Document:

Exhibit 10.5

                           Form of Net Worth Agreement

     NET WORTH AGREEMENT dated as of _______________, 2001 by and among SHAFFER
ASSET MANAGEMENT, INC., a New York corporation having an address at 70 West Red
Oak Lane, White Plains, NY 10604 (the "General Partner"), BRUCE I. GREENBERG, an
individual having an address c/o Shaffer Asset Management, Inc., ("Greenberg"),
and DANIEL S. SHAFFER, an individual having an address c/o Shaffer Asset
Management, Inc., 70 West Red Oak Lane, White Plains, NY 10604 ("Shaffer").

                              W I T N E S S E T H :

     WHEREAS, Shaffer is the sole officer, director and shareholder of the
General Partner, Greenberg is an employee of the General Partner and the General
Partner is the general partner of SHAFFER DIVERSIFIED FUND, L.P., a Delaware
limited partnership (the "Fund");

     WHEREAS, there will be registered with the Securities and Exchange
Commission (the "SEC") certain units of limited partnership interest ("Units")
in the Fund pursuant to a registration statement on Form S-1 (the "Registration
Statement") filed with the SEC (File No.33-46550);

     WHEREAS, the General Partner is required to maintain a minimum "net worth"
pursuant to the Amended and Restated Agreement of Limited Partnership, as
amended, governing the Fund (the "Limited Partnership Agreement") and the
requirements imposed by the administrators of the securities laws in certain
jurisdictions as a condition to approval of the offering of the Units therein;

     WHEREAS, the General Partner is also required to make certain minimum
purchases of units of general partnership interest in the Fund pursuant to the
Limited Partnership Agreement and the aforesaid requirements; and

     WHEREAS, the parties hereto desire to make certain provisions relating to
contributions to the capital of the General Partner in connection with the
General Partner's "net worth" obligations to the Fund and to enable the General
Partner to purchase units of general partnership interest in the Fund;

     NOW, THEREFORE, the parties hereto hereby jointly and severally agree as
follows:

     1. Greenberg and Shaffer hereby jointly and severally agree that within
five (5) days following the consummation of the initial offering of the Units
under the Registration Statement (provided that at least 1,000 Units have been
sold to the public and accepted by the General Partner), and within five (5)
days following the consummation of any and all subsequent offerings of Units
under the Registration Statement, Greenberg and Shaffer will contribute funds,
promissory notes or capital to the General Partner as capital, in an amount
sufficient so that the General Partner will at all such times have a "net
worth," calculated in accordance with Generally Accepted Accounting Principles
("GAAP") , equal to not less than the greater of (i) five percent (5%) of the
aggregate capital contributions made by all the partners to the Fund (including
the contribution made by the General Partner), or (ii) Fifty Thousand Dollars
($50,000). In addition, with respect to each other limited partnership for which
the General Partner acts as the general partner, Greenberg and Shaffer hereby
jointly and severally agree to contribute funds, promissory notes or capital to
the General Partner as capital, in an amount sufficient so that the General
Partner will have at all such times a "net worth" at least equal to the net
worth required by the preceding sentence plus, for each such

<PAGE>

additional limited partnership, an amount equal to five percent (5%) of the
total capital contributions made by all the partners to such other limited
partnership (including the contribution made by the General Partner).
Notwithstanding the foregoing, the General Partner's net worth need not exceed
$1,000,000. For purposes of this Agreement, in computing the "net worth" of the
General Partner, the capital contributions of the General Partner to the Fund
and to the other limited partnerships of which it acts as a general partner will
be disregarded.

     2. The General Partner agrees that Greenberg and Shaffer shall have the
absolute right to determine the manner in which and the form by which they will
provide the funds, notes or capital contributions that they is required to make
pursuant to Section 1, above, including, but not limited to, demand promissory
notes in the form of Exhibit A attached hereto and made a part hereof in
exchange for demand promissory notes in the form of Exhibit B attached hereto
and made a part hereof.

     3. So long as the General Partner is the general partner of the Fund, the
General Partner agrees that it will not, and Greenberg and Shaffer agree that
they will not, cause the General Partner to (i) declare any distribution, or
(ii) intentionally take any other formal corporate action which would cause the
General Partner's net worth to fall below a level required to satisfy the
criteria of Section 1, above.

     4. As soon as practicable after at least 1,000 Units shall have been sold
pursuant to the Registration Statement and accepted by the General Partner, and
at all times thereafter when Units are sold and accepted by the General Partner,
Greenberg and Shaffer hereby jointly and severally agree to provide the General
Partner with sufficient capital so as to enable the General Partner to purchase
units of general partnership interest in the Fund in an amount equal to not less
than the greater of (i) one percent (1%) of the aggregate capital contributions
made by all partners to the Fund (including the contributions of the General
Partner) or (ii) Twenty Five Thousand Dollars ($25,000). The General Partner
agrees that Greenberg and Shaffer shall have the absolute right to determine the
form in and the terms upon which they will provide funds to the General Partner
pursuant to this Section 4, including, but not limited to, loans upon such terms
as Greenberg and Shaffer may deem necessary or advisable in their sole
discretion.

     5. This Agreement, which is intended solely for the benefit of the parties
hereto and the limited partners of the Fund, shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns.

     6. This Agreement constitutes the entire understanding between the parties
hereto with respect to the matters referred to herein and no waiver or
modification of the terms hereof shall be valid unless in writing signed by the
party to be charged therewith.

     7 This Agreement shall be governed by and construed in accordance with the
internal laws of the State of New York without giving effect to principles of
conflicts of laws.

     IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement
as of the day and year first above written.

                                       SHAFFER ASSET MANAGEMENT, INC.

                                       By:______________________________
                                             Daniel S. Shaffer

                                             President

                                       _________________________________
                                       Bruce I. Greenberg

                                       _________________________________
                                       Daniel S. Shaffer

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                                                                       Exhibit A

                        Demand Negotiable Promissory Note

                                                        White Plains, New York
                                                     Dated: _______________, 20_

     FOR VALUE RECEIVED, the undersigned, BRUCE I. GREENBERG and DANIEL S.
SHAFFER, individuals having an address c/o Shaffer Asset Management, Inc., 70
West Red Oak Lane, White Plains, NY 10604, hereby jointly and severally promise
to pay to the order of SHAFFER ASSET MANAGEMENT, INC., a New York corporation
having an address at 70 West Red Oak Lane, White Plains, NY 10604 (the
"Holder"), or any subsequent holder hereof, the principal sum of
_________________________ Dollars ($______), on demand, in lawful currency of
the United States of America, with interest (computed on the basis of a 360 day
year of twelve 30 day months) at the prime rate as of the end of each month
charged by The Chase Manhattan Bank to its best commercial customers for 90 day
unsecured loans. Simple interest is to be calculated monthly at such rate.
Payment of both principal and interest is to be made at the offices of the
Holder, which are located at 70 West Red Oak Lane, White Plains, NY 10604.
Interest is to be paid annually commencing ________, 20__.

                                               ______________________________
                                               Bruce I. Greenberg

                                               ______________________________
                                               Daniel S. Shaffer

                                      -3-
<PAGE>

                                                                       Exhibit B

                        Demand Negotiable Promissory Note

                                                       White Plains, New York
                                                     Dated: _______________, 20_

     FOR VALUE RECEIVED, the undersigned, SHAFFER ASSET MANAGEMENT, INC., a New
York corporation having an address at 70 West Red Oak Lane, White Plains, NY
10604, hereby promises to pay to the order of BRUCE I. GREENBERG and DANIEL S.
SHAFFER, individuals having an address c/o Shaffer Asset Management, Inc., 70
West Red Oak Lane, White Plains, NY 10604 (collectively, the "Holders"), or any
subsequent holder hereof, the principal sum of _________________________ Dollars
($______), on demand, in lawful currency of the United States of America, with
interest (computed on the basis of a 360 day year of twelve 30 day months) at
the prime rate as of the end of each month charged by The Chase Manhattan Bank
to its best commercial customers for 90 day unsecured loans. Simple interest is
to be calculated monthly at such rate. Payment of both principal and interest is
to be made at the offices of the Holders, which are located c/o Shaffer Asset
Management, Inc., 70 West Red Oak Lane, White Plains, NY 10604. Interest is to
be paid annually commencing ________, 20__.

                                               ______________________________
                                               Bruce I. Greenberg

                                               ______________________________
                                               Daniel S. Shaffer

                                      -4-<PAGE>
Exhibit 10.1

Portions of this Exhibit have been omitted pursuant to a Request for
Confidential Treatment

THE SYMBOL "[**]" IS USED TO INDICATE WHERE A PORTION OF THIS EXHIBIT HAS BEEN
OMITTED. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED
PORTIONS. A COMPLETE COPY OF THIS EXHIBIT, CONTAINING ALL OF THE OMITTED
PORTIONS, HAS BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
TOGETHER WITH THE REQUEST FOR CONFIDENTIAL TREATMENT.

