UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended July 31, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to _______________
Commission file number 000-25169
GENEREX BIOTECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 98-0178636
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
33 Harbour Square, Suite 202, Toronto, Canada M5J 2G2
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 416/364-2551
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act:
Common Stock, par value $.001 per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such report(s), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant at October 10, 2002, based on the closing price as of that date, was
approximately $20,659,926.
At November 11, 2002, the registrant had 20,100,718 shares of common stock
outstanding.
Documents incorporated by reference: None
PART III
This Form 10-K/A furnishes the information required by Part III (Items 10, 11,
12 and 13).
Item 10. Directors and Executive Officers of the Registrant
Name Age Position Held with Generex
---- --- --------------------------
Gerald Bernstein, M.D. 69 Director, Vice President Medical Affairs
Anna E. Gluskin 51 President, Chief Executive Officer and
Director
Michael Hawke, M.D. 61 Director
Peter Levitch 70 Director
Pankaj Modi, Ph.D. 48 Vice President, Research and Development
and Director
Rose C. Perri 35 Chief Operating Officer, Treasurer,
Secretary and Director
J. Michael Rosen 51 Director
E. Mark Perri, our former Chairman and Chief Financial Officer, passed away on
November 6, 2002. Rose C. Perri serves as interim Chief Financial Officer.
Gerald Bernstein, M.D. -- Director since October 2002. Dr. Gerald Bernstein was
elected a Vice President of Generex effective as of October 1, 2001. Dr.
Bernstein acts as a key liaison for Generex on medical and scientific affairs to
the medical, scientific and financial communities and consults with Generex
under a consulting agreement on research and medical affairs and on development
activities. Dr. Bernstein has been an associate clinical professor at the Albert
Einstein College of Medicine in New York and an attending physician at Beth
Israel Medical Center, Lenox Hill Hospital and Montefore Medical Center, all in
New York. He is a former president of the American Diabetes Association.
Anna E. Gluskin -- Director since September 1997. Ms. Gluskin has served as the
President and Chief Executive Officer of Generex since October 1997. She held
comparable positions with Generex Pharmaceuticals, Inc. from its formation in
1995 until its acquisition by Generex in October 1997.
Michael Hawke, M.D. -- Director since March 2000. Dr. Hawke presently is a
Professor in the Departments of Otolaryngology and Pathology at the University
of Toronto, and is on the staff of the Departments of Otolaryngology at St.
Joseph's Health Center, The Toronto Hospital and Mount Sinai Hospital, all
located in Toronto. He has held these positions for more than the previous five
years. Dr. Hawke has approximately thirty years experience as a medical
researcher, educator and practitioner.
Peter Levitch - Director since October 2002. Mr. Levitch has been President of
Peter Levitch & Associates, an independent consulting firm to health
professionals since 1981. In this capacity, he advises companies through the
various stages of the development of pharmaceuticals, medical devices, biologics
and diagnostics, including clinical evaluation and the FDA regulatory approval
phases. He has served as an advisor to more than 200 leading biotechnology and
biological firms, including Amgen, Genentech, Immunex, DuPont, Baxter and
Johnson and Johnson. Prior to 1981, Mr. Levitch was Vice President, Clinical and
Regulatory Affairs at Oxford Research International Corp. and held senior
positions managing the regulatory and clinical programs at Ortho Diagnostic
Systems (a subsidiary of Johnson & Johnson).
Pankaj Modi, Ph.D. -- Director since September 1997. Dr. Modi has served as Vice
President, Research and Development of Generex since October 1997. Prior to that
time, Dr. Modi was Director of Insulin Research for Generex Pharmaceuticals,
Inc., a position he assumed in October 1996. Prior to joining Generex
Pharmaceuticals, Dr. Modi was engaged in independent research and was employed
as a senior researcher at McMaster University in Hamilton, Ontario from February
1994 through October 1996.
Rose C. Perri -- Director since September 1997. Ms. Rose Perri has served as
Treasurer and Secretary of Generex since October 1997, and as Chief Operating
Officer since August 1998. She was an officer of Generex Pharmaceuticals, Inc.
from its formation in 1995 until its acquisition by Generex in October 1997.
J. Michael Rosen -- Director since August 2000. Mr. Rosen has been a principal
in a number of related travel management and hotel marketing businesses since
1978. The principal companies in this group, all of which are headquartered in
Ontario, are Uniworld Travel & Tours, Inc., Nevada Vacations, Inc., Casino
Vacations, Inc. and Casino Tours, Inc. Mr. Rosen presently serves as the
President or a Vice President, and the Chief Financial Officer, of each of these
companies. Mr. Rosen is an accountant by training, and was engaged in the
private practice of accounting prior to 1978.
Generex entered into a joint venture with Elan Corporation, plc ("Elan") and
certain affiliates of Elan in January 2001. Pursuant to a Securities Purchase
Agreement dated January 16, 2001 between Generex, Elan and Elan International
Services, Ltd. ("EIS"), a subsidiary of Elan, EIS has the right to nominate one
director to Generex's Board of Directors for so long as EIS or its affiliates
own at least 1.0% of the issued and outstanding shares of common stock. Dr. Ivan
Lieberburg was the nominee of EIS thereunder. Dr. Lieberburg resigned effective
August 1, 2002. EIS has not informed Generex of its nominee to replace Dr.
