Item 3.02. Unregistered Sales of Equity Securities.
Cancellation of Investment Tranches under Securities Purchase
Agreement
As reported in our Current Report on Form 8-K,
dated March 28, 2017, Generex Biotechnology Corporation (the “Company”) entered into a securities purchase agreement
with an investor pursuant to which the Company agreed to sell an aggregate of 109,000 shares of its newly designated non-voting
Series H Convertible Preferred Stock (“Series H Preferred Stock”) and 6,000 shares of its newly designated Series I
Convertible Preferred Stock (“Series I Preferred Stock”). On that date, the Company issued 3,000 shares of Series H
Preferred Stock for a purchase price of $3,000,000.
Sale of the Series I Preferred Stock and subsequent tranches of
Series H Preferred Stock were to take place on dates specified in the Securities Purchase Agreement. The closing for the sale of
Series I Preferred Stock was scheduled to take place on April 17, 2017. The Purchaser failed to close that sale, despite the Company
being ready, willing and able to proceed. Under the Securities Purchase Agreement, in the event the Purchaser failed to purchase
100% of the shares of Preferred Stock at any given Closing, the Purchaser lost its rights to purchase any other Preferred Stock
under the Agreement. Our management made the determination that it was in the Company’s best interest to terminate the Purchaser’s
rights and on April 23, 2017 the Company notified the Purchaser in writing that its rights to purchase additional shares were forfeit.
Conversion of Debt to Officers into Series I Preferred Stock
As previous reported, Joseph Moscato, the Company’s
President & CEO and a Director, and Lawrence Salvo, the Company’s Senior Vice-President – Diagnostics and 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 Alpha Capital Anstalt in respect of the promissory note issued by the Company to Alpha on
March 6, 2017. The 20% original issue discount means that the actual funds advanced by Messrs. Moscato and Salva were 80% of the
debt recognized and converted into Series I Preferred Stock. Following the Board’s decision, we issued the following shares:
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a.
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391 shares of Series I Preferred Stock to Mr. Moscato to retire indebtedness of $390,983.52;
and
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b.
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399 shares of Series I Preferred Stock to Mr. Salvo to retire indebtedness of $399,363.22.
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The $1,000 per share conversion ratio was based on the $1,000 per
share cash price under the Securities Purchase Agreement.
Certain provisions of the Securities Purchase
Agreement for the benefit of the purchasers will not apply to Messrs. Salvo and Moscato, including restrictions on the Company’s
sale of equity securities and restrictions on the Company’s conduct of business. The Series I Preferred Stock issued to Mr.
Salvo and Mr. Moscato will have the special one-time voting right exercisable at the next meeting of the Company’s stockholders..