                        GENEREX BIOTECHNOLOGY CORPORATION

                                       AND

                              ELI LILLY AND COMPANY

                        DEVELOPMENT AND LICENSE AGREEMENT

                                September 5, 2000

<PAGE>

                        DEVELOPMENT AND LICENSE AGREEMENT

         This Development and License Agreement ("Agreement") is made and
entered into as of the 5th day of September, 2000 (the "Effective Date") by and
between GENEREX BIOTECHNOLOGY CORPORATION, a Delaware corporation, having its
principal place of business at 33 Harbour Square, Suite 202, Toronto, Canada M5J
2G2 ("Generex") and ELI LILLY AND COMPANY, an Indiana corporation, having its
principal place of business at Lilly Corporate Center, Indianapolis, Indiana
46285 ("Lilly"). Generex and Lilly are sometimes referred to herein individually
as a "Party" and collectively as "Parties," and references to "Generex" and
"Lilly" shall include their respective Affiliates.

                                    Recitals

         WHEREAS, Lilly is engaged in discovering, developing and marketing
pharmaceutical products.

         WHEREAS, in pursuit of these objectives, Lilly has developed and is
commercializing insulin products for markets throughout the world.

         WHEREAS, Generex is engaged in the research and development of
proprietary devices and formulations for buccal drug delivery.

         WHEREAS, Lilly desires to pursue development of a Generex Formulation
(as defined below) of insulin together with a suitable Device (as defined below)
for buccal delivery of insulin and at Lilly's option certain other compounds.

         WHEREAS, Lilly desires to obtain an exclusive, worldwide license to
commercialize Products (as defined below) based upon such Formulation of insulin
together with a suitable Device developed pursuant to the terms of this
Agreement.

         WHEREAS, Generex desires to have Lilly pursue development of such
Formulation together with a suitable Device and to grant an exclusive license
thereto pursuant to the terms and conditions of this Agreement.

         NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and promises contained in this Agreement, the Parties hereto agree as
follows and intending to be legally bound hereby:

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<PAGE>
                                    ARTICLE 1
                                   DEFINITIONS

         As used herein, the following terms shall have the following meanings:

1.1      "Adverse Event" means any untoward happening in a patient or subject
         during or after administration of Compound via Device, without regard
         to a causal relationship between Compound, Device and the event.
         "Serious Adverse Event" means any Adverse Event with the following
         conditions: death, life-threatening, hospitalization, permanent
         disability, or congenital anomaly.

1.2      "Affiliate" of a Party hereto means any corporation or business entity
         of which such Party, at the time in question, is directly or indirectly
         controlling, controlled by, under common control, owned by or owns an
         amount of more than fifty percent (50%) of the stock having the right
         to vote for directors thereof or demonstrates controlling management
         presence (i.e., possesses the power to direct or cause the direction of
         the management and policies of such entity) at fifty percent (50%) or
         less of the aforementioned stock.

1.3      "Calendar Quarter" means the three-month period ending on March 31,
         June 30, September 30, or December 31.

1.4      "Calendar Year" means the twelve-month period ending on December 31.

1.5      "cGCP" means the then current Good Clinical Practice Standards
         promulgated or endorsed by the FDA (or in the case of foreign
         jurisdictions, comparable regulatory standards), including those
         regulations or guidelines expressed or implied in the regulatory
         filings made with respect to the Product with the FDA or foreign
         regulatory agents.

1.6      "cGLP" means the then current Good Laboratory Practices promulgated or
         endorsed by the FDA (or in the case of foreign jurisdictions,
         comparable regulatory standards), including those procedures expressed
         or implied in the regulatory filings made with respect to the Product
         with the FDA or foreign regulatory agents.

1.7      "cGMP" means current Good Manufacturing Practices as defined in the
         U.S. regulations 21 CFRss.210 et seq., and the EEC Guide to Good
         Manufacturing Practices for Medicinal Products (Vol. IV Rules Governing
         Medicinal Products in the European Community 1992).

1.8      "Change of Control" means, with respect to either Party, any of the
         following events: (i) the acquisition by any Person or Group, other
         than a Person or Group controlling such Party as of the Effective Date,
         of "beneficial ownership" (as defined in Rule 13d-3 under the United
         States Securities Exchange Act of 1934, as amended), directly or
         indirectly, of fifty percent (50%) or more of the shares of such

                                       -2-

<PAGE>

         Party's capital stock the holders of which have general voting power
         under ordinary circumstances to elect at least a majority of such
         Party's Board of Directors or equivalent body (the "Board of
         Directors") (the "Voting Stock"); (ii) the first day of which less than
         two-thirds of the total membership of such Party's Board of Directors
         shall be Continuing Directors (as such term is defined below); (iii)
         the approval by the shareholders of such Party of a merger, share
         exchange, reorganization, consolidation or similar transaction of such
         Party (a "Transaction"), other than a Transaction which would result in
         the Voting Stock of such Party outstanding immediately prior thereto
         continuing to represent (either by remaining outstanding or by being
         converted into voting securities of the surviving entity) more than
         fifty percent (50%) of the Voting Stock of such Party or such surviving
         entity immediately after such Transaction; or (iv) approval by the
         shareholders of such Party of a complete liquidation of such Party or a
         sale or disposition of all or substantially all of the assets of such
         Party. For purposes of this definition, "Continuing Directors" means
         individuals serving as of the date hereof on such Party's Board of
         Directors and any individuals elected after the date hereof whose
         election or nomination was approved by at least a majority of the
         Continuing Directors serving at the time.

1.9      "Compound" means insulin, its analogs, fragments, mimetics, peptides
         and related proteins acting in a similar manner to insulin including,
         without limitation, insulin, [**] .

1.10     "Compound Product" means a category of Product developed in the Field
         that all contain the named Compound. For example, one category of
         Compound Product will be "Insulin Product" where the term Insulin
         Product shall include all Products that contain insulin. Other
         categories of Compound Product could be [**] .

1.11     "Compulsory License" means a compulsory license under the Generex
         Patents or Generex Know-How obtained by a Third Person through the
         order, decree, or grant of a competent governmental authority,
         authorizing such Third Person to manufacture, use, sell, offer for sale
         or import a Product in a particular Territory.

1.12     "Confidential Information" means each Party's confidential information,
         inventions, know-how (including Program Know-How) and data, and shall
         include, without limitation, information relating to research and
         development plans, experiments, results and plans, the existence of
         compounds, therapeutic leads, candidates and products, clinical and
         preclinical data, trade secrets and manufacturing, marketing,
         financial, regulatory, personnel and other business information and
         plans, whether in oral, written, graphic or electronic form and whether
         in existence as of the Effective Date or developed or acquired later,
         except where such information (i) is public knowledge at the time of
         disclosure by the disclosing Party, (ii) becomes public knowledge
         through no fault of the receiving Party, (iii) was in the possession of
         the receiving Party at the time of disclosure by the disclosing Party
         as evidenced by proper business records, or (iv) is disclosed to the

                                      -3-
<PAGE>

         disclosing Party by a Third Person, to the extent such Third Person's
         disclosure was not made on a confidential basis or in violation of any
         obligation of confidentiality.

1.13     "Control" (including variations thereof such as "Controls,"
         "Controlling" and "Controlled") means the ability to grant a license or
         sublicense as provided for herein without violating the terms of any
         agreement or other arrangement with any Third Person.

1.14     "Cover" (including variations thereof such as "Covering", "Covered",
         and "Coverage") means that the manufacture, use, import, offer for sale
         or sale of a Product would infringe a Valid Claim; provided, with
         respect to a process or manufacturing patent, that such a Valid Claim
         therein effectively precludes a Third Person from manufacturing, using,
         importing, offering for sale, or selling the Product. The determination
         of whether a Product is Covered by a particular Valid Claim shall be
         made on a country-by-country basis. A Valid Claim shall be deemed to
         provide effective preclusion hereunder where (i) there is no competing
         buccal spray product being marketed, or (ii) if a buccal spray product
         is being marketed by a competitor, it infringes a Valid Claim
         (including any period in which, and provided that, the Valid Claim is
         being litigated).

1.15     "Device" means any device for the buccal delivery of drugs designed
         and/or manufactured by or for Generex or Lilly. "Standard Device" means
         the preliminary device Generex is currently developing for use for
         buccal delivery of drugs, which is substantially similar to that
         represented by the prototype in existence as of the Effective Date, as
         well as any improvements and/or changes (material or otherwise) to the
         Device which occur as a result of development efforts hereunder after
         the Effective Date. Specifications for the Standard Device represented
         by the prototype in existence as of the Effective Date will be provided
         by Generex as Exhibit F and which shall include updates and amendments
         by the Parties thereto. Unless otherwise noted, the use of the term
         "Device" in this Agreement is not intended to indicate the definition
         of "device" in the Federal Food, Drug and Cosmetic Act, as amended or
         to definitions by other regulatory authorities in the Territory.

1.16     "EMEA" means European Medicine Evaluation Agency or any successor
         agency having the administrative authority to regulate the approval for
         marketing of new human pharmaceutical or biological therapeutic
         products in the European Union.

1.17     "FDA" means the United States Food and Drug Administration or any
         successor agency having the administrative authority to regulate the
         approval for marketing of new human pharmaceutical or biological
         therapeutic products in the United States.

1.18     "Field" means the buccal delivery of Product.