Lieberburg or whether it intends to replace Dr. Lieberburg. Under the terms of
the Securities Purchase Agreement, the EIS-nominated director may not in any
event have more than 15% of the aggregate voting power of the Board of Directors
as a whole. See "Certain Relationships and Related Transactions" for a
description of the Generex securities owned by, or that may be acquired by, Elan
or its affiliates.
Dr. Modi holds the position of Vice President, Research and Development pursuant
to a consulting agreement that was originally entered into as of October 1,
1996, that was amended and supplemented as of January 7, 1998, and that was
amended and supplemented as of December 31, 2000. An amendment to Dr. Modi's
consulting agreement was approved by the Board of Directors in January 2002.
Under the consulting agreement, Generex must use its best efforts to cause Dr.
Modi to be nominated for election and elected a director of Generex for as long
as the consulting agreement is in force.
There are no family relationships among our officers and directors.
Other Key Employees and Consultants
Slava Jarnitskii is our Financial Controller. He began his employment with
Generex Pharmaceuticals in September 1996 and has been in the employment of
Generex since its acquisition of Generex Pharmaceuticals in October 1997. Before
his employment with Generex Pharmaceuticals, Mr. Jarnitskii received a Masters
of Business Administration degree from York University in September 1996.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The business affairs of Generex are managed under the direction of the Board of
Directors. During the fiscal year ended July 31, 2002, Generex's Board of
Directors held four meetings and took action by unanimous consent five times.
During the fiscal year ended July 31, 2002, all of the directors attended all of
the Board of Directors meetings that were held.
The Board of Directors has established two committees, the Audit Committee and
the Compensation Committee.
The Audit Committee was established on March 1, 2000, and met four times during
the fiscal year ended July 31, 2002. During fiscal 2001, the Audit Committee was
composed of Mr. Rosen, who was the chairman of the Audit Committee, Dr. Hawke
and Dr. Lieberburg. Dr. Lieberburg resigned effective August 1, 2002. All of the
members of the Audit Committee attended all of the meetings that they were
eligible to attend. The Audit Committee is currently composed of Mr. Rosen, who
is the Chairman of the Committee, Mr. Levitch and Dr. Hawke. The Board of
Directors has adopted an Audit Committee charter that specifies the duties of
the Audit Committee.
Generex's common stock is listed on the Nasdaq National Market and, therefore,
Generex is governed by the applicable rules of the Nasdaq National Market. The
listing requirements for Nasdaq National Market issuers require that each
issuer's audit committee be comprised of three independent directors. Mr. Rosen,
Dr. Hawke and Mr. Levitch meet the definition of independence under Rule
4200(a)(15) of the listing requirements.
The Board of Directors intends to commence a search for at least one or more
additional director who meets the definition of independence under the Nasdaq
National Market listing requirements and intends to add at least one such
additional director to the Board of Directors by the end of the current fiscal
year.
The Compensation Committee was formed on July 30, 2001 and met four times during
the fiscal year ended July 31, 2002. During fiscal 2002, the Compensation
Committee was composed of Dr. Hawke, who was the chairman of the Compensation
Committee, Mr. Rosen and Dr. Lieberburg. Dr. Lieberburg resigned effective
August 1, 2002. All of the members of the Compensation Committee attended all of
the meetings of the Compensation Committee. The Compensation Committee is
currently composed of Dr. Hawke, who is the Chairman of the Committee, Mr. Rosen
and Mr. Levitch.
Report of the Audit Committee
The Audit Committee reviewed and discussed Generex's audited financial
statements for the fiscal year ended July 31, 2002 with management. The Audit
Committee discussed with Deloitte & Touche LLP, Generex's independent
auditors for the fiscal year ended July 31, 2002, the matters required to be
discussed by Statement on Auditing Standards No. 61. The Audit Committee
received the written disclosures and the letter from Deloitte & Touche LLP
required by Independence Standards Board Standard No. 1 (Independence
Discussions with Audit Committees), and discussed with Deloitte & Touche 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, 2002.
Submitted by the Audit Committee
J. Michael Rosen (Chairman)
Michael Hawke, M.D.
Peter Levitch
The foregoing Report of the Audit Committee shall not be deemed to be soliciting
material, to be filed with the Securities and Exchange Commission (the "SEC") or
to be incorporated by reference into any of Generex's previous or future filings
with the SEC, except as otherwise explicitly specified by Generex in any such
filing.
Report of the Compensation Committee on Executive Compensation
Dr. Hawke is the chairman of the Compensation Committee and Mr. Levitch and Mr.
Rosen are the other members of the Compensation Committee. Mr. Levitch became a
member in October 2002.
Compensation Philosophy. The goals of Generex's compensation program are to
attract and retain talented executives, to motivate these executives to achieve
Generex's business goals, to align executive and stockholder interests and to
recognize individual contributions as well as overall business results.
The key elements of Generex's executive compensation are base salary, cash
bonuses and stock options. While the elements of compensation are considered
separately, the Compensation Committee ultimately looks to the value of the
total compensation package provided by Generex to the individual executive. At
the end of the fiscal year ended July 31, 2001, the Compensation Committee
conducted a review of Generex's executive compensation program. This review
included a comprehensive report from an independent executive compensation
consultant and compared Generex's total executive compensation, including base
salaries, cash bonuses and stock options, to a peer group of publicly traded
biotechnology companies. The Compensation Committee continued to use this
comprehensive information as a basis for 2002 compensation. For the fiscal year
ended July 31, 2001, the Compensation Committee targeted total cash compensation
for Generex executives to the median of the peer group. For the fiscal year
ended July 31, 2002, the Compensation Committee targeted total cash compensation
for executives at the higher end of the peer group. In setting this policy, the
Compensation Committee took into account Generex's relatively lean management
structure and the number of roles filled by each officer. Dr. Modi's
compensation, however, was based on his contract that provides achievement based
bonuses.
