise than by will or by the laws of descent and distribution or pursuant to a domestic relations order (that would otherwise qualify as a qualified domestic relations order as defined in the Tax Code or Title I of the Employee Retirement Income Security Act of 1974, but for the fact that it relates to an award granted under the 2017 Plan), or, if applicable, until the termination of any restricted or performance period as determined by the Compensation Committee.

Adjustment Provisions

If there is a change in the outstanding shares of stock because of a stock dividend or split, recapitalization, liquidation, merger, consolidation, combination, exchange of shares, or other similar corporate change, the aggregate number of shares of stock available under the 2017 Plan and subject to each outstanding award, and its stated exercise price or the basis upon which the award is measured, shall be adjusted by the Compensation Committee. Moreover, in the event of such transaction or event, the Compensation Committee, in its discretion may provide in substitution for any or all outstanding awards under the 2017 Plan such alternative consideration (including cash) as it, in good faith, may determine to be equitable under the circumstances and may require in connection therewith the surrender of all awards so replaced. Any adjustment to an incentive stock option shall be made consistent with the requirements of Section 424 of the Tax Code. Further, any adjustments made shall be made consistent with the requirements of Section 409A of the Tax Code.

Clawback

Every award granted under the 2017 Plan is subject to potential forfeiture or recovery to the fullest extent called for by law, any applicable listing standard, or any current or future clawback policy that may be adopted by the Company from time to time, including, without limitation, any clawback policy adopted to comply with final rules issued by the Securities and Exchange Commission and any final listing standards to be adopted by the NASDAQ Market pursuant to Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Amendment, Modification and Termination of 2017 Plan

Subject to the Board’s right to terminate, amend or modify the 2017 Plan at any time, the 2017 Plan will remain in effect until all awards issued under the 2017 Plan expire, terminate, are exercised or are paid in full in accordance with the 2017 Plan provisions and any award agreement. However, no award may be granted under the 2017 Plan after the tenth anniversary of the date the 2017 Plan is approved by the Company’s shareholders.

The Board has discretion to terminate, amend or modify the 2017 Plan. Any such action of the Board is subject to the approval of the shareholders to the extent required by the 2017 Plan, law, regulation or the rules of any exchange on which Company stock is listed. Except as otherwise provided in the 2017 Plan, neither the Board, the CEO, nor the Compensation Committee may do any of the following without shareholder approval: increase the number of shares available under the 2017 Plan; grant options or SARs with an exercise price or base value that is below fair market value of a share of Company stock on the grant date; extend the exercise period or term of any option or SAR beyond 10 years from the grant date; expand the types of Awards available for grant under the 2017 Plan; or expand the class of individuals eligible to participate in the 2017 Plan.

Tax Withholding

The Company shall have the power to withhold, or require a participant to remit to the Company, an amount sufficient to satisfy federal, state, and local withholding tax requirements on any award under the 2017 Plan. To the extent that alternative methods of withholding are available under applicable laws, the Company will have the power to choose among such methods.

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Federal Income Tax Information

The following is a brief summary of certain of the federal income tax consequences of certain transactions under the 2017 Plan based on federal income tax laws in effect on April 28, 2017. This summary is not intended to be exhaustive and does not describe state or local tax consequences.

As a general rule, a participant will not recognize taxable income with respect to any award at the time of grant except in the case of a participant who receives a restricted stock grant and makes the timely election permitted by Section 83(b) of the Tax Code.

Upon exercise of a nonqualified stock option, the lapse of restrictions on restricted stock, or upon the payment of SARs, restricted stock units, stock grants, stock units, performance shares, performance share units or performance cash, the participant will recognize ordinary taxable income in an amount equal to the difference between the amount paid for the award, if any, and the fair market value of the stock or amount received on the date of exercise, lapse of restriction or payment. The Company will be entitled to a concurrent income tax deduction equal to the ordinary income recognized by the participant.

A participant who is granted an incentive stock option will not recognize taxable income at the time of exercise. However, the excess of the stock’s fair market value over the option price could be subject to the alternative minimum tax in the year of exercise (assuming the stock received is not subject to a substantial risk of forfeiture or is transferable). If stock acquired upon exercise of an incentive stock option is held for a minimum of two years from the date of grant and one year from the date of exercise, the gain or loss (in an amount equal to the difference between the sales price and the exercise price) upon disposition of the stock will be treated as a long-term capital gain or loss, and the Company will not be entitled to any income tax deduction. If the holding period requirements are not met, the incentive stock option will not meet the requirements of the Tax Code and the tax consequences described for nonqualified stock options will apply.

If certain awards fail to comply with Section 409A, a participant must include in ordinary income all deferred compensation conferred by the award, pay interest from the date of the deferral and pay an additional 20% tax. The award agreement for any award that is subject to Section 409A may include provisions necessary for compliance as determined by the Compensation Committee. The Company intends (but cannot and does not guarantee) that awards granted under the 2017 Plan will comply with the requirements of Section 409A or an exception thereto and intends to administer and interpret the 2017 Plan in such a manner.

 

Special Rules Applicable to Officers

In limited circumstances where the sale of stock that is received as the result of a grant of an award could subject an officer to suit under Section 16(b) of the Exchange Act, the tax consequences to the officer may differ from the tax consequences described above. In these circumstances, unless a special election has been made, the principal difference usually will be to postpone valuation and taxation of the stock received so long as the sale of the stock received could subject the officer or director to suit under Section 16(b) of the Exchange Act, but not longer than six months.

Tax Consequences to the Company or Its Affiliates

To the extent that an grantee recognizes ordinary income in the circumstances described above, the Company or the subsidiary for which the employee performs services will be entitled to a corresponding deduction provided that, among other things, the income meets the test of reasonableness, is an ordinary and necessary business expense, is not an “excess parachute payment” within the meaning of Section 280G of the Tax Code and is not subject to the $1.0 million deduction limit for certain executive compensation under Section 162(m) of the Tax Code.

 

 

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New Plan Benefits Table

 

Awards to employees, officers, directors and consultants under the 2017 Plan are made at the discretion of the Compensation Committee. Therefore, the future benefits and amounts that will be received or allocated under the 2017 Plan are not determinable at this time. However, the following table provides information with respect to awards granted under the 2006 Plan during the fiscal year ending July 31, 2016 to the Company’s named executive officers (individually), officers, including named executive officers (as a group), all current non-employee directors (individually and as a group), and all employees, including officers who are not named executive officers (as a group).

 

 

Name and Position or Group

 

 

Stock Options

 

Named Executive Officers:

     
Mark Fletcher   4,447 
Stephen Fellows*   1,668 
David Brusegard*   1,668 
All Officers (including Named Executive Officers) as a Group (3 persons)   7,783 

All Non-Employee Directors as a Group (3 persons)

   0 
All Employees and Officers (who are not Named Executive Officers) as a Group (1 person*)   7,611 

 

 

*These individuals are no longer officers, directors or employees of the Company

 

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Approval of the Adjournment of the annual Meeting, if Necessary

TO SOLICIT ADDITIONAL PROXIES FOR PROPOSAL set forth in itemS 4 AND 5

(Item 5 on the Proxy Card)

 

 

What am I voting on?

 

Generex is asking its stockholders to vote on a proposal to approve the adjournment of the annual meeting of stockholders, if necessary, to solicit additional proxies for the proposal set forth as Item 1 on the Proxy Card.

 

Why is this proposal necessary?

 

As discussed above, our Board recommends a vote for the increase in authorized shares of common stock under Item. In order to implement the increase in authorized shares or the reverse stock split, Generex is required under Delaware law to obtain the affirmative vote of a majority of all shares of common stock outstanding for each proposal. While we hope to have a majority of all shares of common stock outstanding vote for the increase in authorized shares and the reverse stock split at the annual meeting, it is possible we will not have sufficient votes to do so. If we do not have sufficient votes for Item 1 and Item 2 to pass, we could solicit and obtain additional votes and promptly reconvene the annual meeting.

 

How many votes are needed for this proposal and how are the votes counted?

 

The affirmative vote of a majority of shares of common stock present in person or by proxy at the annual meeting and entitled to vote on the subject matter is required to approve this Item 2. Abstentions will have the effect of negative votes.

 

How does the Board of Directors recommend that I vote?

 

We recommend that you vote FOR the approval to adjourn the annual meeting of stockholders, if necessary, to solicit additional proxies for the proposal set forth as Item 5 on the Proxy Card.