                                      -4-
<PAGE>
1.19     "Generex Formulation" or "Formulation" means the formulation owned and
         Controlled by Generex that Generex has been researching including
         research carried out in Phase I and Phase II Clinical Trials prior to
         the Effective Date. A description of the Formulation including the
         quantity and identity of all ingredients and a general description of
         how to make such Formulation have been provided by Generex to Lilly by
         letter dated the Effective Date.

1.20     "Generex's Fully Burdened Manufacturing Costs" means the sum of the
         following costs incurred by Generex to the extent allocable to Products
         and components thereof sold to Lilly: Generex's cost of direct
         materials, direct labor and manufacturing overhead. For avoidance of
         any doubt, notwithstanding anything to the contrary in this Agreement,
         Generex's Fully Burdened Manufacturing Cost shall specifically exclude:
         (i) capacity costs not allocable to Products; (ii) any cost associated
         with reimbursing Lilly with respect to Wasted Compound; (iii) any
         royalties and/or indemnification that Generex is obligated to pay under
         this Agreement (e.g., Sections 6.3(c), 6.3(d), 11.2 and 13.3); (iv) any
         costs incurred by Generex in connection with improvements and changes
         to the Standard Device as described in Section 3.1(a) of this
         Agreement; (v) any item that Generex is financially responsible for
         under this Agreement (except direct depreciation associated with
         manufacturing as allowed for in Section 7.1(f)(2)); or (vi) any item
         that Generex has already been compensated for by Lilly under this
         Agreement. Generex's Fully Burdened Manufacturing Cost shall be
         calculated in a manner consistent with Generally Accepted Accounting
         Principles ("GAAP") consistently applied. Furthermore, the methodology
         to be used in making the allocations referred to above shall be
         disclosed by Generex to Lilly and shall be consistent with Generex's
         methodology for other products and shall be consistent from
         year-to-year.

1.21     "Generex Know-How" means all Know-How that is (a) owned and Controlled
         by Generex or any of its Affiliates before the Effective Date of this
         Agreement, and (b) useful or necessary in the Field. Generex Know-How
         does not include Generex Patent Rights.

1.22     "Generex Patent Rights" means (a) all patent applications including any
         provisionals, substitutes, renewals, registrations, confirmations,
         re-examinations, extensions, reissues, divisionals, continuations,
         continued prosecutions, continuation-in-part and any foreign
         counterparts thereof; and (b) any patents that issue from such patent
         applications that contain or result in a Valid Claim that Covers a
         method, apparatus, composition, formulation, including the Generex
         Formulation, or process necessary or useful in the Field, which patent
         or patent application is owned or Controlled by Generex or any of its
         Affiliates, as of the Effective Date. A list of Generex Patent Rights
         will be provided by Generex to Lilly and attached to this Agreement as
         Exhibit E and shall include updates and modifications provided
         quarterly by Generex. Generex Patent Rights do not include Generex
         Know-How.

                                      -5-
<PAGE>

1.23     "Generex Rights" means Generex Patent Rights and Generex Know-How.

1.24     "Group" means two (2) or more Persons acting in concert to acquire and
         jointly exercise control of a Party.

1.25     "IND" means an Investigational New Drug application filed with FDA or
         any equivalents of such items in countries within the Territory.

1.26     "Initiation of Phase III Clinical Trials" means the first
         administration of a Compound Product in a patient pursuant to Phase III
         Clinical Trials conducted by Lilly.

1.27     "Intellectual Property Rights" means all patents, copyrights,
         trademarks, trade secrets and know-how necessary to make, use, sell,
         offer for sale, and import Products and/or components thereof.

1.28     "Know-How" means any and all information, data, items, material and
         knowledge in the Field including, without limitation, any and all
         suggestions, descriptions, ideas, inventions that are not patented,
         know-how, trade secrets, techniques, strategies, methods, syntheses,
         processes, practices, skills, experience, documents, apparatus,
         devices, chemical formulations, compounds, composition of matter,
         chemical samples, assays, screens, databases, databases structures and
         data analysis methods in the Field.

1.29     "Lilly Know-How" means all Know-How that is (a) owned and Controlled by
         Lilly or any of its Affiliates before the Effective Date of this
         Agreement, and (b) useful or necessary in the Field. Lilly Know-How
         does not include Lilly Patent Rights.

1.30     "Lilly Patent Rights" means (a) all patent applications including any
         provisionals, substitutes, renewals, registrations, confirmations,
         re-examinations, extensions, reissues, divisionals, continuations,
         continued prosecutions, continuation-in-part and any foreign
         counterparts thereof; and (b) any patents that issue from such patent
         applications that contain or result in a Valid Claim that Covers a
         method, apparatus, composition, formulation, or process necessary or
         useful in the Field, which patent or patent application is owned or
         Controlled by Lilly or any of its Affiliates, as of the Effective Date.

1.31     "Lilly Rights" means Lilly Patent Rights and Lilly Know-How.

1.32     "Major Market" means the United States, Japan, and Major European
         Countries. For purposes of this Agreement, "Major European Countries"
         shall mean Germany, France or the United Kingdom.

                                      -6-
<PAGE>

1.33     "Manufacturing Agreement" means a manufacturing and supply agreement to
         be negotiated by the Parties if Generex is selected to supply the
         initial Product to Lilly as set forth in Article 7 of this Agreement.

1.34     "Manufacturing Responsibilities Document" or "MRD" means a document
         that may contain certain specifications, procedures, logistics and
         personal contacts relating to the manufacture for sale and supply of
         the Product by Generex to Lilly that will be compiled and agreed upon
         between the Parties. The MRD contains Product information such as
         information related to Product quality and regulatory compliance. The
         MRD shall include, as part of the MRD or as a separate document, a
         Quality Responsibilities Document which defines quality activities and
         responsibilities of each Party. The MRD also describes how Generex and
         Lilly will work together in coordinating the forecasting,
         manufacturing, packaging, ordering, storing and transporting of the
         Product. The MRD may be modified from time to time through the issuance
         of a revision signed on behalf of each of the Parties by authorized
         representatives incorporating the modification and stating the
         effective date of the revision. A non-exhaustive table of contents of
         the MRD is attached hereto as Exhibit B of this Agreement.

1.35     "MHW" means the Japanese Ministry of Health and Welfare, or any
         successor agency having the administrative authority to regulate the
         approval for marketing of new human pharmaceutical or biological
         therapeutic products in Japan.

1.36     "Net Sales" means, with respect to a Product, the gross amount invoiced
         by Lilly (including an Affiliate and/or sublicensee of Lilly) to Third
         Persons, for the Product in the Territory, less:

         (a)      Trade, quantity and cash discounts allowed;
         (b)      Commissions, discounts, refunds, rebates, chargebacks,
                  retroactive price adjustments, and any other customary
                  allowances paid to Third Persons which effectively reduce the
                  net selling price;
         (c)      Actual Product returns and allowances;
         (d)      That portion of the sales value associated with
                  non-pharmaceutical drug delivery devices other than Generex's
                  Standard Device;
         (e)      That portion of the invoice amount that represents any tax
                  imposed on the production, sale, delivery or use of the
                  Product, including, without limitation, sales, use, excise or
                  value added taxes;
         (f)      Allowance for actual distribution expenses not to exceed [**];
                  and
         (g)      Any other similar and customary deduction from Net Sales
                  provided that such deduction is in accordance with U.S. GAAP,
                  or mutually agreed to, in writing, by the Parties.

                 Such amounts shall be determined from the books and records of
         Lilly maintained in accordance with GAAP consistently applied. Lilly
         further agrees that in determining such amounts, it will use Lilly's

                                      -7-
<PAGE>

         then current standard procedures and methodology, including Lilly's
         then current standard exchange rate methodology for the translation of
         foreign currency sales into United States Dollars ("U.S. Dollars").

                 In the event that the Product is sold in combination with any
         other active compound(s) and/or ingredients ("Combination Product"),
         the Net Sales of the Product, for the purposes of determining royalty
         payments, shall be determined by multiplying the Net Sales (as defined
         above) of the Combination Product by the fraction A / (A+B), where A is
         the weighted average sale price of the Product when sold separately in
         finished form, and B is the weighted average sale price of the other
         product(s) sold separately in finished form.

                 In the event that the weighted average sale price of the
         Product can be determined but the weighted average sale price of the
         other product(s) cannot be determined, Net Sales for purposes of
         determining royalty payments shall be calculated by multiplying the Net
         Sales of the Combination Product by the fraction A / C, where A is the
         weighted average sale price of the Product when sold separately in
         finished form and C is the weighted average selling price of the
         Combination Product.

                 In the event that the weighted average sale price of the other
         product(s) can be determined but the weighted average sale price of the
         Product cannot be determined, Net Sales for purposes of determining
         royalty payments shall be calculated by multiplying the Net Sales of
         the Combination Product by the following formula: one (1) minus (B /
         C), where B is the weighted average sale price of the other product(s)
         when sold separately in finished form and C is the weighted average
         selling price of the Combination Product.