Base Salaries. Prior to 2001, Generex historically paid very modest base
salaries to its executive officers, relying on option grants to supplement the
low base salaries. The Compensation Committee implemented increases for fiscal
2002 to bring the base salaries of Generex's executives in line with base
salaries of Generex's principal competitors.
Cash Bonuses. Cash bonuses were granted for fiscal 2002 in order to recognize
and reward the executives of Generex for their performance and for the
accomplishments achieved by Generex during fiscal 2002. The Compensation
Committee adopted performance objectives for executive officers in fiscal 2002.
Executive officer bonuses were based on the executive's position within Generex,
the Company's attainment of the objectives and individual contributions to the
attainment of the objectives. The Compensation Committee met to determine 2002
bonuses after Mr. Mark Perri's death. In determining bonuses for Ms. Gluskin and
Ms. Rose Perri, the Compensation Committee also took into account the need to
provide appropriate incentives to maintain a stable management team following
Mr. Mark Perri's death. The Compensation Committee judged that the executive
officer bonus awards for fiscal 2002 were consistent with each executive's level
of accomplishment and appropriately reflected Generex's achievement of the
objectives and the Compensation Committee's other goals.
Stock Options. The purpose of stock option grants is to provide an additional
incentive to Generex employees, including executive officers, to contribute
materially to the growth of Generex. Stock options are granted to align the
interests of the recipients with the interests of stockholders. During 2002, the
Committee did not use option grants to compensate the current group of
executives other than the grants required to be made to Dr. Modi under the terms
of his consulting agreement.
Chief Executive Officer Compensation. Ms. Gluskin's compensation for the fiscal
year ended July 31, 2002, was determined in accordance with the compensation
policies described above. Ms. Gluskin was paid a cash salary of approximately
$350,000 and was granted a bonus of $125,000. This compensation package was
considered fair and reasonable in view of Generex's attainment of the
performance objectives, and Ms. Gluskin's substantial contributions to those
accomplishments. The compensation paid to Ms. Gluskin for fiscal 2002 was
considered to give appropriate incentives to Ms. Gluskin to continue to promote
the strategic objectives of Generex and to enhance stockholder value.
Deductibility of Compensation. Section 162(m) of the Internal Revenue Code does
not allow public companies to take a Federal income tax deduction for
compensation paid to certain executive officers, to the extent that compensation
exceeds $1 million for any such officer in any fiscal year. This limitation does
not apply to compensation that qualifies as "performance-based compensation"
under the Code. The Board of Directors believes that at the present time it is
quite unlikely that the compensation paid to any executive officer will exceed
$1 million in any fiscal year. Therefore, the Board of Directors has not taken
any measures to date specifically to qualify any of the compensation paid to its
executive officers as "performance-based compensation" under the Code.
Submitted by the Compensation Committee
Michael Hawke, M.D.(Chairman)
Peter Levitch
J. Michael Rosen
The foregoing Report of the Compensation Committee on Executive Compensation and
the following Performance Graph 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.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") requires that Generex's directors and executive officers, and any persons
who own more than ten percent of the common stock, file with the SEC initial
reports of ownership and reports of changes in ownership of the 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 our directors and executive officers during the
fiscal year ended July 31, 2002 were filed on a timely basis.
Item 11. Compensation Of Executive Officers And Directors
Compensation of Executive Officers
The following table sets forth, for Generex's last three fiscal years, all
compensation awarded to, earned by or paid to the chief executive officer
("CEO") and the three most highly compensated executive officers of Generex
other than the CEO whose salary and bonus payments exceeded $100,000 for the
fiscal year ended July 31, 2002.
Summary Compensation Table
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ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------------------------------------------------------------------------------------------------------------
AWARDS PAYOUTS
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Name and Principal Year Ended Salary Bonus Other Annual Restricted Securities LTIP All
Position July 31 ($) ($) Compensation Stock Underlying Payouts Other
(3) Award(s) Options Compensation
($) (#) ($)
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Anna E. Gluskin (1), 2002 350,000 125,000 * 0 0 0 0
President and Chief 2001 127,240 250,000 * 0 0 0 0
Executive Officer 2000 105,385 0 * 0 300,000 0 0
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
E. Mark Perri (1), 2002 270,000 100,000 * 0 0 0 0
Chief Financial 2001 95,081 180,000 * 0 0 0 0
Officer 2000 103,249 0 * 0 250,000 0 0
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------------------------------------------------------------------------------------------------------------------------------------
Rose C. Perri (1), 2002 250,000 100,000 * 0 0 0 0
Chief Operating 2001 81,068 100,000 * 0 0 0 0
Officer, Treasurer and 2000 97,147 0 * 0 250,000 0 0
Secretary
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------------------------------------------------------------------------------------------------------------------------------------
Pankaj Modi (2), 2002 262,500 0 * 0 150,000(4) 0 0
Vice President, 2001 250,000 300,000 * 0 150,000 0 0
Research and Development 2000 89,723 5,302 * 0 300,000 0 0
------------------------------------------------------------------------------------------------------------------------------------
Cash bonuses listed as paid with respect to services in any year are actually
paid in the succeeding year.