 

 

 

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RATIFICATION OF THE APPOINTMENT OF MNP LLP

AS GENEREX’S INDEPENDENT PUBLIC ACCOUNTANTS FOR FISCAL YEAR 2017

 

(Item 6 on the Proxy Card)

 

 

What am I voting on?

 

The Audit Committee of the Board of Directors has selected MNP LLP as the independent public accountants to examine the financial statements of Generex and its subsidiaries for the fiscal year ending July 31, 2017. The Board of Directors has concurred in the Audit Committee’s selection and is presenting the matter to the stockholders for ratification at the annual meeting. MNP LLP ("MNP") has served as our independent auditors since June 1, 2013.

 

Why is ratification of the selection of MNP LLP necessary?

 

Stockholder ratification of the selection of MNP LLP as our independent auditors is not required by our bylaws or otherwise. However, we are submitting the selection of MNP LLP to the stockholders for ratification as a matter of good corporate practice. If the stockholders fail to ratify the selection, the Audit Committee will reconsider whether or not to retain MNP LLP. Even if the selection is ratified, the Audit Committee in its discretion may direct the appointment of a different independent audit firm at any time during the year if it is determined that such a change would be in the best interests of us and our stockholders.

 

What services will the independent registered public accounting firm provide?

 

Audit services provided by MNP LLP for fiscal year 2015 will include the examination of the consolidated financial statements of Generex and services related to periodic filings made with the SEC. Audit services for fiscal year 2015 may also include the audit of the effectiveness of the company’s internal control over financial reporting as required by Section 404 of the Sarbanes-Oxley Act of 2002. Additionally, MNP LLP may provide audit-related, tax and other services comparable in nature to the services that it performed in fiscal 2014, as described below under the heading “Audit Matters” and the subheading “Fees Paid to Generex’s Independent Public Accountants.”

 

 

Will representatives of the independent registered public accounting firm be present at the 2015 annual meeting?

 

Representatives of MNP LLP are expected to be present at the meeting, will have an opportunity to make a statement if they so desire and will be available to respond to appropriate questions.

 

How does the Board of Directors recommend that I vote?

 

We recommend that you vote FOR the ratification of the appointment of MNP LLP as Generex’s independent registered public accounting firm for the fiscal year ending July 31, 2017.

 

 

AUDIT MATTERS

 

Fees Paid to Generex’s Independent Public Accountants

MNP LLP ("MNP") has served as our independent auditors since June 1, 2013. The appointment of MNP as our independent public accountants was unanimously approved by the Audit Committee of our Board of Directors. MNP is the successor to our former independent auditors, MSCM LLP ("MSCM"), following MNP’s merger with MSCM in June 2013. MSCM served as our independent auditors from September 5, 2008 until June 1, 2013.

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The following table sets forth the aggregate fees paid by Generex for the fiscal years ended July 31, 2016 and 2015 to our independent auditors:

   Fiscal Year
Ended
July 31, 2017
  Fiscal Year 
Ended 
July 31, 2016
    Fiscal Year 
Ended 
July 31, 2015
Audit Fees  $165,000(1)     $44,840(1)     57,760(1)
Audit-Related Fees  $-0-      $-0-     $-0- 
Tax Fees  $-0-      $-0-(2)     -0-(2)
All Other Fees  $-0-      $ (3)     3,500(3)
TOTAL  $165,000      $44,840     $61,160 
(1) Includes fees associated with quarterly reviews of financial statements included in Generex’s Form 10-Q filings.
(2) MNP LLP did not provide or bill for any tax services.
(3) Represents fees associated with review of the Company’s registration statements on Form S-1 and Form S-8.

Policy for Pre-Approval of Audit and Non-Audit Services

The Audit Committee’s policy is to pre-approve all audit services and all non-audit services that Generex’s independent auditor is permitted to perform for Generex under applicable federal securities regulations. As permitted by the applicable regulations, the Audit Committee’s policy utilizes a combination of specific pre-approval on a case-by-case basis of individual engagements of the independent auditor and general pre-approval of certain categories of engagements up to predetermined dollar thresholds that are reviewed annually by the Audit Committee. Specific pre-approval is mandatory for the annual financial statement audit engagement, among others.

 

The pre-approval policy was implemented effective as of October 30, 2003. All engagements of the independent auditor to perform any audit services and non-audit services since that date have been pre-approved by the Audit Committee in accordance with the pre-approval policy. The policy has not been waived in any instance. All engagements of the independent auditor to perform any audit services and non-audit services prior to the date the pre-approval policy was implemented were approved by the Audit Committee in accordance with its normal functions

 

 

 

Report of the Audit Committee

 

The Audit Committee reviewed and discussed Generex's audited financial statements for the fiscal year ended July 31, 2016 with management. The Audit Committee discussed with MNP LLP, Generex's independent public accountants for the fiscal year ended July 31, 2016, the matters required to be discussed by Statement on Auditing Standards No. 61, as amended as adopted by the Public Company Accounting Oversight Board in Rule 3200T. The Audit Committee received the written disclosures and the letter from MNP LLP required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the Audit Committee concerning independence, and has discussed with MNP 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, 2016 for filing with the Securities and Exchange Commission.

 

 

Submitted by the Audit Committee

 

Brian T. McGee (Chairman)

 

The foregoing Report of the Audit Committee shall not be deemed to be soliciting material, to be filed with the SEC or to be incorporated by reference into any of Generex's previous or future filings with the SEC, except as otherwise explicitly specified by Generex in any such filing.

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OTHER MATTERS

The Generex Board of Directors is not aware of any other business that may be brought before the annual meeting.

Security Ownership of Certain Beneficial Owners and Management

The table on the following pages sets forth information regarding the beneficial ownership of the common stock by our directors and named executive officers (including persons who served as principal executive officer and principal financial officer during a portion of the fiscal year ended July 31, 2016) and all the named executives and directors as a group. We are not aware of any person or group that beneficially owns more than five percent of our outstanding shares of common stock.

 

The information contained in this table is as of September 28, 2017. At that date, we had 1,065,093 shares of common stock outstanding.

 

A person is deemed to be a beneficial owner of shares if he has the power to vote or dispose of the shares. This power can be exclusive or shared, direct or indirect. In addition, a person is considered by SEC rules to beneficially own shares underlying options or warrants that are presently exercisable or that will become exercisable within sixty (60) days.

 

Beneficial Ownership

Name of Beneficial Owner 

Number of

Shares

 

Percent of

Class

Named Executives, Directors and Nominees          
           
Joseph Moscato(1)   156,400    12.2%
Mark Fletcher (2)   15,906    1%
Brian T. McGee (3)   3,726    * 
Andrew Greene(4)   240,000    17.5%
James Anderson(5)   3,564    * 
Lawrence Salvo(9)   159,745    13%
           
Named Executives and Directors as a group 9 persons)   579,341    35.2%
Other Holders          
Pharma Trials, LLC(6)   1,200,000    51.5%
Alpha Capital Anstalt(7)   98,801    8.4%
Stephen Berkman(8)   283,191    21.0%

 

 

* Less than 1%.

 

(1)Consists of 156,400 shares of common stock issuable upon the conversion of 391 shares of Series I Preferred Stock
(2)Includes 15,606 shares and 300 options which were granted on March 8, 2010 under 2006 Plan.
(3)Includes 286 shares, 100 options which were granted on March 8, 2010 under the 2006 Plan, 200 options issued March 25, 2011 under the 2001 Stock Option Plan, 508 options issued June 19, 2012 under the 2006 Plan, 1,413 options issued April 1, 2013 under the 2006 Plan, 328 options issued June 6, 2013 under the 2006 Plan and 891 options issued October 31, 2013 under the 2001 (400) and 2006 Plans (491).

 

(4)Consists of shares of common stock issuable upon the conversation of Series H Preferred Stock held by Pharma Trials, LLC. Pharma Trials, LLC owns 3,000 shares of Series H Preferred Stock, which are convertible into an aggregate 1,200,000 shares of Common Stock. Mr. Greene owns an indirect 20% interest in Pharma Trials, LLC.

 

(5)Consists of 3,726 options issued under stock option plans.

 

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(6)Consists of 1,200,000 shares of common stock issuable upon the conversion of 3,000 shares of Series H Preferred Stock.