                 In the event that the weighted average sale price of both the
         Product and the other product(s) in the Combination Product cannot be
         determined, the Net Sales of the Product shall be deemed to be equal to
         fifty percent (50%) of the Net Sales of the Combination Product.

                 The weighted average sale price for a Product, other
         product(s), or Combination Product shall be calculated at the end of
         each Calendar Year and such price shall be used during all applicable
         royalty reporting periods for the entire following Calendar Year. When
         determining the weighted average sale price of a Product, other
         product(s), or Combination Product, the weighted average sale price
         shall be calculated by dividing the sales dollars (translated into U.S.
         Dollars) by the units of active ingredient sold during the twelve (12)
         months (or the number of months sold in a partial Calendar Year) of the
         preceding Calendar Year for the respective Product, other product(s),
         or Combination Product. In the initial Calendar Year, a forecasted
         weighted average sale price will be used for the Product, other
         product(s), or Combination Product. Any over or under payment due to a
         difference between forecasted and actual weighted average sale prices

                                      -8-
<PAGE>

         will be paid or credited in the first royalty payment of the following
         Calendar Year.

                 In general, the Parties agree to negotiate in good faith for an
         equitable determination of Net Sales of Product, on a
         country-by-country basis, in the event that Lilly sells Product in such
         a manner that gross sales of Product are not readily identifiable
         (e.g., where several products are sold together for one price, i.e.,
         bundling).

1.37     "New Drug Application" or "NDA" means (a) the single application or set
         of applications for Products and/or pre-market approval to make and
         sell commercially both a formulation of Compound and a compatible
         commercial Device to be marketed as Product, filed by Lilly with the
         appropriate regulatory authority within the Territory, and (b) any
         related registrations with or notifications to the appropriate
         regulatory authority within the Territory. This term does not include
         any of Lilly's Regulatory Approvals in the Territory for any insulin
         products other than the Products contemplated in this Agreement.

1.38     "Option Compound" means [**] , for which Lilly has an option under this
         Agreement to develop and commercialize a product containing such
         compound together with any and all Devices and/or components thereof
         for buccal delivery.

1.39     "Person" means a natural person, a corporation, a partnership, a trust,
         a joint venture, a limited liability company, any governmental
         authority or any other entity or organization.

1.40     "Phase I Clinical Trials" means small scale human clinical trials
         conducted in normal volunteers and designed to evaluate the safety of
         the Product.

1.41     "Phase II Clinical Trials" means small scale human clinical trials
         conducted in patients and designed to indicate a statistically
         significant level of efficacy for Product in the treatment of the
         disease state being studied, as well as to obtain some indication of
         the dosage regimen required.

1.42     "Phase III Clinical Trials" means large scale human clinical trials
         conducted in patients and designed to establish Product efficacy in the
         treatment of the disease state being studied and required to obtain
         clinical registration of Product with health regulatory authorities
         such as the FDA.

1.43     "Product(s)" means any and all formulations of Compound together with
         any and all Devices and/or components thereof under development
         pursuant to this Agreement or in final form for sale in the Field.

1.44     "Product Development Plan" means a plan as set forth in Section 2.5 of
         this Agreement that fully addresses the key elements necessary for the
         successful development of Product(s) under this Agreement.

                                      -9-
<PAGE>

1.45     "Product Development Program" means the development of the Product and
         implementation of the Product Development Plan (as amended from time to
         time by the Steering Committee), as set forth in Sections 2.1 and 3.1
         of this Agreement.

1.46     "Program Know-How" means all Know-How that is discovered or developed
         by either Party on or after the Effective Date pursuant to research
         carried out under the Product Development Program and which is
         reasonably useful or necessary in the Field. Program Know-How does not
         include Program Patent Rights or Regulatory Material.

1.47     "Product Launch" means the first commercial sale of a particular
         Product for use by the general public by Lilly or its sublicensees in
         any particular country following final Regulatory Approval required for
         marketing of the Product in such country.

1.48     "Program Patent Rights" means (a) all patent applications including any
         provisionals, substitutes, renewals, registrations, confirmations,
         re-examinations, extensions, reissues, divisionals, continuations,
         continued prosecutions, continuation-in-part and any foreign
         counterparts thereof; and (b) any patents that issue from such patent
         applications that contain or result in a Valid Claim that Covers a
         method, apparatus, composition, formulations excluding the Generex
         Formulation or process necessary or useful in the Field which invention
         is conceived or actually first reduced to practice after the Effective
         Date pursuant to the joint research carried out by the Parties under
         the Product Development Program.

1.49     "Program Rights" means Program Patent Rights and Program Know-How.

1.50     "Quality System Regulations (QSRs)" means current Quality System
         Regulations as defined in the U.S. Code of Federal Regulations, 21 CFR
         Part 820 and, in the case of foreign jurisdictions, comparable
         regulatory standards.

1.51     "Regulatory Approval" means (a) in the United States, approval by the
         FDA of an NDA, 510K, PMA or similar application for marketing approval,
         and satisfaction of any related applicable FDA registration and
         notification requirements (if any), and (b) in any country other than
         the United States, approval by regulatory authorities having
         jurisdiction over such country of a single application or set of
         applications comparable to an NDA and satisfaction of any related
         applicable regulatory and notification requirements, if any, together
         with any other approval necessary to make and sell pharmaceuticals and
         medical devices commercially in such country.

1.52     "Regulatory Material" means regulatory submissions and approvals
         including, without limitation, clinical trial data, Toxicology and

                                      -10-
<PAGE>

         Bioavailability Studies, IND, NDA, clinical trial exemption,
         governmental pricing approvals, and any other foreign equivalents to
         the extent such material is generated under this Agreement and is
         solely related to the Field.

1.53     "Royalty Period" means the period commencing on Product Launch of a
         particular Product in the particular country at issue until the later
         of either: (i) the expiration date of the last-to-expire patent of any
         relevant Generex Patent Rights or Program Patent Rights (a) existing in
         such country at issue which Covers the use, sale, offer for sale or
         importation of the Product at issue, or (b) existing in the country in
         which the Product is manufactured which Covers such manufacture for
         use, sale, or importation in the country at issue in such a manner that
         the use, sale, offer for sale, or importation of such Product by Lilly
         in the country at issue or the manufacture of the Product in the
         country of manufacture would constitute infringement of such Generex
         Patent Rights and Program Patent Rights but for the license granted to
         Lilly under Section 5.1 and Section 5.2, hereof or (ii) [**] from
         Product Launch. In addition to the foregoing, if the Royalty Period
         expires in a particular country as to a particular Product and a
         Generex Patent or Program Patent subsequently issues with the effect
         that either Covers (x) the use, sale, offer for sale, or importation of
         the Product in the country at issue or Covers (y) the manufacture of
         such Product would constitute infringement of such subsequently issued
         patent but for the license granted to Lilly under Sections 5.1 and 5.2
         hereof, then the Royalty Period as to that particular Product in that
         particular country shall include an additional period commencing on the
         date such subsequent patent issues and ending at such time as such
         subsequent patent (i) no longer Covers the Product at issue or (ii)
         expires or is abandoned, whichever occurs first.

1.54     "Steering Committee" means a joint committee responsible for strategic
         management of the Product Development Program, as set forth in Section
         2.2 of this Agreement.

1.55     "Territory" means the world.

1.56     "Third Person" means any Person other than Lilly, Generex, or an
         Affiliate or sublicensee of either of them.

1.57     "Toxicology and Bioavailability Studies" means all non-human toxicology
         and absorption, distribution, metabolism and elimination (ADME) studies
         which are needed to conduct Phase I, Phase II or Phase III Clinical
         Trials and obtain Regulatory Approval for Product.

1.58     "Valid Claim" means any claim issued in an unexpired patent which has
         not been held unenforceable, unpatentable or invalid by a decision of a
         court or other governmental agency of competent jurisdiction following
         exhaustion of all possible appeal processes, and which has not been
         admitted to be invalid or unenforceable through reissue, reexamination
         or disclaimer.

                                      -11-
<PAGE>

1.59     "Wasted Compound" means, to the extent that Generex performs any
         research and development activities or manufactures Product under this
         Agreement, unreasonable wastage, loss or other damage to Compound that
         exceeds a certain wastage limit to be negotiated under the
         Manufacturing Agreement or that is due to Generex's negligence,
         misconduct or noncompliance with the Product Development Plan or
         Manufacturing Agreement that renders the Compound unusable, as set
         forth in Sections 3.5 and 7.1(f)(5) of this Agreement.

                                    ARTICLE 2
                           PRODUCT DEVELOPMENT PROGRAM
                  SCOPE, GOVERNANCE AND ADMINISTRATIVE MATTERS

2.1      Purpose and Scope of Development. In accordance with, and subject to,
         the terms described herein, the Parties agree to collaborate in the
         research and development of Product(s) using the Generex Formulation
         and Device for the ultimate purpose of commercialization by Lilly of
         such Product(s). As more fully described in Article 3, Generex will
         have principal responsibility for any modification to the Generex
         Formulation until such time as the Generex Formulation is determined by
         Lilly to be substantially suitable for development and
         commercialization, any non-clinical research and development of the
         Formulation (including its use in the Device), and any Device research
         and development. Lilly will have principal responsibility for clinical
         development and sole responsibility for commercialization of
         Product(s).