* Perquisites and other personal benefits, securities or other property received
by each executive officer did not exceed the lesser of $50,000 or 10% of such
executive officer's salary and bonus.
(1) Portions of the cash compensation paid to Ms. Gluskin, Mr. Mark Perri and
Ms. Rose Perri are attributable to amounts paid indirectly through a management
services agreement with a corporation of which, at July 31, 2002, Ms. Gluskin,
Mr. Mark Perri and Ms. Rose Perri were equal owners.
(2) All of the cash compensation paid to Dr. Modi is paid indirectly to him
through a corporation owned 100% by him.
(3) Cash compensation is stated in the table in U.S. dollars. To the extent any
cash compensation was paid in Canadian dollars, it has been converted into U.S.
dollars based on the weighted average Canadian/U.S. dollar exchange rate for the
years ended July 31, 2002, 2001 and 2000, respectively.
(4) Granted on July 31, 2002 with effect as of July 31, 2002 pursuant to the
terms of Dr. Modi's consulting agreement. These options were granted under the
Generex Biotechnology Corporation 2001 Stock Option Plan.
Option Grants during the 2002 Fiscal Year
The following tables set forth information related to options to purchase common
stock granted to the Chief Executive Officer (CEO) and the named executive
officers during the fiscal year ended July 31, 2002.
Potential realizable value at
assumed annual rates of stock
Individual grants appreciation for option term
----------------- ------------------------------
Percent of
Number of total options
Securities granted to
Underlying to employees Exercise
options in fiscal price Expiration
Name granted (#) year (%) ($/Sh) date 5%($) 10%($)
------------------------------------------------------------------------------------------------------------
Anna E. Gluskin ... 0 -- -- -- -- --
E. Mark Perri ...... 0 -- -- -- -- --
Rose C. Perri ..... 0 -- -- -- -- --
Pankaj Modi ....... 150,000(1) 31.5% $2.19 7/31/07 90,758 200,533
(1) Granted on July 31, 2002 with effect as of July 31, 2002 pursuant to the
terms of Dr. Modi's consulting agreement. These options were granted under the
Generex Biotechnology Corporation 2001 Stock Option Plan.
Fiscal Year End Option Values
No options were exercised by the CEO or the named executive officers during the
fiscal year ended July 31, 2002. The following table provides information
relating to the number and value of options held by the CEO and the named
executive officers at fiscal year end.
Number of securities
underlying exercised Value of unexercised
options at options at
July 31, 2002 July 31, 2002
Shares acquired Value (#) ($)
Name on exercise (#) realized ($) Exerciseable/Unexercisable Exerciseable(1)/Unexercisable
-----------------------------------------------------------------------------------------------------------------------------------
Anna E. Gluskin ........... -0- -0- 300,000/0 0/0
E. Mark Perri .............. -0- -0- 250,000/0 0/0
Rose C. Perri ............... -0- -0- 250,000/0 0/0
Pankaj Modi ................ -0- -0- 600,000/0 15,000/0
-------------------------
(1) Based on the closing price of common stock ($2.29) at November 11, 2002.
Other Benefit Plans
We have no long-term incentive plans or defined benefit or actuarial pension
plans, and have not repriced any options previously granted to the above named
officers.
Directors' Compensation; Other Compensation
Dr. Hawke and Mr. Rosen, each outside directors, received $10,000 in the fiscal
year ended July 31, 2002 for their services as a director to Generex. In
addition, both Dr. Hawke and Mr. Rosen received $10,000 for their services as
Compensation Committee Chairman and Audit Committee Chairman, respectively. Dr.
Hawke was granted options on October 23, 2001 to purchase 30,000 shares of
common stock and was granted options on May 18, 2001 to purchase 20,000 shares
of common stock, all under the Generex Biotechnology Corporation 2001 Stock
Option Plan (the "2001 Plan"), in recognition of his service as a director. Mr.
Rosen was granted options on October 23, 2001, to purchase 30,000 shares of
common stock and was granted options on May 18, 2001 to purchase 20,000 shares
of common stock, all under the 2001 Plan, in recognition of his service as a
director.
Pursuant to an agreement between Mr. Levitch and Generex, Mr. Levitch received
$10,000 upon joining the Board of Directors and will receive $10,000 at the end
of each fiscal quarter, beginning with the quarter ending January 31, 2003, as
partial consideration for his services as a member of the Audit Committee and
Compensation Committee and his services as a director of Generex. In addition,
under the agreement Mr. Levitch was granted options exercisable for 20,000
shares of Generex common stock in partial consideration for his service as a
director of Generex. Mr. Levitch is also eligible to be considered for
additional option grants to the same extent as the other outside directors of
Generex.
Dr. Modi is compensated through a consulting agreement that was originally
entered into as of October 1, 1996, that was amended and supplemented as of
January 7, 1998, and that was further amended and supplemented as of December
31, 2000. The parties to the agreement are Dr. Modi, Generex and Generex
Pharmaceuticals, Inc., a wholly-owned subsidiary of Generex. An amendment to Dr.
Modi's consulting agreement was approved by the Board of Directors in January
2002 granting Dr. Modi cash bonuses upon the occurrence of certain events in
connection with the extension of the joint venture with Elan to include
Morphine. All references to the consulting agreement in the following discussion
relate to the agreement, as amended and supplemented.