 

(7)Incudes 1,000,000 shares of common stock and shares issuable under a Right to Shares Agreement with the between the Company and Alpha Capital Anstalt pursuant to which that holder converted 100% of preferred shares held by it and exercise 100% of the common stock purchase warrants held by it. The Company initially delivered 1,000,000 shares pursuant to The Right to Shares Agreement Those remaining shares will be delivered to the holder from time to time based on draw down notices submitted to the Company by that holder. 

 

(8)Includes 53,191 shares of common stock (on a post-reverse split basis) issued to Mr. Berkman and 230,000 shares to which he is entitled pursuant to the agreement for the acquisition of the controlling interest in Hema Diagnostic Systems. Does not include warrants exercisable for 15,000,000 shares of common stock, which have not been issued but to which he is entitled.

 

(9)Consists of 159,745 shares of common stock issuable upon the conversion of 399 shares of Series I Preferred Stock

 

 

CERTAIN TRANSACTIONS

 

Changes in Control

 

The transactions described below under “Related Transactions” may be deemed a potential change in control of the Generex.

 

Review of Related Party Transactions

 

We presently have a policy requiring approval by stockholders or by a majority of disinterested directors of transactions in which one of our directors has a material interest apart from such director's interest in Generex. We also have a policy requiring the approval by the Audit Committee for any transactions in which a director or an executive officer has a material interest apart from such director's or officer’s interest in Generex.

 

Related Transactions

 

Brooks, Houghton & Company Engagement

 

In May, 2017, the Company entered into a letter agreement with Brooks, Houghton & Company, Inc. for Brooks, Houghton to serve as the Company’s exclusive financial advisor in connection with acquisitions by the Company as well as joint ventures, partnerships, strategic alliances and similar transactions. Kevin Centofanti, a nominee for election as a director of Generex at the snnusl meeting, is the President of Brooks, Houghton.

 

Under the letter agreement, the Company will pay a monthly fee of $15,000, as well as a fee on completion of any acquisition, joint venture, partnership, strategic alliance or similar transaction based on the “transaction amount,” defined as the enterprise value attributed to the Company in the transaction, as follows:

 

3% of the transaction amount below $50 million
2.5% of the transaction amount above $50 million up to $100 million
2% of the transaction amount over $100 million.

 

The letter agreement can be terminated on 180 days’ notice.

 

Pharma Trials Investment

 

An aggregate of 1,2000,000 shares of the Company’s common stock are issuable upon conversion of the Series H Preferred Stock sold at the initial closing.

 

The following describes a Securities Purchase Agreement between Pharm Trails, LLC and the Company, as well as the initial issuance of 3,000 shares of Series H Preferred Stock to that investor.

 

On March 28, 2017, the Company entered into a securities purchase agreement with Pharma Trials, LLC pursuant to which the Company agreed to sell an aggregate of 109,000 shares of its newly designated non-voting Series H Preferred Stock (“Series H Preferred Stock”) and 6,000 shares of its newly designated Series I Preferred Stock (“Series I Preferred Stock”). Andrew Greene, a director of the Company and formerly its Chief Operating Officer, holds a 20% interest in Pharma Trails, LLC. Mr. Greene did not participate in the deliberations of the Company’s Board of Directors with respect to approval of the transactions contemplated by the securities purchase agreement.

 

 39 

 

The Series H Preferred Stock was scheduled to be sold in four tranches. At closing of the first tranche, the Company issued 3,000 shares of Series H Preferred Stock for a purchase price of $3,000,000. The proceeds of this sale were paid directly on the Company’s behalf to Emmaus Life Sciences, Inc., as an additional deposit under the Company’s letter of intent with Emmaus. The letter of intent with Emmaus was later terminated.

 

The closing of the sale of 6,000 shares of Series I Preferred Stock ($6,000,000) was to occur on April 17, 2017. Pharma Trials failed to close that sale, despite the Company being ready, willing and able to proceed. Under the securities purchase agreement, in the event Pharma Trails failed to purchase 100% of the shares of preferred stock at any given Closing, it lost its rights to purchase any other preferred stock. Our management made the determination that it was in the Company’s best interest to terminate Pharma Trial’s rights and on April 23, 2017 the Company notified Pharma Trials in writing that its rights to purchase additional shares were forfeit

 

Issuance of Series I Preferred Stock Exchange for Debt owed to Officers

 

As previous reported, Joseph Moscato, the Company’s President & CEO and a Director, and Lawrence Salvo, a Director, made personal unsecured cash advances to Company to permit it to pay the initial $500,000 deposit to Emmaus Life Sciences, Inc. under our Letter of Intent with Emmaus. Mr. Salvo and Mr. Moscato have made other advances to permit the Company to pay certain third party expenses in connection with the implementation of the Company’s repurposed business plan, including legal, accounting, transfer agent, Edgarization, and press release fees.

 

On April 26, 2017, our Board of Directors determined it appropriate to retire the Company’s indebtedness to Messrs. Moscato and Salvo by applying a 20% original issue discount to the aggregate amounts thereof and issuing shares of our Series I Convertible Preferred Stock in full and final satisfaction thereof.  The Board considered the 20% original issue discount a reasonable term as it is the same as original issue discount negotiated at arm’s length with an independent investor in March, 2017. The 20% original issue discount means that the actual funds advanced by Messrs. Moscato and Salvo were 80% of the debt recognized and converted into Series I Preferred Stock. Following the Board’s decision, we issued the following shares:

 

  a. 391 shares of Series I Preferred Stock to Mr. Moscato to retire indebtedness of $390,983.52; and

 

  b. 399 shares of Series I Preferred Stock to Mr. Salvo to retire indebtedness of $399,363.22.

 

The $1,000 per share conversion ratio was based on the $1,000 per share cash price under the securities purchase agreement with Pharma Trails.

 

The Series I Preferred Stock issued to Mr. Salvo and Mr. Moscato will have a special one-time voting right exercisable at the next meeting of the Company’s stockholders. The Series I Preferred Stock, as a class, will be entitled to cast a number of votes on such proposal equal to fifty percent (50%) of the total number of votes entitled to be cast at such meeting (determined as of the record date for such meeting) by all other outstanding shares of the Company’s capital stock

 

Conversion and other Terms of the Series H and Series I Preferred Stock

 

The Series H and Series I Preferred Stock are convertible at the option of the holder at any time into shares of the Company’s common stock at an effective conversion price of $2.50 per share. An aggregate of 1,2000,000 shares of the Company’s common stock are issuable upon conversion of the Series H Preferred Stock sold to Pharma Trials. An aggregate 316,000 shares of the Company’s common stock would be issuable upon conversion of the Series I and Preferred Stock issued to Mr. Moscato and Mr. Salvo.

 

Neither the Series H Preferred Stock nor the Series I Preferred Stock have special dividend rights. If the Company pays dividends on its common stock, the holders of the preferred stock will receive dividends in the amount they would have received had they converted the preferred stock to common stock.

 

 40 

 

The conversion price of the preferred stock will be subject to adjustment in the case of stock splits, stock dividends, combinations of shares, similar recapitalization transactions and certain pro-rata distributions to common stockholders. In the event of a fundamental transaction, such as a merger, consolidation, sale of substantially all assets and similar reorganizations or recapitalizations, the holders of convertible preferred stock will be entitled to receive, upon conversion of their shares, any securities or other consideration received by the holders of the Company’s common stock pursuant to the fundamental transaction.

 

The securities purchase agreement and the certificates of designation authorizing the Series H and Series I Preferred Stock include certain agreements and covenants for the benefit of the holders of the convertible preferred stock, including restrictions on the Company’s ability to amend its certificate of incorporation and bylaws in any manner that materially and adversely affects any rights of a preferred holder, prohibition on the Company’s authorizing or issuing any class of capital stock senior to the Series H or Series I Preferred Stock in liquidation, and prohibition on the Company repurchasing more than a de minimis number of shares of its common stock or other junior securities.

 

The Series I Preferred Stock, when issued, shall have a special one-time voting right. At the first meeting of the Company’s stockholders following the initial issuance of the Series I Preferred Stock, the Series I Preferred Stock shall be entitled to vote on (i) the election of individuals to serve as members of the Board of Directors, and (ii) any proposal to increase the authorized number of shares of the Company’s common stock. The Series I Preferred Stock, as a class, shall be entitled to cast a number of votes on such proposal equal to fifty percent (50%) of the total number of votes entitled to be cast at such meeting (determined as of the record date for such meeting) by all other outstanding shares of the Company’s capital stock.