                  Each Party agrees to pursue their respective development
         obligations under the Product Development Program at least as
         diligently as the Party develops its other products of similar
         probabilities of technical success, commercial potential and at similar
         stages of development, provided that failure by Lilly or Generex to
         meet its diligence obligation due to reasons beyond Lilly's or
         Generex's control, respectively, including lack of technical success of
         the Product(s), will not constitute lack of diligence for purposes of
         this Agreement.

2.2      Steering Committee. The Steering Committee shall be responsible for
         overall direction and management of the Product Development Program.
         The operation and authority of the Steering Committee shall be as
         follows:

         (a)      Responsibilities. The Steering Committee shall have general
                  authority over the strategic direction and overall management
                  of the Product Development Program. The Steering Committee
                  shall periodically review such Plan from a strategic
                  perspective and make changes as it deems necessary to
                  accomplish the purpose of the Product Development Program. The
                  Steering Committee shall also consider any amendments to the
                  Product Development Plan proposed by the Working Team
                  described in Section 2.3, below. Additionally the Steering

                                      -12-
<PAGE>
                  Committee will have responsibility for articulation of the
                  strategy consistent with the agreement between the Parties,
                  for assuring clarity of roles and responsibilities in
                  implementation of the Product Development Program, for
                  assuring resources are allocated appropriately, and that
                  appropriate performance measures are in place. The Steering
                  Committee will also be responsible for ensuring that both
                  Parties are kept apprised of progress and any issues that may
                  lead to deviation from the Product Development Plan.

         (b)      Review of Activities. The Steering Committee shall
                  periodically review the results of the Product Development
                  Program to ensure, to the extent reasonably practical, that
                  the Parties are providing their commitments of both human and
                  financial support for the research and development of a
                  Product and the fulfillment of all contractual obligations
                  between the Parties. The Steering Committee shall resolve any
                  disputes referred to it by the Working Team in accordance with
                  paragraph (e) below.

         (c)      Representation. Generex and Lilly shall each appoint three (3)
                  representatives as their representatives to serve on the
                  Steering Committee. One member from each Party will be
                  designated as the Program Leader for their respective Party.
                  Such Program Leader shall serve as a contact person for their
                  respective Party. The initial members of the Steering
                  Committee are listed in Schedule 2.2. Either Party may change
                  its representation on the Steering Committee at any time upon
                  written notification to the other Party.

         (d)      Meetings. The Steering Committee shall meet from time to time
                  as determined by the Steering Committee members. It is
                  expected that the Steering Committee shall meet in person at
                  least four (4) times per Calendar Year. The location of
                  Steering Committee meetings shall alternate between Generex's
                  and Lilly's offices unless otherwise agreed by the Parties.
                  Each Party will bear all expenses associated with attendance
                  of its employees and consultants at such meetings. If the
                  Steering Committee members all agree, a meeting may be held by
                  telephone. Consultants and non-member employees of the Parties
                  may attend meetings of the Steering Committee as required to
                  further the Product Development Program.

        (e)       Minutes. Minutes of all such meetings setting forth decisions
                  of the Steering Committee relative to the Product Development
                  Program will be prepared by the Party hosting the meeting.
                  Minutes shall be deemed approved unless any member of the
                  Steering Committee objects to the accuracy of such minutes
                  within five (5) business days of receipt.

        (f)       Decisions. Decisions of the Steering Committee shall be made
                  by majority vote. If the Steering Committee is unable resolve
                  a dispute, then the issue shall be referred to the CEO of
                  Generex and the President of the Diabetes and Growth Disorders

                                      -13-
<PAGE>

                  Group of Lilly (or successor position) for further discussion
                  and resolution. These individuals shall, as soon as
                  practicable, attempt in good faith to resolve the dispute and,
                  thereby, make the decision on behalf of the Steering
                  Committee. These individuals may obtain the advice of other
                  employees as they deem necessary or advisable in order to make
                  the decision. If such issue is not resolved within thirty (30)
                  days after it has been referred to such persons for
                  resolution, the President of the Diabetes and Growth Disorders
                  Group (or successor position) at Lilly shall make the final
                  decision regarding such issue.

2.3      Working Team. The day-to-day management of the Product Development
         Program for a particular Product shall be the responsibility of the
         Working Team for that Product. The Working Team shall be subordinate to
         the Steering Committee, which shall have the right upon timely appeal
         as provided below to review, accept, reject or modify all actions of
         the Working Team. A Working Team may have responsibility for the
         development of more than one Product, if practical. The Steering
         Committee will ensure that the Working Team has clarity as to its
         responsibilities under the Product Development Program in accordance
         with the expectations of the Steering Committee. The operation and
         responsibility of the Working Team shall be as follows:

        (a)       Responsibilities of Working Team. The Working Team shall be
                  responsible for planning, managing, directing and overseeing
                  specific activities under this Agreement, including but not
                  limited to, non-clinical research and development of the
                  Generex Formulation for use in the Device, stability testing,
                  toxicology studies, bioavailability studies, activities
                  relating to manufacture of both clinical supplies and Product,
                  conduct of clinical trials and preparation of regulatory
                  submissions.

                           In order to accomplish these objectives, the Working
                  Team shall implement a Product Development Plan. Pursuant to
                  the Product Development Plan, the Working Team shall (1)
                  allocate tasks and coordinate activities required to carry out
                  the objectives of the Product Development Program, (2) monitor
                  progress of the Product Development Program, and (3) discharge
                  such other obligations as are assigned to the Working Team
                  under this Agreement or by the Steering Committee.

        (b)       Representation. Within thirty (30) days of the Effective Date,
                  the Steering Committee shall appoint a Working Team consisting
                  of Lilly representatives as needed from various functional
                  areas such as medical, ADME, Toxicology, CM&C and the like and
                  Generex representatives to consult on the research and
                  development activities carried out by the Working Team. Either
                  Party may change its representatives on the Working Team at
                  any time by written notification to the other Party.

                                      -14-
<PAGE>

         (c)      Meetings. The Working Team shall meet as frequently as
                  necessary to accomplish the objectives of the Product
                  Development Plan. The location of such meetings will alternate
                  between the offices of Generex and Lilly, unless the Parties
                  agree otherwise. Each Party will bear all expenses associated
                  with attendance of its employees and consultants at such
                  meetings.

         (d)      Decisions. Decisions of the Working Team shall be made by
                  unanimous consensus when possible, and otherwise by majority
                  vote, subject to the right of either Party to appeal any
                  decision of the Working Team to the Steering Committee. No
                  vote of the Working Team may be taken unless a majority of the
                  members of the Working Team are present, including at least
                  one (1) representative of each Party.

         (e)      Minutes. The Working Team shall keep minutes of any meeting at
                  which a decision is to be reached and shall circulate such
                  minutes to all members of the Working Team and the Steering
                  Committee. Responsibility for the preparation of the minutes
                  shall rest with the hosting Party. Minutes shall be deemed
                  approved unless any member of the Working Team or the Steering
                  Committee objects to the accuracy of such minutes within five
                  (5) business days of receipt.

         (f)      Disputes. Any Party desiring to appeal a decision of the
                  Working Team to the Steering Committee shall make its appeal
                  in writing to all Steering Committee members within five (5)
                  business days of receipt of the minutes for the meeting at
                  which the decision was made. Action pursuant to any decision
                  appealed to the Steering Committee shall be suspended pending
                  a determination by the Steering Committee to accept, reject or
                  modify the decision of the Working Team. Any Party may at any
                  time request reconsideration of any issue if such Party in
                  good faith believes that substantial changes in circumstances
                  have occurred that necessitates such reconsideration.

2.4      Sub-Teams. The Steering Committee and Working Team (with the approval
         of the Steering Committee), may appoint one (1) or more Sub-Teams to
         perform such functions as the Steering Committee or Working Team,
         respectively, may determine necessary or useful. Unless a Party elects
         not to participate on a particular Sub-Team, all such Sub-Teams shall
         have at least one (1) representative of each Party. Such Sub-Teams may
         provide advice and make written recommendations to the Steering
         Committee or Working Team, but shall have no authority to bind the
         Steering Committee, Working Team or either of the Parties.

2.5      Product Development Plan. As provided in Section 2.3, the Working Team
         is responsible for the preparation, modification (if appropriate) and
         implementation of a detailed development plan (the "Product Development
         Plan") that fully addresses, consistent with the terms of this
         Agreement and consistent with the roles of the Parties under the

                                      -15-
<PAGE>

         Product Development Program as described in Section 3.1, the key
         elements reasonably necessary for the research, development,
         formulation, manufacture and clinical testing of Product through
         Regulatory Approval. The Product Development Plan for the initial
         Product shall include at a minimum a formulation that will meet the
         needs of the Parties from a scientific and business perspective
         including, but not limited to, the following critieria: the formulation
         (a) is stable, (b) can deliver the required amount of insulin (i.e. an
         average patient dose) in [**] , and (c) has been subject to appropriate
         validation studies. The Product Development Plan shall establish
         comprehensive and detailed plans designed to accomplish the goals of
         the Product Development Program and fully address (1) the development
         efforts necessary to be employed by Generex and Lilly, respectively, to
         complete the development of Product(s) in the Field, (2) the
         appropriate strategy for development of Product, and (3) the
         responsibilities and procedures for handling any and all regulatory
         issues related to Product, Generex Formulation including the Device
         including any and all regulatory issues related to Compound resulting
         from the use of such Compound in the Product and Device. The Parties
         shall mutually agree upon an initial Product Development Plan within
         thirty (30) days after the Effective Date of this Agreement or later if
         mutually agreed upon by the Parties and such Product Development Plan
         shall be attached to this Agreement as Exhibit D and including any
         subsequent updates and modifications. Any Product Development Plan
         developed following signing of this Agreement must be approved by the
         Steering Committee. Modifications to the Product Development Plan may
         be made by written agreement of the Working Team and shall be presented
         to the Steering Committee for consideration. Such modifications shall
         not be implemented unless approved by the Steering Committee.