Pursuant to the terms of the consulting agreement, Dr. Modi holds the position
of Vice President, Research and Development of Generex and Generex
Pharmaceuticals, and both Generex and Generex Pharmaceuticals are jointly and
severally responsible for the payment to Dr. Modi of all amounts due under the
consulting agreement. The agreement provides for Dr. Modi's term of service to
extend through July 31, 2010, subject to termination without cause by Dr. Modi
or Generex at any time after January 1, 2003 upon 12 months' prior written
notice.
In connection with amending and supplementing the consulting agreement in
January 1998, Generex issued 1,000 shares of Special Voting Rights Preferred
Stock ("Special Preferred Stock") to Dr. Modi, comprising all of the outstanding
shares of Special Preferred Stock. Special Preferred Stock does not generally
carry the right to vote, but does have the following special voting rights:
o the holders of Special Preferred Stock have the right to elect a majority
of Generex's Board of Directors if a change of control occurs; and
o the holders of Special Preferred Stock have the right to approve any
transaction that would result in a change of control.
A "change of control" is deemed to occur if Generex's founders (namely, Ms.
Gluskin, Dr. Modi or Ms. Rose Perri), or directors appointed or nominated with
the approval of Generex's founders, should cease to constitute at least 60% of
Generex's directors, or if any person becomes either Chairman of the Board of
Directors or Chief Executive Officer of Generex without the prior approval of
the founders. If a change of control were to occur, Dr. Modi would thereafter be
able to elect a majority of the directors. No change of control has occurred to
date.
The consulting agreement provides for an annual base compensation of $250,000 a
year, effective as of August 1, 2000, subject to certain cost-of-living
increases. In addition, Dr. Modi is entitled to receive certain bonus
compensation during the term of the agreement. During the first calendar quarter
of 2001, a $300,000 bonus was paid to Dr. Modi in respect of Dr Modi's services
in securing the development and license agreement between Generex and Eli Lilly
and Company ("Lilly"). Dr. Modi will also receive certain additional bonus
payments based upon the Lilly agreement or any similar agreements entered into
by Generex for rights granted to third parties to develop, manufacture and/or
market products based upon ideas, improvements, designs or discoveries made or
conceived by Dr. Modi.
The consulting agreement provides for Dr. Modi to be granted options to purchase
150,000 shares of common stock in each of the next ten fiscal years, starting
with the fiscal year ended July 31, 2001. The options may be granted only under
option plans of Generex that have been approved by the stockholders.
Compensation Committee Interlocks and Insider Participation
Effective July 30, 2001, all decisions regarding executive compensation were
made by the Compensation Committee of the Board of Directors. Dr. Hawke is
chairman of the Compensation Committee and Mr. Levitch and Mr. Rosen are the
other members of the Compensation Committee.
No executive officer of Generex has served on the board of directors or
compensation committee of any other entity that has or has had one or more
executive officers serving as a director of Generex (excluding entities that are
wholly owned by one or more of the executive officers).
Existing Stock Compensation Plans
The following table sets forth information regarding our existing compensation
plans and individual compensation arrangements pursuant to which our equity
securities are authorized for issuance to employees or non-employees (such as
directors, consultants and advisors) in exchange for consideration in the form
of services:
------------------------------- ----------------------------- ----------------------------- -----------------------------
Plan Category Number of securities to be Weighted-average exercise Number of securities
issued upon exercise of price of outstanding remaining available for
outstanding options, options, warrants and rights future issuance under
warrants and rights equity compensation plans
(excluding securities
reflected in column (a))
------------------------------- ----------------------------- ----------------------------- -----------------------------
(a) (b) (c)
------------------------------- ----------------------------- ----------------------------- -----------------------------
Equity compensation plans
approved by security holders
1998 Stock Option Plan
1,292,500 $5.12 0
2000 Stock Option Plan
1,924,500 $7.70 75,500
2001 Stock Option Plan
1,665,159 $8.73 2,334,841
--------- ----- ---------
Total 4,882,159* $8.68 2,410,341
------------------------------- ----------------------------- ----------------------------- -----------------------------
Equity compensation plans not
approved by security holders 0 0 0
------------------------------- ----------------------------- ----------------------------- -----------------------------
Total 4,882,159 $8.68 2,410,341
------------------------------- ----------------------------- ----------------------------- -----------------------------
*Does not include 125,000 options granted to consultants in 2001 that were not
granted pursuant to a stock option plan.
STOCK PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative total return on
Generex's common stock with cumulative total returns of the Nasdaq National
Market (U.S. Companies) and the Nasdaq Biotechnology Index for the period
commencing February 5, 1998 (the date Generex's common stock was first listed
for trading on the Nasdaq over-the-counter market) and ending on July 31, 2002.
The graph assumes that $100 was invested on February 5, 1998, in Generex's
common stock, the stocks in the Nasdaq National Market (U.S. Companies) and the
stocks comprising the Nasdaq Biotechnology Index, and that all dividends were
reinvested. Generex's common stock has been trading on the Nasdaq National
Market since May 5, 2000.
[Graphic Omitted: Graph]
02/1998 07/1998 07/1999 07/2000 07/2001 07/2002
------- ------- ------- ------- ------- -------
Generex Biotechnology Corporation 100.0 130.2 106.3 126.0 141.7 37.3
Nasdaq Stock Market 100.0 111.3 158.8 226.2 121.4 80.2
Nasdaq Biotechnology Index 100.0 111.3 219.0 426.7 367.8 230.4
Security Ownership Of Certain Beneficial Owners And Management
The tables on the following pages sets forth information regarding the
beneficial ownership of the common stock by:
o Our executive officers and directors;
o All directors and executive officers as a group; and
o Each person known to us to beneficially own more than five percent (5%)
of our outstanding shares of common stock.