 

The investor has agreed in the securities purchase agreement to exercise the above rights in favor of (a) the election of Company management’s slate of directors, and (b) the Company’s proposal to increase the authorized number of shares of common stock, both as set forth in Company management’s proxy statement in respect of the first meeting of the Company’s stockholders to be held after the date hereof.

 

During the period commencing on the date upon which the Company’s stockholders have approved an increase in the authorized number of shares of common stock and ending on December 31, 2018, the holders of any shares issued upon conversion of the preferred stock have agreed to vote such shares in favor of Company management’s slate of directors.

 

The securities purchase agreement contains representations and warranties and covenants for each party, which must be true and have been performed at each closing. The Company has agreed to indemnify and hold the investor harmless against certain liabilities in connection with the issuance and sale of the convertible preferred stock and warrants under the securities purchase agreement.

 

CFO Squad

 

CFO Squad, provides accounting and financial services to the Company. Our CFO, Mark Corrao, is a principal of CFO Squad. CFO Squad was paid $37,500 for accounting and financial services provided to the Company in Fiscal 2017.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Exchange Act requires that Generex's directors and executive officers, and any persons who own more than ten percent (10%) of Generex's common stock, file with the Securities and Exchange Commission (the “SEC”) initial reports of ownership and reports of changes in ownership of common stock and other equity securities of Generex. Such persons are required by SEC regulations to furnish Generex with copies of all such reports that they file. To the knowledge of Generex, based upon its review of these reports, all Section 16 reports required to be filed by its directors and executive officers during the fiscal year ended July 31, 2017 were filed on a timely basis except that Mr. Moscato did not timely file of Form 3 upon becoming an officer and director.

 

 41 

 

OTHER INFORMATION

 

Stockholder Proposals for the Next Annual Meeting

 

Any proposals of stockholders intended to be presented at the 2018 annual meeting of stockholders must be received by Generex at 4145 North Service Road, Suite 200, Burlington, Ontario, Canada L7L 6A3, no later than a reasonable time before Generex begins to print and distribute its proxy materials 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 4145 North Service Road, Suite 200, Burlington, Ontario, Canada L7L 6A3. Such proposal must meet the requirements set forth in the rules and regulations of the SEC in order to be eligible for inclusion in the proxy materials for such meeting. .

 

For business to be properly brought before the 2018 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 nominate a person for election as director or bring another item of business before the annual meeting of stockholders must give notice of such intention to nominate or other business item 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 nomination or 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 nomination or business must provide information about the nominee, the nature of the other business and the stockholder proposing such nomination or business, as required by Generex's bylaws. A copy of these bylaw requirements will be provided upon request in writing to David Brusegard, Secretary, at the principal offices of Generex.

 

If there should be any change in the foregoing submission deadlines, Generex intends to publicly disseminate information concerning the change.

 

 

 

 

 

 42 

 

 

 

Appendix A

 

 

AUDIT COMMITTEE CHARTER

 

The Audit Committee (the "Committee") is appointed by the Board of Directors (the "Board") to assist the Board in monitoring (1) the integrity of the Company's financial statements and reports and (2) the independence and performance of the Company's auditors. The Committee shall be solely responsible for the appointment, compensation, retention and oversight of the work of any independent auditors employed by the Company for the purpose of preparing or issuing an audit report or related work. The independent auditor so employed shall report directly to the Committee.

 

The Committee shall pre-approve all auditing and permitted non-audit services (including the fees and terms thereof) to be performed for the Company by its independent auditor, subject to the de minimis exceptions for non-audit services described in Section 10A(i)(1)(B) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which are approved by the Committee prior to the completion of the audit. The Committee may form and delegate authority to subcommittees consisting of one or more members when appropriate, including the authority to grant pre-approvals of audit and permitted non-audit services, provided that such delegation is in compliance with Section 10A(i)(3) of the Exchange Act and the rules thereunder and decisions of such subcommittees to grant pre-approvals shall be presented to the Committee at its next scheduled meeting. The Committee shall not delegate its responsibilities to pre-approve services performed by the independent auditors to management.

 

The Committee shall have the authority to retain independent legal, accounting or other consultants or advisors to advise it. The Committee shall have the authority to request any officer or employee of the Company or the Company's outside counsel, auditor or other consultant or advisor to attend a meeting of the Committee or to meet with any members of, or consultants or advisors to, the Committee. The Company shall provide sufficient funds to the Committee for the retention, use or employment of any legal, accounting or other consultant or advisor by the Committee that is necessary for the Committee to carry out its duties under this Charter.

 

The Committee shall:

 

  1. Review and reassess the adequacy of this Charter from time to time and recommend any proposed changes to the Board for approval.

 

  2. Review the Company's annual audited financial statements with management and the Company's independent auditor, including major issues regarding accounting and auditing principles and practices.

 

  3. Review with management and the Company's independent auditor any significant financial reporting issues and judgments observed by or brought to the attention of the Committee relative to the preparation of the Company's financial statements.

 

  4. Review the Company's quarterly financial statements prior to the filing of its Form 10-Q.

 

  5. Review any proposed major changes to the Company's auditing and accounting principles prior to their adoption.

 

  6. Receive periodic reports from the Company's independent auditor regarding the auditor's independence, discuss such reports with the auditor, and recommend any Board action deemed necessary and appropriate by the Committee to assure the independence of the auditor.

 

  7. Ensure the rotation of the audit partners of the independent auditor to the extent required by law.

 

  8. Recommend to the Board policies for the Company's hiring of employees, or former employees, of the Company's independent auditor who participated in any capacity in the audit of the Company, prior to the Company's hiring any such persons.

 

 A-1 

 

  9. Review and discuss reports from the independent auditor on: (a) all critical accounting policies and practices to be used; (b) all alternative treatments of financial information within generally accepted accounting principles that have been discussed with management, ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the independent auditor; and (c) other material communications between the independent auditor and management.

 

  10. Discuss with the independent auditor the matters required to be discussed with the Committee by the independent auditor under Statement on Auditing Standards No. 61 relating to the conduct of the audit of the Company's financial statements.

 

  11. Review with the Company's independent auditor any problems or difficulties the auditor may have encountered, as well as any management letter provided by the auditor and the Company's response to that letter.

 

  12. Review and discuss with management, the independent auditor and the Controller: (a) the adequacy and effectiveness of the Company's internal controls (including any significant deficiencies and significant changes in internal controls reported to the Committee by the independent auditor or management); (b) the Company's internal audit procedures; and (c) the adequacy and effectiveness of the Company's disclosures controls and procedures, and management reports thereon.

 

  13. Review disclosures made to the Committee by the Company's Chief Executive Officer and Chief Financial Officer during their certification process for the Form 10-K and Form 10-Q about any significant deficiencies in the design or operation of internal controls or material weaknesses therein and any fraud involving management or other employees who have a significant role in the Company's internal controls.

 

  14. Prepare the report required by the rules of the Securities and Exchange Commission to be included in the Company's annual proxy statement.

 

  15. Review with the Company's attorneys such legal matters as the Committee determines may have a material impact on the Company's financial statements.

 

  16. Evaluate together with the Board the performance of the Company's independent auditor.

 

  17. Review the appointment and any replacements of the Company's principal accounting officer.

 

  18. Establish procedures for the receipt, retention and treatment of complaints received regarding accounting, internal accounting controls or auditing matters and the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters.

 

The Committee shall consist of no fewer than three members. Each member of the Committee shall be independent and shall have the ability to read and understand financial statements, including the Company's balance sheet, income statement and cash flow statement. For purposes of this Charter, to be considered "independent" a Committee member: (1) must meet the independence requirements of the NASDAQ Stock Market, Inc. and any U.S. Securities and Exchange Commission regulation applicable to the Company; and (2) may not, other than in his or her capacity as a member of the Committee, (a) accept any consulting, advisory or other compensatory fee from the Company or any subsidiary thereof, or (b) be an affiliated person of the Company or any subsidiary thereof.

 

Committee members shall be members of the Board of the Company and shall be nominated and elected by the full Board annually. The full Board shall promptly fill vacancies that may occur on the Committee. At least one member of the Committee shall have past employment experience in finance or accounting, or comparable experience or background (including, for example, being or having been a chief executive officer, chief financial officer or other senior corporate officer with financial oversight responsibilities) which results in such member having financial sophistication. The qualifications of Committee members shall be determined by the full Board.