2.6      Disagreements. Disputes not resolved by the Working Team shall be
         referred to the Steering Committee. Disputes not resolved by the
         Steering Committee shall be resolved in accordance with Section 2.2(e).

2.7      Governance Following Product Launch. As soon as practical following
         launch of a Product in a Major Market, the Parties shall meet to review
         whether it is appropriate to continue the Product Development Program
         for that Product under the day-to-day management of the Working Team
         for that Product, or whether the objectives of the Working Team have
         been substantially achieved and it is appropriate to disband or
         reorganize the Working Team. Regardless of whether the Parties elect to
         disband or reorganize the Working Team, the Steering Committee shall
         continue to provide overall direction to the Product Development
         Program for that Product.

2.8      Quarterly Status Report. During the Product Development Program, each
         Party shall provide the Steering Committee with a quarterly status
         report within fifteen (15) days after the end of each Calendar Quarter
         that generally summarizes research and development efforts conducted by
         such Party under the Product Development Program or with regard to any
         research on the Product during such Calendar Quarter. Such report shall

                                      -16-
<PAGE>

         include, without limitation, a general summary of important events
         and/or milestones achieved, personnel changes, learning points and
         other matters that the Steering Committee may deem appropriate.

2.9      Subcontracting Permitted. The Parties acknowledge and agree that
         portions of the work involved in the Product Development Program may be
         performed on behalf of the Party responsible for work thereunder by
         Third Persons provided that (a) the Working Team shall have previously
         obtained approval to use such Third Person from the Steering Committee,
         (b) the subcontracting Party shall first have obtained a written
         confidentiality agreement with the subcontractor and written obligation
         to assign all rights including any patent rights and Know-How that such
         subcontractor may develop by reason of work performed under this
         Agreement, and (c) the work which the subcontracting Party desires to
         subcontract is required to be performed according to appropriate
         quality standards (i.e., cGLPs, cGMPs or QSRs).

2.10     Miscellaneous.

         (a)      Meetings of the Working Team and any other team can be
                  conducted by telephone, if each Party so agrees.

         (b)      Each Party shall have reasonable access on an informal basis
                  to employees and agents of the other Party assigned to work on
                  the Product Development Program.

         (c)      The Steering Committee, at its discretion, may review the
                  qualifications of the employees and agents assigned to the
                  Product Development Program to determine whether such
                  personnel are reasonably qualified to perform the work
                  assigned to them.

2.11     Remaining Compound. Upon Lilly's written request, Generex will return
         or immediately destroy (as designated by Lilly) any Compound remaining
         upon completion of the Product Development Program.

                                    ARTICLE 3
                           PRODUCT DEVELOPMENT PROGRAM

3.1      Commencement and Roles. Upon commencement of the Product Development
         Program, the Parties shall have certain roles and responsibilities as
         detailed in this Agreement. Although each of the Parties has been given
         principal responsibility for certain activities, all significant
         decisions with respect to such activities (other than those relating to
         regulatory strategy and commercialization of Product which shall be the
         sole responsibility of Lilly) shall be made under the purview of the
         Working Team and Steering Committee. The Parties shall provide the

                                      -17-
<PAGE>

         Steering Committee and the Working Team with quarterly status reports
         summarizing their efforts under this Agreement, as described in Section
         2.8.

         (a)      Generex's Role. As of the Effective Date and subject to the
                  terms herein, and in accordance with Lilly's role as described
                  in Section 3.1(b), Lilly shall commence and carry out all
                  aspects of research and development necessary to establish
                  that the Generex Formulation is substantially suitable to
                  develop and commercialize. In the event that Lilly decides (1)
                  that the Generex Formulation is not suitable to develop and
                  commericalize without making changes or improvements that are
                  necessary to obtain Regulatory Approval or to successfully
                  commercialize, and (2) that such changes or improvements are
                  due to reasons other than the characteristics of the Compound
                  (i.e., the changes or improvements relate to the Generex
                  Formulation including the Device used to administer the
                  Formulation), then Generex shall be solely responsible for
                  making such changes or improvements including all costs and
                  expenses and further compensation related thereto (excluding
                  reasonable quantities of insulin with reasonable notice) and,
                  therefore, shall not be entitled to any compensation or
                  reimbursement from Lilly for implementing such changes and
                  improvements under this Agreement until such time as the
                  changed or improved Generex Formulation is suitable to develop
                  and commercialize under this Agreement.

                                      -18-
<PAGE>
                           In addition and in accordance with the initial
                  Product Development Plan and Lilly's approval, Generex shall
                  assume full responsibility for the clinical protocols to be
                  developed pursuant to and in support of such applications for
                  the initial Product in Canada, including all aspects of
                  clinical development necessary to obtain Regulatory Approval
                  of the Generex Formulation in Canada and including any costs
                  associated with preclinical, pharmacology, ADME and
                  toxicology, CM&C and the clinical package in Canada (except
                  the cost of insulin provided to Generex pursuant to this
                  Agreement), with the understanding that such clinical
                  development shall be integrated with Lilly clinical
                  development in the rest of the world. Such development by
                  Generex in Canada shall be subject to approval and oversight
                  of the Steering Committee as well as Lilly's approval.

                           In addition, Generex shall be responsible for
                  obtaining the Device and components of the Device including,
                  but not limited to, entering into and abiding by any
                  agreements related thereto, any regulatory approvals necessary
                  specific to the Device, with the exception that any Regulatory
                  Approval necessary with respect to the Device or components
                  thereof shall be integrated into the Product Development Plan
                  and subject to the approval and oversight of the Steering
                  Committee.

         (b)      Lilly's Role. As of the Effective Date and subject to the
                  terms herein, Lilly shall be responsible for all aspects of
                  research and development necessary to establish that the
                  Generex Formulation is substantially suitable to develop and
                  commercialize and all aspects of Toxicological and
                  Bioavailability studies and clinical development for Product
                  in accordance with the Product Development Plan.

                           Further, Lilly shall be solely responsible for
                  developing and filing all Regulatory Material for obtaining
                  Regulatory Approval in the Territory with the exception that
                  Generex shall file Regulatory Material for obtaining
                  Regulatory Approval for the initial Product in Canada. For
                  avoidance of any doubt, Lilly shall have full responsibility
                  and ownership for any application or notice to the FDA for a
                  product that is directed at the Product. Lilly shall have
                  responsibility for conducting clinical trials, obtaining and
                  maintaining (including, without limitation, satisfying
                  regulatory reporting obligations) all necessary Regulatory
                  Approvals required to conduct the activities contemplated by
                  this Agreement and to commercialize Product. Lilly, or its
                  subcontractors, shall hold legal title to any and all
                  Regulatory Approvals, including any IND and NDA filed with
                  FDA, as well as any equivalents of such items in countries
                  within the Territory except in the instance of the initial
                  Product in Canada. Lilly shall assume full responsibility for
                  the clinical protocols to be developed pursuant to and in
                  support of such applications in the Territory except in the
                  instance of the initial Product in Canada.

                                      -19-
<PAGE>

3.2      Funding of Product Development Program. Subject to Section 3.1(a),
         Lilly will fund and resource all activities with Third Persons and
         within Lilly including, but not limited to, medical, regulatory
         submissions, process and Product development, toxicology, and other
         chemistry, manufacturing, and control work up to a cost and expense of
         [**] U.S. Dollars (US$ [**] ) for the initial Product. Generex shall be
         responsible for (a) any costs and expenses related to research and
         development that Generex elects to perform on its own, and (b) any
         costs and expenses in excess of [**] U.S. Dollars (US$ [**] ) related
         to the research and development, including clinical development, of the
         initial Product carried out under the Product Development Program to
         the extent that such costs and expenses are approved by both Parties.
         Lilly shall pay [**] US Dollars (US$ [**] ) to Generex as reimbursement
         for Generex's activities under the Product Development Program in
         Canada provided that Generex's activities in Canada satisfy the
         following critieria: (1) Regulatory Approval of the initial Product
         shall be achieved by June 30, 2003, (2) the initial Product can deliver
         the required amount of insulin (i.e. an average patient dose) [**] ,
         and (3) the Regulatory Material is sufficient to include in a global
         submission package for the initial Product. In support of Generex's
         activities in Canada, Lilly shall supply up to [**] of insulin. Lilly
         shall supply insulin in excess of [**] at its sole discretion.