The information contained in these tables is as of November 11, 2002. At that
date, Generex had 20,100,718 shares of common stock outstanding. In addition to
common stock, Generex has outstanding 1,000 shares of Special Voting Rights
Preferred Stock. All of the shares of Special Voting Rights Preferred Stock are
owned by Dr. Pankaj Modi. In connection with Generex's joint venture with Elan,
Generex issued 1,000 shares of Series A Preferred Stock to an affiliate of Elan.
In January of 2002, Generex declared a 6% stock dividend of Series A Preferred
Stock. All of the Series A Preferred Stock is presently held of record by an
affiliate of Elan.
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
------------------------ ---------------- ----------------
(i) Directors and Executive Officers
Gerald Bernstein, M.D............................ 10,159(1) *
Anna E. Gluskin.................................. 1,253,794(2) 4.7%
Michael Hawke, M.D .............................. 131,000(3) *
Peter Levitch.................................... 65,483(4) *
Pankaj Modi, Ph.D................................ 1,700,200(5) 5.5%
Rose C. Perri ................................... 4,200,202(6) 18.4%
J. Michael Rosen ................................ 148,730(7) *
Officers and directors as a group ............... 6,918,072(8) 28.4%
(ii) Other Beneficial Owners (and their addresses)
Protius Overseas Limited ........................ 1,405,526(9) 7.0%
P.O. Box 17512-14
Finch Road Douglas
Isle of Man, IM99
Cranshire Capital, L.P. ......................... (9) (9)
666 Dundee Road, Suite 1901
Northbrook, IL 60062
Downsview Capital, Inc. ......................... (9) (9)
666 Dundee Road, Suite 1901
Northbrook, IL 60062
JMJ Capital, Inc. ............................... (9) (9)
666 Dundee Road, Suite 1901
Northbrook, IL 60062
EURAM Cap Strat. "A" Fund Limited ............... (9) (9)
666 Dundee Road, Suite 1901
Northbrook, IL 60062
Mitchell P. Kopin ............................... (9) (9)
666 Dundee Road, Suite 1901
Northbrook, IL 60062
EBI, Inc. In Trust .............................. 1,441,496(10) 7.2%
c/o Miller & Simons
First Floor, Butterfield Square
P.O. Box 260 Providencials
Turks and Caicos Islands
British West Indies
GHI, Inc. In Trust .............................. 1,907,334(11) 9.5%
c/o Miller & Simons
First Floor, Butterfield Square
P.O. Box 260 Providencials
Turks and Caicos Islands
British West Indies
Smallcap World Fund, Inc. ....................... 1,243,467(12) 6.2%
c/o Capital Research and
Management Company
333 South Hope Street
Los Angeles, CA 90071
* Less than one percent.
(1) Includes 5,159 options granted on December 31, 2001 and 5,000 options
granted on January 3, 2000, all under Generex's 2001 Stock Option Plan (the
"2001 Plan") and pursuant to a consulting agreement between Dr. Bernstein and
Generex.
(2) Includes 953,667 shares owned of record by GHI, Inc. that are beneficially
owned by Ms. Gluskin, 100,000 shares issuable upon the exercise of an option
granted under Generex's 1998 Stock Option Plan (the "1998 Plan") and 200,000
shares issuable upon the exercise of an option granted under Generex's 2000
Stock Option Plan (the "2000 Plan").
(3) Includes 50,000 shares issuable upon the exercise of an option granted under
the 1998 Plan and 20,000 shares issuable upon the exercise of an option granted
under the 2000 Plan. Also includes 50,000 shares issuable upon the exercise of
options granted under the 2001 Plan (20,000 of which were granted during fiscal
2001 and 30,000 of which were granted after fiscal 2001).
(4) Includes 20,000 shares issuable upon the exercise of an option granted under
the 2001 Plan.
(5) Includes 150,000 shares issuable upon the exercise of an option granted
under the 1998 Plan and 150,000 shares issuable upon the exercise of an option
granted under the 2000 Plan. Also includes 300,000 shares issuable upon the
exercise of options granted under the 2001 Plan. Dr. Modi also owns all the
outstanding shares of Generex's Special Voting Rights Preferred Stock. This
stock is not convertible into common stock.
(6) Includes 953,667 shares owned of record by GHI, Inc. that are beneficially
owned by Ms. Rose Perri, 100,000 shares issuable upon the exercise of an option
granted under the 1998 Plan and 150,000 shares issuable upon the exercise of an
option granted under the 2000 Plan. Also includes the shares and options that
are owned by the estate of Mr. Mark Perri, of which Ms. Rose Perri is executor
and beneficiary: 45,914 shares previously owned of record by Mr. Mark Perri;
1,100,000 shares owned of record by EBI, Inc. (of which Mr. Mark Perri was
beneficial owner); 305,332 shares held of record by brokerage accounts and
options for an aggregate of 250,000 shares. The options are exercisable for one
year after Mr. Mark Perri's death on November 6, 2002. Also includes 341,496
shares owned of record by EBI, Inc., which Ms. Rose Perri may be deemed to
beneficially own because of the power to vote the shares but which are
beneficially owned by other stockholders because they are entitled to the
economic benefits of the shares. Ms. Rose Perri is also deemed to beneficially
own an additional 953,667 shares owned of record by GHI, Inc. by holding the
right to vote such shares. These shares are also beneficially owned by Ms.
Gluskin.