 A-2 

 

 

Meetings of the Committee may be called from time to time by the Chairman or any two members of the Committee upon not less than seventy-two (72) hours prior notice (which may but need not state the business intended to be conducted at the meeting), provided that a meeting may be held without such notice if all members are present or, if absent, waive notice of the meeting. A majority of the members of the Committee shall constitute a quorum for the purpose of taking any action upon any matter than may come before it, and the Committee may take any action which it is authorized to take as a committee without the necessity of a meeting if all members of the Committee consent in writing in accordance with Section 141(f) of the Delaware General Corporation Law. The Chairman of the Committee shall promulgate such other rules or procedures as he or she deems necessary or appropriate for the proper and efficient conduct of the business of the Committee.

 

While the Committee has the responsibilities and powers set forth in this Charter, it is not the duty of the Committee to plan or conduct audits or to determine that the Company's financial statements are complete and accurate and in accordance with generally accepted accounting principles. This is the responsibility of management and the independent auditor. Nor is it the duty of the Committee to conduct investigations, to resolve disagreements, if any, between management and the independent auditor or to assure the Company's compliance with laws and regulations relating to financial disclosure or any other area.

 

 A-3 

 

 

Appendix B

FORM OF CERTIFICATE OF AMENDMENT

TO

RESTATED CERTIFICATE OF INCORPORATION

OF

GENEREX BIOTECHNOLOGY CORPORATION

Generex Biotechnology Corporation, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the “DGCL”),

 

DOES HEREBY CERTIFY:

 

FIRST: That, in accordance with Section 242 of the DGCL, the Board of Directors of Generex Biotechnology Corporation (the “Corporation”), by unanimous written consent filed with the minutes of the Board of Directors, duly adopted by resolution the amendment (the “Amendment”) to the Corporation’s Restated Certificate of Incorporation (the “Certificate of Incorporation”) and directed that said Amendment be submitted to the stockholders of the Corporation for consideration.

 

SECOND: That thereafter, the holders of a majority of the outstanding stock of the Corporation entitled to vote thereon approved the Amendment at an anual meeting of the Corporation’s stockholders in accordance with Section 242 of the DGCL.

 

THIRD: Effective upon the filing of this Certificate of Amendment with the Delaware Secretary of State, the Certificate of Incorporation is hereby amended by deleting Article FOURTH in its entirety and replacing it with the following:

“FOURTH: The aggregate number of shares of all classes of stock that this Corporation shall have the authority to issue is 751,00,000 shares, consisting of 750,000,000 shares of common stock, par value $.001 per share, and (b) 1,000,000 shares of preferred stock, par value $.001 per share. The preferred stock may be issued in one or more series and may have preferences as to dividends and to liquidation of the Corporation. The Board of Directors of the Corporation shall establish the specific rights, preferences, voting privileges and restrictions of such preferred stock or any series thereof.

 

FOURTH: Effective upon the filing of this Certificate of Amendment with the Delaware Secretary of State, the Certificate of Incorporation is hereby amended by deleting Article FIRST in its entirety and replacing it with the following:

 

FIRST: The Name of the Corporation is NuGenerex Biotechnology Holdings, Inc.

 

FIFTH: This Certificate of Amendment will be effective upon filing.

 

IN WITNESS WHEREOF, Generex Biotechnology Corporation has caused this Certificate of Amendment to the Restated Certificate of Amendment to be signed by Joseph Moscato, its President & Chief Executive Officer, this      day of June, 2017.

 

GENEREX BIOTECHNOLOGY CORPORATION
   
By:    
   

    Joseph Moscato

    President & Chief Executive Officer


 

 

 

 B-1 

 

 

Appendix C-1

 

 

HEMA DIAGNOSTIC SYSTEMS, LLC

FINANCIAL STATEMENTS

 

 

 

 

 C-1-1 

 

 

HEMA DIAGNOSTIC SYSTEMS, LLC and ASSOCIATES

CONDENSED COMBINED Unaudited Financial Statements

TABLE OF CONTENTS

 

 

  Page
Unaudited Financial Statements as of and for the Nine Months Ended September 30, 2016 and 2015  
   
Condensed Combined Balance Sheets as of September 30, 2016 (unaudited) and December 31, 2015 F-16
   
Unaudited Condensed Combined Statements of Operations for the nine months ended September 30, 2016 and 2015 F-17
   
Unaudited Condensed Combined Statements of Changes in Owners’ Equity for the period from January 1, 2016 through September 30, 2016 F-18
   
Unaudited Condensed Combined Statements of Cash Flows for the nine months ended September 30, 2016 and 2015 F-19
   
Notes to Condensed Combined Unaudited Financial Statements F-20

 

 C-1-2 

 

 

 

HEMA DIAGNOSTIC SYSTEMS, LLC and ASSOCIATES

Condensed Combined Balance Sheets 

 

    September 30,   December 31,
   

2016

(unaudited)

  2015
ASSETS
CURRENT ASSETS:                
Cash   $ 25,441     $ 29,928  
Accounts receivable, net     7,571       5,604  
Inventory, net     33,524       29,303  
Advances and loan receivables     113,128       928,174  
TOTAL CURRENT ASSETS     179,664       993,009  
                 
PROPERTY  AND EQUIPMENT, NET     6,640       12,936  
OTHER ASSETS, NET     36,343       38,265  
                 
TOTAL ASSETS   $ 222,647     $ 1,044,210  
                 
                 
LIABILITIES AND OWNERS' DEFICIT
CURRENT LIABILITIES:                
Accounts payable   $ 425,128     $ 368,618  
Accrued interest     158,788       81,924  
Customer deposits     59,775       59,775  
Loan payables - shareholder     13,260,472       14,144,391  
Due to affiliates     80,504       81,054  
Other current liabilities     25,994       21,689  
TOTAL CURRENT LIABILITIES     14,010,661       14,757,451  
                 
COMMITMENTS AND CONTINGENCIES                
                 
OWNERS' DEFICIT:                
Owners equity     6,740,829       5,856,329  
Accumulated deficit     (20,528,843 )     (19,569,570 )
TOTAL OWNERS' DEFICIT     (13,788,014 )     (13,713,241 )
                 
TOTAL LIABILITIES AND OWNERS' DEFICIT   $ 222,647     $ 1,044,210  

 

See accompanying notes to the condensed combined unaudited financial statements

 

 C-1-3 

 

 

 

HEMA DIAGNOSTIC SYSTEMS, LLC and ASSOCIATES

Condensed Combined Statements of Operations

(Unaudited) 

  

For the Nine Months Ended

September 30,

   2016  2015
REVENUES, NET  $16,963   $4,828 
           
COST OF REVENUES   12,414    2,788 
           
GROSS PROFIT   4,549    2,040 
           
OPERATING EXPENSES          
Selling and Marketing Expenses   32,197    57,029 
Research and Development   407,609    384,100 
General and Administrative Expenses:          
Personnel expense   212,920    193,220 
Professional fees   147,787    6,428 
Facilities   52,222    53,166 
Other general and administrative expenses   36,613    32,272 
TOTAL OPERATING EXPENSES   889,348    726,215 
           
LOSS FROM OPERATIONS   (884,799)   (724,175)
           
OTHER INCOME (EXPENSE)          
Interest income (expense), net   (79,572)   (24,874)
Other income (expense), net   5,098    2,445 
TOTAL OTHER INCOME (EXPENSE)   (74,474)   (22,428)
           
NET LOSS  $(959,273)  $(746,603)

 

See accompanying notes to the condensed combined unaudited financial statements

 

 C-1-4 

 

 

 

HEMA DIAGNOSTIC SYSTEMS, LLC and ASSOCIATES

Condensed Combined Statements of Owners’ Deficit

For The Nine months ended September 30, 2016 

(Unaudited)

 

      Common Stock                          
      Shares       Amount        Owners’ Equity         Accumulated Deficit         Total Owners’ Deficit   
BALANCE AT JANUARY 1, 2016     100       0     $ 5,856,329     $ (19,569,570 )   $ (13,713,241 )
Capital contribution     —         —         884,500       —         884,500  
Net Loss     —         —         —         (959,273 )     (959,273 )
BALANCE AT SEPTEMBER 30, 2016     100       0     $ 6,740,829     $ (20,528,844 )   $ (13,788,014 )

 

 

See accompanying notes to the condensed combined unaudited financial statements

 