3.3      Funding of Subsequent Compound Product Development Programs. The cost
         sharing arrangement as set forth in Section 3.2 shall apply with
         respect to Lilly's development of any subsequent Compound Product
         pursued by Lilly under this Agreement.

3.4      Transfer of Generex Know-How. As soon as reasonably practicable and to
         the extent reasonably necessary or useful to facilitate Lilly's
         furtherance of its responsibilities under the Product Development
         Program, Generex shall furnish all Generex Know-How to Lilly that is
         pertinent to the research and development of the Generex Formulation
         including, without limitation, transferring possession and legal
         ownership to all appropriate Regulatory Materials, if any, and shall
         cause any subcontractor used by Generex to provide services hereunder
         to transfer possession and legal ownership to all appropriate
         Regulatory Materials, except for legal title to the DMFs (as defined in
         Section 4.1), if any, which shall be handled in accordance with Section
         4.1 of this Agreement.

3.5      Supply of Compound and Product.

         (a)      Compound Supply to Generex for Development of Product. To
                  assist Generex in carrying out its responsibilities (1) for
                  conducting clinical trials in Canada and (2) for establishing
                  Generex' capability of supplying Product to Lilly as
                  contemplated in Section 7.1, Lilly shall supply, at no cost,
                  to Generex such quantities of Compound as Generex reasonably
                  needs for such development under and in accordance with the

                                      -20-
<PAGE>

                  Product Development Plan up to a maximum of [**] of insulin.
                  Lilly shall not supply insulin in excess of [**] without prior
                  written approval from Lilly. Generex understands and
                  acknowledges that Lilly classifies Compound as a substance
                  that could be abused and that Lilly will require that Generex
                  meet appropriate drug security and accountability systems
                  requirements before any Compound will be supplied to guard
                  against material diversion. Lilly will have the right to audit
                  these systems. Generex shall be solely responsible for
                  unreasonable wastage, loss or other damage to Compound that
                  exceeds a certain wastage limit to be negotiated under the
                  Manufacturing Agreement or is due to Generex's negligence,
                  misconduct or noncompliance with the Product Development Plan
                  (i.e. Wasted Compound) that would render such Compound
                  unusable under the Product Development Plan. Generex shall
                  promptly reimburse Lilly in an amount equal to Lilly's
                  standard cost per gram of any such Wasted Compound. Wasted
                  Compound costs incurred by Generex shall be specifically
                  excluded from Generex Fully Burdened Manufacturing Cost.

         (b)      Product Supply to Lilly Prior to Product Launch. If requested
                  by Lilly and to assist Lilly in carrying out its
                  responsibilities for developing Product(s) under the Product
                  Development Plan or for commercializing such Products, Generex
                  will provide Lilly with such quantities of Generex Formulation
                  or Product as Lilly reasonably needs to conduct the
                  development efforts thereunder including Generex Formulation
                  and Product required for pre-clinical and clinical trials,
                  together with (a) any materials in Generex' possession
                  necessary to conduct such development efforts, and (b) any
                  information and documentation on such Products required by
                  regulatory authorities. All material supplied to Lilly under
                  this Section 3.5(b) shall be in compliance with all applicable
                  cGMP's, regulatory requirements and quality standards. Under
                  Article 7, Lilly may also be selected to supply itself with
                  such Product for development and/or commercialization. In the
                  event that Lilly is selected to supply such Product, Generex
                  shall provide Lilly with all information necessary to make and
                  use the Generex Formulation including the Device. Lilly hereby
                  agrees to compensate Generex for its costs, [**] , to produce
                  and supply such Product under this Section 3.5 in accordance
                  with Section 7.1 of this Agreement. For avoidance of any
                  doubt, except for the compensation set forth in this sentence
                  for the supply and production of such Product, Generex shall
                  not be entitled to any further compensation for such supply
                  and production prior to Product Launch.

         (c)      Compound Supply to Generex for Sale. In the event that Lilly
                  chooses Generex as the supplier of Product in accordance with
                  Section 7.1, Lilly shall supply to Generex such quantities of
                  Compound as Generex reasonably needs to meet its Product
                  supply obligation upon terms to be set forth in the
                  Manufacturing Agreement described in Article 7.

                                      -21-
<PAGE>
                  Notwithstanding the foregoing, Generex shall be solely
                  responsible for Wasted Compound that occurs while in Generex's
                  possession that would render such Compound unusable for
                  Product supply and, therefore, Generex shall promptly
                  reimburse Lilly an amount equal to Lilly's standard cost per
                  gram of any such Wasted Compound. Wasted Compound costs
                  incurred by Generex shall be specifically excluded from
                  Generex Fully Burdened Manufacturing Cost.

                                    ARTICLE 4
                                   REGULATORY

4.1      Regulatory Filings. All regulatory strategies and filings shall be
         handled by Lilly, and Lilly shall be responsible for preparing, filing,
         and maintaining, and shall own, the Regulatory Material relating to
         Product as set forth below:

         (a)      Preparation, Maintenance and Ownership. Lilly, its
                  sub-licensees or Affiliates shall be responsible for the
                  registration strategies and preparation of any regulatory
                  filings and/or suitable applications required in order to
                  conduct clinical trials and achieve Regulatory Approval
                  (including, without limitation, achievement of marketing
                  approval) for Product and shall be the owner and party of
                  record for all such Regulatory Materials. Lilly shall have the
                  right to request that Generex take responsibility for
                  preparation of regulatory filing and/or suitable applications
                  required to conduct trials to obtain valid scientific evidence
                  to support a determination that there is reasonable assurance
                  that the Device is safe and effective for its conditions of
                  use and is approved for marketing. Lilly, its sub-licensees or
                  Affiliates shall, further, be responsible for managing all
                  interactions regarding such applications and/or regulatory
                  filings with all regulatory authorities in the Territory.
                  Generex shall cooperate with Lilly, as Lilly reasonably
                  requires in preparing such applications or in managing such
                  interactions with regulatory authorities. Lilly, its
                  sub-licensees or Affiliates shall determine those countries of
                  the Territory where marketing is intended. Upon reasonable
                  request to Lilly, Generex shall have a right of access to such
                  regulatory filings, as long as, Generex has contributed to
                  such filings and Lilly has a right to redact its Confidential
                  Information.

         (b)      Drug and Device Master Files. Generex shall own all of its
                  Device Master Files and Drug Master Files ("DMFs") and, for so
                  long as the licenses granted to Lilly hereunder remain in full
                  force and effect, hereby grants to Lilly a right of reference
                  to such DMFs. Furthermore, upon expiration of this Agreement,
                  Lilly shall retain its right of reference to such DMFs.
                  Generex also grants Lilly the right to obtain information
                  otherwise contained in Generex's DMFs for the sole purpose of
                  including such information in any Lilly regulatory submission

                                      -22-
<PAGE>

                  that is made to a regulatory authority in the Territory that
                  will not recognize or utilize Generex's DMFs, and which is
                  necessary to secure and/or maintain Regulatory Approval of the
                  Product in the particular country at issue.

                           In support of Generex's activities in Canada, Lilly
                  shall grant to Generex a right of reference to its NDA for
                  human insulin.

4.2      Quality Assurance Audit Request. Lilly, at its own expense, shall have
         the right to conduct quality assurance audits with respect to all
         facilities, operations, and laboratories where work under this
         Agreement is conducted by Generex (including, without limitation, work
         conducted by Generex related to the Product Development Plan) and to
         verify Generex's conformance with applicable cGMP, cGLP, cGCP, QSRs and
         other regulatory requirements including, without limitation, verifying
         appropriate inventory control and material accountability systems with
         respect to Compound. Such audits shall only be conducted upon
         reasonable notice during reasonable business hours. Generex shall make
         necessary changes as required by such audit based on an action plan
         agreed to by the Parties

4.3      Adverse Event Reporting. During the Product Development Program and
         thereafter, Lilly will report Adverse Events and Serious Adverse Events
         that occur during the development of Product to Generex and the
         relevant regulatory authorities promptly according to the applicable
         regulations. In addition, Generex will report to Lilly Adverse Events
         and Serious Adverse Events which occur during the development of the
         Product and, after Product launch, Generex will report to Lilly Serious
         Adverse Events and spontaneously reported Adverse Events of which it
         becomes aware and has the right to disclose, as such events relate to
         the use of Device for other products, within two (2) working days of
         Generex's initial receipt of such information, in order that Lilly can
         fulfill its obligations to the appropriate regulatory authorities.
         Finally, Generex will supply specially formatted safety information
         (Lilly will instruct Generex on the appropriate format) to Lilly upon
         request, with reasonable notice, in order that Lilly can comply with
         U.S. Food and Drug Administration requirements for annual reports and
         safety updates. Specific details of the types of report information and
         timing of event exchange will be identified in Exhibit G to this
         Agreement, which will be developed as required using the then current
         Lilly adverse reporting policies consistent with those policies of the
         relevant regulatory authority.