(7) Includes 20,000 shares issuable upon the exercise of an option granted under
the 2000 Plan, and 50,000 shares issuable upon exercise of options granted under
the 2001 Plan. Also includes 7,943 shares owned by a company of which Mr. Rosen
is an officer and indirect 25% owner; Mr. Rosen may be deemed to beneficially
own these shares because he shares voting power and investment power with
respect to such shares.
(8) Includes 500,000 shares issuable upon the exercise of options granted under
the 1998 Plan, and 690,000 shares issuable upon the exercise of options granted
under the 2000 Plan. Includes 1,441,496 shares owned of record by EBI, Inc. but
beneficially owned or deemed to be beneficially owned by Ms. Rose Perri.
Includes 1,907,334 shares owned of record by GHI, Inc. but beneficially owned by
Ms. Gluskin or Ms. Rose Perri.
(9) Based solely on Schedule 13G filed with the SEC under the Exchange Act on
January 18, 2002. The Schedule 13G was filed for Protius Overseas Limited;
Cranshire Capital, L.P.; Downsview Capital, Inc.; JMJ Capital, Inc.; EURAM Cap
Strat. "A" Fund Limited; and Mitchell P. Kopin as a group. The members of the
group hold shared voting power and shared dispositive power with respect to
these shares. Does not include any warrants exercisable for common stock that
are held by any of the members of the group.
(10) All these shares were previously beneficially owned by Mr. Mark Perri but
are now deemed to be beneficially owned by Ms. Rose Perri because she has the
sole power to vote the shares. With respect to 1,100,000 of the shares owned of
record by EBI, Inc., Ms. Rose Perri also has investment power and otherwise is
entitled to the economic benefits of ownership.
(11) Ms. Gluskin and Ms. Rose Perri each own beneficially 953,667 of the shares
owned of record by GHI, Inc. by reason of their ownership of investment power
and other economic benefits associated with such shares. The shares beneficially
owned by Ms. Gluskin also are deemed to be beneficially owned by Ms. Rose Perri
because she has the sole power to vote the shares.
(12) Includes warrants to purchase a total of 164,467 shares of the common
stock.
Certain Relationships and Related Transactions
----------------------------------------------
Generex acquired Generex Pharmaceuticals, Inc. in October 1997. Prior to
Generex's acquisition of Generex Pharmaceuticals, it was a private Canadian
corporation majority-owned and controlled by Mr. Mark Perri, Ms. Rose Perri and
Ms. Gluskin. Unless otherwise indicated, the transactions described below
occurred prior to the acquisition of Generex Pharmaceuticals or pursuant to
contractual arrangements entered into prior to that time. Generex presently has
a policy requiring approval by stockholders or by a majority of disinterested
directors of transactions in which one of our directors has a material interest
apart from such director's interest in Generex.
Real Estate Financing Transactions: In May 1997, EBI, Inc., a company controlled
by Mr. Mark Perri, acquired shares of common stock of Generex Pharmaceuticals
for $3 million (CAD) which, based on the exchange rate then in effect,
represented approximately $2.1 million (US). Generex Pharmaceutical's use of
those funds was restricted to acquiring an insulin research facility.
Subsequently this restriction was eased to permit use of the funds to acquire
properties used for manufacturing Generex's oral insulin product and other
proprietary drug delivery products, and related testing, laboratory and
administrative services. Under the terms of the investment, Generex
Pharmaceuticals was required to lend these funds back to EBI until they were
needed for the purposes specified. The entire amount was loaned back to EBI and
was outstanding at July 31, 1997. During the period ended July 31, 1998, a total
of $2,491,835 (CAD) was repaid by EBI. There were no repayments made in the
years ended July 31, 2002, 2001 and 2000. The balance due from EBI at July 31,
2002, was $508,165 (CAD) (approximately $322,685 (US) based on the exchange rate
then in effect). These funds are due on demand by Generex Pharmaceuticals,
provided they are used for the purchase and/or construction or equipping of oral
insulin manufacturing and testing facilities. The amounts repaid by EBI were
used primarily to purchase and improve certain of the real estate and buildings
owned by Generex Pharmaceuticals.
Related Party Transactions: Between November 1995 and July 31, 1998, companies
owned and controlled by Mr. Mark Perri, Ms. Rose Perri and Ms. Gluskin incurred
a net indebtedness of $629,234 to Generex Pharmaceuticals, excluding the
indebtedness of EBI described in the preceding paragraph. This indebtedness
arose from cash advances and the payment by Generex Pharmaceuticals of expenses
incurred by these companies, net of repayments and payment of expenses on behalf
of Generex Pharmaceuticals. At July 31, 1999, these companies' net indebtedness
to Generex Pharmaceuticals, exclusive of the EBI indebtedness described above,
was $284,315. At July 31, 2000, this balance had been reduced to zero. The
transactions between Generex Pharmaceuticals and entities owned and controlled
by Mr. Mark Perri, Ms. Rose Perri and Ms. Gluskin were not negotiated at
arms-length, and were not on normal commercial terms. No interest was charged on
any of the advances, and the transactions were of far greater financial benefit
and convenience to Mr. Mark Perri, Ms. Rose Perri and Ms. Gluskin than to
Generex Pharmaceuticals. These transactions and financing arrangements were
mostly initiated prior to the transaction in which Generex acquired Generex
Pharmaceuticals, and no such transactions have taken place since January 1,
1999. Generex presently has a policy requiring the approval of the Board of
Directors, including a majority of disinterested directors, for any transactions
in which a director has a material interest apart from such director's interest
in Generex.