 

 C-1-5 

 

  

HEMA DIAGNOSTIC SYSTEMS, LLC and ASSOCIATES

Condensed Combined Statements of Cash Flows

(Unaudited)

 

    For the Nine Months Ended September 30,
    2016   2015
CASH FLOW FROM OPERATING ACTIVITIES:                
NET LOSS   $ (959,273 )   $ (746,603 )
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH USED                
IN OPERATING ACTIVITIES:                
Depreciation and amortization     8,218       8,832  
Changes in operating assets and liabilities:                
(Increase) decrease in accounts receivable, net     (1,967 )     (4,017 )
(Increase) decrease in inventory     (4,221 )     (3,469 )
Increase in accounts payable and accrued expenses     56,511       6,926  
Increase in customer deposits     76,863       24,520  
Decrease in other current liabilities     4,305       3,199  
Net cash used in operating activities     (819,564 )     (710,612 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:                
Employee advances     815,046       (105,592 )
Decrease (increase) in other assets     —         (5,151 )
Due to affiliates     (550 )     —    
Net cash used in investing activities     814,496       (110,742 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:                
Capital contribution     884,500       793,400  
Proceeds from shareholder loans     (883,919 )     236  
Net cash provided by financing activities     581       793,636  
                 
NET CHANGE IN CASH     (4,487 )     (27,718 )
                 
CASH AT THE BEGINNING OF THE PERIOD     29,928       40,499  
CASH AT THE END OF THE PERIOD   $ 25,441     $ 12,781  
                 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                
   Cash paid during the period for:                
       Income taxes   $ —       $ —    
       Interest   $ —       $ —    

See accompanying notes to the condensed combined unaudited financial statements

 

 C-1-6 

 

 

 

HEMA DIAGNOSTIC SYSTEMS, LLC and ASSOCIATES 

Notes to Condensed Combined Unaudited Financial Statements

For the Nine months ended September 30, 2016 and 2015 (unaudited)

 

NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS

 

The Combined Financial Statements of Hema Diagnostic Systems, LLC and Associates (collectively the “Company”) include the accounts of Hema Diagnostic Systems, LLC; Hema Diagnostics Systems Panama, PTY and Rapid Medical Diagnostics, Corp. as the entities are under common control and management. All transactions and accounts between and among the entities have been eliminated. The Company has evaluated subsequent events through November 17, 2016, which is the date the Combined Financial Statements were available to be issued.

HEMA DIAGNOSTIC SYSTEMS, LLC (“HDS”), was founded to market and distribute certain third party medical testing device technology. When new and innovative medical device testing technology became available that was both proprietary from and competitive to the previous third party technology, the principals decided to pursue the commercialization of the new technologies. HDS, a Florida limited liability corporation founded December 14, 2000 and began operations in 2002 to perform product research and development, create distribution channels and sales and marketing and administration functions and is currently commercializing the new proprietary medical testing device patents and technology. HDS has not yet begun to generate significant revenues and is still in the process of perfecting production techniques and obtaining the appropriate certifications for a series of medical devices that will be able to detect certain diseases quickly and cost effectively.

 

HEMA DIAGNOSTICS SYSTEMS PANAMA, PTY (“HDP”) was established to distribute HDS products in Central and South America. HDS operates as the administration and disbursing arm for HDP. HDS is affiliated with HDP through common ownership and operates under a Management Services Agreements (“MSA”) that provides for the reimbursement of expenses incurred by HDS on behalf of its affiliates. HDS receives a service fee for performing these administration services as specified in the MSA agreements. The affiliate’s ability to repay HDS for funds advanced on their behalf, is entirely dependent on the successful commercialization of Rapid Medical Diagnostics technology and the resulting royalty payments generated there from.

 

RAPID MEDICAL DIAGNOSTICS, CORP. (“RMD”) was established to develop products and hold patents for HDS and is affiliated with HDS through common ownership and management. HDS operates as the administration and disbursing arm of RMD in accordance with a Management Services Agreements (“MSA”) between the parties that provides HDS a service fee for performing these administrative and disbursing services. Consequently, HDS records substantial amounts due from RMD as a result of transactions disbursed by HDS on RMD’s behalf. RMD’s ability to repay HDS for funds advanced on its behalf, is entirely dependent on the successful commercialization of RMD patents and technologies by HDS and the resulting royalty payments generated there from. RMD has licensed its patents and technologies exclusively to HDS, which will entitle RMD to receive royalties from HDS once those technologies achieve commercial viability. To date there has been no royalty paid to or earned by RMD. Correspondingly, HDS has waived its right to receive service fees under the MSA until HDS successfully commercializes RMD’s licensed technologies.

 

 C-1-7 

 

 

 

NOTE 2. GOING CONCERN

 

The accompanying combined financial statements have been prepared assuming that the Company will continue as a going concern. The Company generated net losses of approximately $959,000 for the nine months ended September 30, 2016. The net loss incurred in 2016 has resulted in an accumulated deficit of approximately $20,529,000 and a total Owners’ deficit of approximately $13,788,000 at September 30, 2016.

 

In response to the losses incurred in 2016, the Company continues to constantly evaluate and monitor its cash needs and existing cash burn rate, in order to make adjustments to its operating expenses. Cash on hand was approximately $25,000 at September 30, 2016.

 

No assurances can be given that the Company will achieve success in obtaining sufficient levels of end user sell-through necessary to fully sustain its operations, without seeking additional financing. The Company intends to pursue the equity transaction discussed in Note 14, seek additional lending, equity or joint venture partners. However, there can be no assurances that additional financing, if required, can be obtained, or obtained on reasonable terms acceptable to the Company.

 

NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

The accompanying unaudited condensed combined financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, such statements include all adjustments (consisting only of normal recurring items) which are considered necessary for a fair presentation of the unaudited condensed combined financial position of Hema Diagnostic Systems, LLC and Associates as of September 30, 2016 and the unaudited condensed combined results of its operations and cash flows for the nine months ended September 30, 2016. The unaudited condensed combined results of operations for the nine months ended September 30, 2016 are not necessarily indicative of the operating results for the full year. It is recommended that these unaudited condensed combined financial statements be read in conjunction with the audited financial statements and related disclosures of the Company for the years ended December 31, 2015 and 2014.

 

Use of estimates

The preparation of combined financial statements in accordance with accounting principles generally accepted in the United States of America (“US-GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting periods. Actual results could differ from those estimates. Estimates which are particularly significant to the financial statements include estimates relating to the determination of impairment of assets, the useful life of property and equipment and the recoverability of advances.

 

 C-1-8 

 

 

 

NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Cash and cash equivalents

The Company considers short-term interest bearing investments with initial maturities of three months or less to be cash equivalents. The Company has no cash equivalents at September 30, 2016 and December 31, 2015.

 

Inventory

Inventory is stated at the lower of cost or net realizable value. Cost is determined using the Weighted Average method. The Company periodically evaluates its inventory for any obsolete or slow moving items based on production lot# and advances in production design or technology. Any inventory determined to be obsolete or slow moving is removed from inventory and disposed or a provision is made to reduce slow moving inventory to its net realizable value. At September 30, 2016 and December 31, 2015, the Company recorded a reserve for obsolescence of $7,750 and $7,750, respectively.

 

Property and equipment

Property and equipment consists of furniture and office equipment, and is stated at cost less accumulated depreciation. Depreciation is determined by using the 200% double declining method for equipment and the straight- line method for leasehold improvements, over the estimated useful lives of the related assets, generally five to fifteen years.

 

Expenditures for repairs and maintenance of equipment are charged to expense as incurred. Major replacements and betterments are capitalized and depreciated over the remaining useful lives of the related assets.

 

Intangible assets, net

The Company’s intangible assets consist of patent patented technology. Amortization is computed by applying the straight line method based on the remaining patent life. The primary patent expires in 2024.

 

Impairment of Long-Lived Assets

The Company evaluates long-lived assets for impairment, including property, plant and equipment and intangible assets, when events or changes in circumstances indicate that the carrying value of such assets may not be recoverable or the assets are being held for sale. Upon the occurrence of a triggering event, the asset is reviewed to assess whether the estimated undiscounted cash flows expected from the use of the asset plus the residual value from the ultimate disposal exceeds the carrying value of the asset. If the carrying value exceeds the estimated recoverable amounts, the asset is written down to the estimated fair value. Any resulting impairment loss is reflected on the Combined Statements of Operations.

 

 C-1-9 

 

 

 

NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Revenue recognition

The Company has yet to fully commercialize its products and secure appropriate permits and licenses necessary to begin full worldwide distribution. The Company has had negligible sales to date, primarily related to trial samples and evaluation of the efficacy and suitability of the products to specific target markets.

 

Sales and the related cost of sales are recognized primarily upon shipment of products (normally when title passes). The Company’s revenue recognition policies are in compliance with ASC Topic 605, which establishes criteria that must be satisfied before revenue is realized or realizable and earned.

 

The Company recognizes revenue when all of the following four criteria are met:

 

persuasive evidence of a sales arrangement exists,
delivery has occurred,
the sales price is fixed or determinable and
collectability is probable.

 

Income taxes

Hema Diagnostic Systems, LLC is a limited liability corporation. Rapid Medical Diagnostic Corp. is a Subchapter S corporation. Federal and state income tax regulations do not require a limited liability corporation or a Subchapter S corporation to pay income taxes. Rather each member’s allocable share of the profit or loss is reported in each member’s individual income tax return. Hema Diagnostics Systems Panama, PTY is a Panamanian company. Due to its operational losses, no taxes are required. Accordingly, no provision or liability for income taxes is reflected for this reporting entity in the accompanying financial statements. The Company’s 2012 – 2015 tax returns remain subject to examination by federal, state or foreign tax authorities.

 

Stock-Based payments

The Company accounts for transactions in which services are received in exchange for stock based on the fair value of such services received from non-employees, in accordance with ASC 505-50, "Equity Based Payments to Non-employees."

 

The Company follows ASC 718, "Compensation — Stock Compensation", in accounting for its stock based payments. This standard states that compensation cost or the value of stock issued for services are measured at the grant date based on the value of the stock granted and is recognized over the vesting or service period.

 

Risks and uncertainties

The Company’s business could be impacted by continuing price pressure on its product manufacturing, acceptance of its products in the market place, new competitors, changing federal and/or state legislation, new technologies and other factors. Adverse changes in these areas could negatively impact the Company’s financial position, results of operations and cash flows.

 C-1-10 

 

 

 

NOTE 4. RECENTLY ISSUED ACCOUNTING STANDARDS AND DEVELOPMENTS

 

Accounting standards promulgated by the FASB are subject to change.  Changes in such standards may have an impact on the Company’s future consolidated financial statements.  The following are a summary of recent accounting developments.

 

In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810)—Amendments to the Consolidation Analysis (“ASU 2015-02”), which provides guidance on evaluating whether a reporting entity should consolidate certain legal entities. Specifically, the amendments modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (“VIEs”) or voting interest entities. Further, the amendments eliminate the presumption that a general partner should consolidate a limited partnership, as well as affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships. ASU 2015-02 is effective for interim and annual reporting periods beginning after December 15, 2016, with early adoption permitted. A reporting entity may apply the amendments using a modified retrospective approach or a full retrospective application. The Company is currently evaluating the impact, if any, that adopting ASU 2015-02 will have on its combined financial statements.

 

In February 2016, the FASB issued ASU 2016-02, Leases, which will amend current lease accounting to require lessees to recognize (i) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and (ii) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 does not significantly change lease accounting requirements applicable to lessors; however, certain changes were made to align, where necessary, lessor accounting with the lessee accounting model. This standard will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We are currently reviewing the provisions of this ASU to determine if there will be any impact on our results of operations, cash flows or financial condition.

 

In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation: Improvements to Employee Share-Based Payment Accounting, which relates to the accounting for employee share-based payments. This standard addresses several aspects of the accounting for share-based payment award transactions, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. This standard will be effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. We are currently reviewing the provisions of this ASU to determine if there will be any impact on our results of operations, cash flows or financial condition.

 

There were various other accounting standards and interpretations issued in 2015 and 2016, none of which are expected to have a material impact on the Company’s financial position, operations or cash flows.

 

 C-1-11 

 

 

 

NOTE 5. INVENTORY

Inventory at September 30, 2016 and December 31, 2015 consisted of the following:

 

Inventory        
    2016   2015
 Production materials   $ 33,964     $ 30,281  
 Sub-assemblies     4,031       5,001  
 Finished goods     3,279       1,771  
      41,274       37,053  
 Less: Obsolescence reserve     (7,750 )     (7,750 )
    $ 33,524     $ 29,303  

 

Production materials - Consists of certain subcomponents fabricated by outside third parties as well as other components purchased in bulk quantities. The carrying value of these units reflects their direct acquisition cost along with associated transportation costs to the Company’s assembly and packaging facilities.

Sub-assemblies - Consists of units partially completed on the assembly line or by outside third parties. The carrying value of these units includes all direct material and labor costs involved to complete the associated assembly.

Finished goods - Consists of completed units in market ready packaging. The carrying value of these units include the cost of components, materials and labor necessary to assemble them.

Obsolescence reserve - Management evaluated the inventory at September 30, 2016 and December 31, 2015 and provided an allowance for obsolescence of $7,750 and $7,750, respectively, primarily associated with production materials and sub-assemblies. Management’s evaluation for obsolescence includes identifying materials and components that are not currently or likely to be used in production in the near future as well as tracking certain components by lot number and expiry date.

NOTE 6. ADVANCES and LOANS RECEIVABLE

Advances and Loans Receivable as of September 30, 2016 and December 31, 2015 consisted of the following:

 

Other Current Assets        
    2016   2015
 Loan to officer   $ 78,331     $ 893,372  
 Employee advances     16,013       20,635  
 Loan to employees     18,784       14,167  
    $ 113,128     $ 928,174  

 

 C-1-12 

 

 

NOTE 6. ADVANCES and LOANS RECEIVABLE (continued)

Advance to officer - Consists of funds advanced to the Company’s President and CEO, board member and shareholder. During September 2016, the CEO repaid $897,000.

 

Advances to management - Consists of funds advanced to the Director of Latin American Sales, board member and shareholder. During October 2016, $14,735 was repaid.

 

Loans to employees - Consists of funds loaned primarily to one employee. That employee has arranged a payback schedule and commencing in August 2016 began making agreed payments of approximately $950 per month.

 

NOTE 7. PROPERTY AND EQUIPMENT

 

Property and equipment as of September 30, 2016 and December 31, 2015 consisted of the following:

 

Fixed Assets            
    Estimated Useful Lives   2016   2015
Computer Equipment & Software   5 yrs 200DDB   $ 10,244     $ 10,244  
Equipment   5 yrs 200DDB     47,148       47,148  
Furniture   7 yrs 200DDB     1,402       1,402  
Lab Equipment   5 yrs 200DDB     23,220       23,220  
Leasehold Improvements   15 yrs SL     40,445       40,445  
Office Equipment   5 yrs 200DDB     1,990       1,990  
Tools   5 yrs 200DDB     12,191       12,191  
     Total         136,640       136,640  
Less Accumulated Depreciation         (130,000 )     (123,704 )
     Property and Equipment, net       $ 6,640     $ 12,936  

 

Depreciation expense for the nine months ended September 30, 2016 and 2015 totaled $6,296 and $6,910, respectively.

 

NOTE 8. OTHER ASSETS

 

Other assets as of September 30, 2016 and December 31, 2015 consisted of the following:

 

Other Assets        
    2016   2015
Deposits   $ 8,362     $ 8,362  
Patents     51,274       51,274  
  Less Amortization     (23,294 )     (21,371 )
      —         —    
    $ 36,343     $ 38,266  

 

  

 C-1-13 

 

 

NOTE 8. OTHER ASSETS (continued)

 

Amortization expense for the nine months ended September 30, 2016 and 2015 totaled $1,922 and $1,922, respectively. The Company has several patents most of which are dormant as the Company lacks the funds to properly commercialize them. The current products and planned future products rely on the “Express” patent, the costs of which are reflected above. This patent expires in 2027.

 

NOTE 9. LOAN PAYABLE - SHAREHOLDER

 

The Company received substantially all of its funding from its primary shareholder, who owns 98.9% of the Company as of September 30, 2016. The Company borrowed no funds during the period from January 1, 2016 through September 30, 2016. However, the Company repaid $883,919 in September 2016. The loan is unsecured, payable on demand and earns interest for 2016 at 0.75%, which was increased from 0.21% for 2015. Accordingly, the Company recorded interest expense of $76,863 and $24,874 during the nine months ended September 30, 2016 and 2015, respectively..