Loans to Executive Officers: On May 3, 2001, Generex's three senior officers,
who are also shareholders of Generex, were advanced $334,300 each, in exchange
for promissory notes. These notes bore interest at 8.5 percent per annum and
were payable in full on May 1, 2002. These notes were guaranteed by a related
company owned by these officers and secured by a pledge of 2,500,000 shares of
Generex's common stock owned by this related company. On June 3, 2002, Generex's
Board of Directors extended the maturity date of the loans to October 1, 2002.
The other terms and conditions of the loans and guaranty remained unchanged and
in full force and effect. As of July 31, 2002, the balance outstanding on these
notes, including accrued interest, was $1,114,084. Subsequent to July 31, 2002,
pursuant to a decision made as of August 30, 2002, these loans were satisfied by
application of pledged stock, at a value of $1.90 per share, which represented
the lowest closing price during the sixty days prior to August 30, 2002.
Brokerage Payment: On August 7, 2002, Generex Pharmaceuticals purchased real
estate with an aggregate purchase price of approximately $1,525,000, from an
unaffiliated party. In connection with that transaction, Angara Enterprises,
Inc., a licensed real estate broker that is an affiliate of Ms. Gluskin,
received a commission from the proceeds of the sale to the seller, in the amount
of 3% of the purchase price, or $45,714. Management believes that this is less
than the aggregate commission which would have been payable if an unaffiliated
broker had been used.
Joint Venture with Elan: In January 2001, Generex established a joint venture
with Elan International Services, Ltd. ("EIS") and Elan Corporation, plc
("Elan"). Pursuant to the Securities Purchase Agreement dated January 16, 2001,
between Generex, Elan and EIS, EIS has the right to nominate one director to
Generex's Board of Directors for so long as EIS or its affiliates own at least
1.0% of the issued and outstanding shares of common stock. Dr. Lieberburg was
the nominee of EIS thereunder. Dr. Lieberburg resigned effective August 1, 2002
because he felt that due to the increasing demands of his position with Elan
Corporation, he could no longer devote the time and attention necessary to serve
as a director of Generex. EIS has not informed Generex as to its nominee to
replace Dr. Lieberburg.
In connection with the transaction, EIS purchased 344,116 shares of common stock
for $5,000,000 and was issued a warrant to acquire 75,000 shares of common stock
at $25.15 per share. If the joint venture achieves certain milestones, Generex
may require EIS to purchase an additional $1,000,000 of common stock at a 30%
premium to the then prevailing fair market value of shares of common stock. EIS
also purchased 1,000 shares of a new series of Generex preferred stock,
designated as Series A Preferred Stock, for $12,015,000. The proceeds from the
sale of the Series A Preferred Stock were applied by Generex to subscribe for an
80.1% equity ownership interest in Generex (Bermuda) Ltd. EIS paid in capital of
$2,985,000 to subscribe for a 19.9% equity interest in Generex (Bermuda) Ltd.
While Generex initially owns 80.1% of the joint venture entity, EIS has the
right, subject to certain conditions, to increase its ownership up to 50% by
exchanging the Series A Preferred Stock for 30.1% of Generex's interest in the
joint venture entity. Alternatively, the Series A Preferred Stock may be
converted, under certain conditions, into shares of Generex's common stock. In
January of 2002, Generex declared a 6% stock dividend of Series A Preferred
stock. The shares of common stock and shares of Series A Preferred Stock
presently are held of record by an affiliate of EIS.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized this 27th day of November,
2002.
GENEREX BIOTECHNOLOGY CORPORATION
By: /s/ Anna E. Gluskin
----------------------------
Anna E. Gluskin, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Name Capacity in Which Signed Date
---- ------------------------ ----
/s/ Gerald Bernstein* Director November 27, 2002
---------------------
Gerald Bernstein
/s/ Anna E. Gluskin President and Chief Executive November 27, 2002
------------------- Officer
Anna E. Gluskin
/s/ Rose C. Perri Secretary, Treasurer and Chief November 27, 2002
----------------- Operating Officer
Rose C. Perri
/s/Pankaj Modi* Vice President, Research and November 27, 2002
--------------- Development
Pankaj Modi
/s/ Michael Hawke* Director November 27, 2002
------------------
Michael Hawke
/s/ Peter Levitch Director November 27, 2002
-----------------
Peter Levitch
/s/ Jan Michael Rosen Director November 27, 2002
----------------------
Jan Michael Rosen
*By: /s/ Anna E. Gluskin
------------------------------------
Anna E. Gluskin, as Attorney-in-Fact
CERTIFICATIONS
I, Anna E. Gluskin, Chief Executive Officer and President of Generex
Biotechnology Corporation, certify that:
1. I have reviewed this Amendment Number 1 to Annual Report on Form 10-K of
Generex Biotechnology Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report.
DATE: November 27, 2002 By: /s/ Anna E. Gluskin
--------------------
Anna E. Gluskin, Chief Executive Officer
(Principal Executive Officer)
I, Rose C. Perri, Chief Operating Officer (Principal Financial Officer) of
Generex Biotechnology Corporation, certify that:
1. I have reviewed this Amendment Number 1 to Annual Report on Form 10-K of
Generex Biotechnology Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report.
DATE: November 27, 2002 By: /s/ Rose C. Perri
------------------
Rose C. Perri, Chief Operating Officer
(Principal Financial and Accounting Officer)