 

NOTE 10. TRANSACTIONS with AFFILIATES

 

Transactions with affiliates as of September 30, 2016 and December 31, 2015 consisted of the following:

 

DTFAffiliates        
    2016   2015
Due from HDS Panama   $ —       $ —    
Due from IDMS     (2,500 )     (2,500 )
Due from RMD     (550 )     —    
Loan CWW     83,554       83,554  
      80,504       81,054  
Less: Allowance     —         —    
    $ 80,504     $ 81,054  

 

China World Wide (CWW) - was established 25 years ago to distribute certain third party products that are not competing with HDS products. HDS is affiliated with CWW through common ownership. From inception through 2007, CWW provided supplemental funding to HDS on a non-interest basis. At December 31, 2015 HDS had an unpaid balance to CWW of $83,554. CWW has also assisted HDS in the development of its distribution and sourcing in China.

 

International Diagnostics and Medical Supply Corp. (IDMS) - was established 2 years ago to create hemodialysis facilities on a global scale. These services will not compete with HDS products. HDS is affiliated with IDMS through common ownership. Do to the high initial cost of establishing a hemodialysis facility, IDMS has not yet secured satisfactory funding to execute its business plan. Consequently, it has only engaged in minimal organizational activities. At September 30, 2016 HDS had an unpaid balance due from IDMS of $2,500 advanced to IDMS for legal fees incurred.

 

 C-1-14 

 

 

 

NOTE 11. LICENSES and PATENTS

 

All patents and licenses are held by Rapid Medical Diagnostics Corporation, an affiliate company through common owners. HDS licenses the rights to certain technologies used in the development, manufacture and commercialization of its products from RMD. Agreements covering these license arrangements were entered into on January 1, 2005 for a term of five years and may be automatically renewed annually, unless either party gives notice 60 days prior to the renewal date. To date the agreements have been renewed annually and are currently in effect. These agreements provide for royalties between the parties, once a commercialized product is marketed and begins distribution.

 

NOTE 12. COMMITMENTS and CONTINGENCIES

 

Legal contingencies

From time to time, the Company may be a defendant in pending or threatened legal proceeding arising in the normal course of its business. Management is not aware of any pending, threatened or asserted claims.

 

Operating lease commitments

 

Leases                        
    2016   2017   2018   2019   2020 and beyond   Total
HDS Office Lease   $ 20,938     $ 41,876     $ —       $ —       $ —       $ 62,814  
Auto Lease     2,947       11,788       11,788       5,892               32,415  
Computer Equipment                                             —    
   Lease #1     823       823                               1,645  
   Lease #2     416       1,663       139                       2,218  
Office Copier     1,469       4,406       4,406       4,406       4,682       19,369  
    $ 26,592     $ 60,556     $ 16,333     $ 10,298     $ 4,682     $ 118,461  

 

HDS Office Lease – Business lease for 5,627 square feet of office and storage space located at 10102 USA Today Way, Miramar FL 33025. The lease term is from May 12, 2012 through June 30, 2017. Having previously been extended, the lease provides no further renewal option. The above payment commitments reflect base rent, estimated common are maintenance costs and applicable sales tax.

 

Auto Lease – Closed end vehicle lease which called for 39 monthly payments of $1,099 for our CEO and President which expires in April of 2016 was replaced with a similar closed end vehicle lease which calls for 36 monthly payments of $982 expires April 7, 2019. The above payment commitments reflect both vehicle leases.

 

 C-1-15 

 

 

 

NOTE 12. COMMITMENTS and CONTINGENCIES (continued)

 

Computer Lease – Two leases were originated with the same supplier to provide office computer equipment. Lease #1 calls for 36 monthly payments of $274 commencing April 1, 2014 and expiring on March 31, 2017. Lease #2 calls for 36 monthly payments of $139 commencing February 19, 2015 and expiring on February 18, 2018.

 

Copier Lease – The lease was originated to provide office copier equipment. The lease calls for 60 monthly payments of $367 commencing June 3, 2016 and expiring on May 3, 2021.

 

NOTE 13. CUSTOMER and SUPPLIER CONCENTRATION

 

Customer concentration – The Company is currently in the process of commercializing its products and as of September 30, 2016 has not begun any substantial sales or marketing efforts. Accordingly, the Company has recorded only marginal sales to date, which were not of sufficient size to classify the customer as significant to the Company’s revenue. Those marginal sales primarily reflect instances where samples and trial products were shipped at a billable value.

 

Supplier concentration – As the Company is in the process of commercializing its products, the bulk of its purchasing activities are focused on regulatory, legal and consulting services rather than production or branding activities. As to production activities, alternate suppliers of components and raw materials are readily available should the need arise. Legal and consulting services generally relate to intellectual property, regulatory matters and financial consulting. There are a range of alternate consultants available to the Company should the need arise.

 

NOTE 14. SUBSEQUENT EVENTS

 

Advances from shareholder - During the period from October 1, 2016 through November 17, 2016, the Company has received an additional capital contribution of $192,500 from its principal shareholder. The Company repaid $14,735 of its outstanding loan balance due to its principal shareholder, bringing the total balance outstanding to $13,245,737. The loan bears interest at 0.75% during 2016 and is payable on demand.

 

Letter of intent to be acquired (LOI) - On August 26, 2016 the Company received a Letter of Intent (“LOI”) from Generex Biotechnology Corporation (“Generex”) to acquire the Company.  Generex is a registrant under the Securities and Exchange Act of 1934.  Its common stock is traded over the counter under the symbol “GNBT”.  The terms of the agreement provide that:

 

  HDS will –

 

  ° issue a dedicated class of first ranking voting preferred securities representing 51% of the outstanding equity of the Company to Generex

 

  ° deliver Stephen Berkman’s full and final release of all indebtedness owed by HDS and its affiliates to Generex

 

 C-1-16 

 

 

 

NOTE 14. SUBSEQUENT EVENTS (continued)

  Generex will –

 

  ° issue $250,000 worth of Generex restricted common stock plus 250,000 of restricted common shares to Stephen Berkman

 

  ° also issue a warrant to acquire up to 15,000,000 shares of Generex common stock to Stephen Berkman

 

  ° grant Stephen Berkman one seat on the Generex Board of Directors

 

  ° If at any time during 36 months following the closing date, the aggregate value of the stock consideration is equal to or exceeds $15,000,000, be entitled to acquire 100% of the outstanding equity securities of HDS for $1.00.

 

This LOI expires on November 30, 2016.

 C-1-17 

 

 

 

GENEREX BIOTECHNOLOGY CORPORATION
UNAUDITED PROFORMA COMBINED STATEMENT OF OPEREATIONS
FOR THE YEAR ENDED JULY 31, 2016
         
    10-K Historical              
    Generex Biotechnology Corporation   Hema Diagnostics Systems, LLC   Pro Forma Adjustments   Notes   Pro Forma Combined
    12 Months Ended
July 31, 2016
  12 Months Ended
June 30, 2016
            12 Months
Net revenue   $ —       $ 18,698       $ —               $ 18,698  
                                           
Cost of goods sold     —         11,537         —                 11,537  
                                           
Gross profit     —         7,161         —                 7,161  
                                           
Operating expenses                                          
Research and development     467,382       527,696         —                 995,078  
General and administrative     1,435,186       560,674         —                 1,995,860  
Total operating expenses     1,902,568       1,088,370         —                 2,990,938  
                                           
Operating Loss     (1,902,568 )     (1,081,209 )       —                 (2,983,777 )
                                           
Other Income (Expense):                                          
Impairment of patents     (1,165,864 )     —           —                 (1,165,864 )
Interest income     —         5,910         —                 5,910  
Interest expense     (418,500 )     (32,905 )       —                 (451,405 )
Impairment of goodwill     —         —           (14,335,822 )      (B)        (14,335,822 )
Other income (expense)     —         (630 )       —                 (630 )
Change in fair value of derivative liabilities     263,823       —           —                 263,823  
                                           
Net (Loss)     (3,223,109 )     (1,108,835 )       (14,335,822 )             (18,667,766 )
                                           
Net (loss) attributable to noncontrolling interests     —         —           (543,329 )      (D)        (543,329 )
                                           
Net (Loss) Available to Common Stockholders   $ (3,223,109 )   $ (1,108,835 )     $ (13,792,493 )           $ (18,124,437 )