                                    ARTICLE 5
                               LICENSE AND OPTION

5.1      Exclusive License to Lilly Under Generex Rights. Generex hereby grants
         Lilly a sole and exclusive license in the Territory, with a right to
         sublicense consistent with the terms of this Agreement, under Generex
         Rights to make (subject to the terms and conditions of this Agreement

                                      -23-
<PAGE>

         and any agreement between the Parties for the supply of Products), use,
         sell, offer for sale and import the Products in the Field. Upon
         completion of the Royalty Period, Lilly shall have a fully paid up
         exclusive license in the Territory to the Generex Rights to make, use,
         sell, offer for sale and import Products in the Field. Lilly shall
         notify Generex if any sublicenses are granted to Third Persons, and
         upon Generex request, Lilly shall provide a copy of such agreement
         which may be appropriately redacted to protect confidential
         information.

5.2      Exclusive License to Lilly Under Program Rights. Generex shall grant to
         Lilly a sole and exclusive license, with the right to sublicense
         consistent with the terms of this Agreement, under Program Rights (to
         the extent that Generex has an interest in such Program Rights) to make
         (subject to the terms and conditions of this Agreement and any
         agreement between the Parties for the supply of Products), use, sell,
         offer for sale and import the Products in the Field.

5.3      Generex Rights under Generex Rights. Notwithstanding the foregoing
         exclusive license grants to Lilly under Generex Rights under Section
         5.1, Generex shall retain during the Product Development Program
         nonexclusive rights to Generex Rights but only to the extent useful or
         necessary to fulfill its obligations under the Product Development
         Program or for uses other than the buccal delivery of Compound(s).

5.4      Generex Rights under Program Rights. Notwithstanding the foregoing
         exclusive license grants to Lilly under Program Rights under Section
         5.2, Generex shall retain during the Product Development Program
         nonexclusive rights to Program Rights (to the extent that Generex has
         as interest in such Program Rights) but only to the extent useful or
         necessary to fulfill its obligations under the Product Development
         Program or for uses other than the buccal delivery of Compound(s).

5.5      Generex Rights under Lilly Rights. Nothing in the present Agreement is
         intended to give Generex any rights under any Lilly Rights.

5.6      Assistance. Generex shall promptly provide Lilly with all information
         included in Generex Rights, reasonably useful or necessary for Lilly to
         exploit the licenses granted in Section 5.1 and Section 5.2 of this
         Agreement. Moreover, Generex shall provide Lilly with reasonable
         technical assistance in connection with the disclosure and use of such
         information.

5.7      No Prior License. Generex represents and warrants that as of and prior
         to the Effective Date, it owns and Controls the Generex Rights it is
         transferring herein and it has not granted any license under Generex
         Rights to make, use, sell, offer to sell or import Product in the
         Field.

                                      -24-
<PAGE>

5.8      Right to Intellectual Property. The Parties agree that all rights and
         licenses granted under or pursuant to Section 5.1 and Section 5.2 of
         this Agreement are, and shall be deemed to be, for purposes of Section
         365(n) of the United States Bankruptcy Code, as such section may be
         amended, licenses to rights to "intellectual property" as defined in
         the Bankruptcy Code. The Parties agree that Lilly, as licensee of such
         rights, shall retain and may exercise all of its rights and elections
         under the Bankruptcy Code, including, without limitation, Section
         365(n).

5.9      Subsequent Compound Products. Lilly and Generex agree to pursue a
         minimum of three (3) additional Compound Products in the Field. The
         Parties agree that the selection of which Compounds will be developed
         shall be made solely at Lilly's discretion. In addition, the Parties
         agree that Lilly is under no obligation to pursue such other Compound
         Products until after (a) Initiation of Phase III Clinical Trials for
         the initial Product under this Agreement, and (b) Generex's platform
         technology is validated in terms of quality and standards (i.e. is
         commercially viable).

5.10     Lilly Option. Generex herein grants Lilly an option to obtain the
         exclusive right to research, develop and commercialize either one or
         both of the Option Compounds. Generex and Lilly shall negotiate in good
         faith an agreement to govern the development and commercialization of
         any Product(s) containing such Option Compounds(s).

5.11     Term of Option. The option granted in Section 5.10 shall expire [**]
         following the Initiation of Phase III Clinical Trials for the initial
         Product unless, within such period, Lilly gives Generex notice that it
         intends to exercise the option as to [**] Option Compounds. If Lilly
         gives such notice, the option shall be extended for an additional six
         (6) months from the original expiration date, and the Parties shall
         negotiate in good faith to reach a definitive agreement covering the
         research, development and/or commercialization of the Option
         Compound(s) specified in Lilly's notice (an "Option Compound
         Development Agreement"). If the parties do not enter into an Option
         Compound Development Agreement within eighteen (18) months following
         the initiation of Phase III Clinical Trials, then the option shall
         terminate. Notwithstanding anything to the contrary herein, the option
         shall terminate if and at such time as the Agreement is terminated.

                                    ARTICLE 6
                                COMMERCIALIZATION

6.1      Marketing and Commercialization. Subject to the terms described in this
         Agreement, Lilly shall have the sole right to obtain Regulatory
         Approval, market, sell, distribute and otherwise commercialize the
         Product in each country in the Territory as Lilly may deem appropriate.
         Lilly will be as diligent in commercialization of Product as with other

                                      -25-
<PAGE>

         Lilly products of similar probabilities of technical success and
         commercial potential. Lilly shall at its expense, control the marketing
         plans for Product in the Field, including but not limited to branding
         of Device and packaging materials with Lilly trademarks and logos.
         Lilly shall have the sole right to select the trademark(s) for the
         Products developed and commercialized under this Agreement. Lilly
         agrees to consider in good faith the usage of Oralin(TM)/Oralgen(TM)
         and any other existing Generex trademarks. In addition, Lilly agrees
         not to use the Generex trademarks with any product(s) without a written
         license from Generex.

6.2      Signing Fee and Up-front Fees. Lilly shall pay Generex the amount of
         one million U.S. Dollars (US$1,000,000.00) within thirty (30) days of
         the Effective Date of this Agreement. In the event that Lilly elects to
         develop more than one (1) Compound Product (the Parties have agreed
         that the initial Compound Product to be developed under this Agreement
         shall be Insulin Product), Lilly will pay an up-front fee of [**] U.S.
         Dollars (US$ [**] ) for each subsequent Compound Product that Lilly
         elects to develop in the Field under this Agreement, up to a total of
         [**] U.S. Dollars (US$ [**] ) [**] . Such up-front fees for subsequent
         Compound Products shall be paid within thirty (30) days after [**] on
         each subsequent Compound Product.

6.3      Royalties.

(a)      Royalties. Subject to the provisions of this Agreement, during the
         Royalty Period, Lilly (except to the extent previously paid by a
         sub-licensee thereof) shall pay Generex a royalty on Net Sales of
         Compound Product in the Territory sold by Lilly and/or it's
         sub-licensee, as applicable, as follows:

                  Annual Net Sales (USD/year)          Royalty Rate
                  -------------------------------------------------
                  0 to [**]                            [**]
                  [**]  to  [**]                       [**]
                  [**]  to  [**]                       [**]
                  [**]  to  [**]                       [**]
                  [**]  to  [**]                       [**]
                  [**]  to  [**]                       [**]
                  [**]  to  [**]                       [**]
                  over   [**]                          [**]

                           Royalties payable under this Section 6.3 will be
                  payable only once with respect to a particular sale of
                  Compound Product regardless of the number of patents that have
                  claims relating to such Compound Product. An example of
                  royalty calculation is set forth in Exhibit A.

                           Annual Net Sales are to be determined on a Compound
                  Product basis and sales of different Compound Products are not
                  to be aggregated.

                                      -26-
<PAGE>
                           Annual Net Sales tiers will be adjusted upward
                  annually on the anniversary date of this Agreement commencing
                  in the year after the Effective Date using the Consumer Price
                  Index for indexing [U.S. Bureau of Labor Statistics for all
                  urban consumers, U.S. city average (July 2000 equals 172.6 and
                  1982 to 1984 equals 100; Series CUUR0000SA0] to account for
                  inflation.

         (b)      Compulsory License. If, in any country, a Third Person obtains
                  a Compulsory License, then Lilly shall promptly notify
                  Generex. If the royalty rate payable by the grantee of the
                  Compulsory License is less than the then-current royalty rate
                  payable under this Agreement, then the royalty rate, payable
                  under this Agreement, shall be reduced to such lower rate in
                  the subject country for so long as sales are made pursuant to
                  the Compulsory License.

         (c)      Access to Third Person Rights. If, after the Effective Date,
                  access to a Third Person's intellectual property rights
                  becomes necessary or, in the mutual opinion of Generex and
                  Lilly, advantageous or reasonably useful to make, use, sell,
                  offer to sell and/or import a particular Product in the Field
                  in a particular country ("Third Person Rights"), Lilly shall
                  have the right to acquire access to the Third Person Rights
                  via license or otherwise. Upon such acquisition the following
                  circumstances shall apply provided that such Third Person
                  Rights relate to buccal delivery of Product and not to the
                  Compound, per se:

                  1.       Acquisition Cost. [**] percent ( [**] %) of the
                           acquisition cost paid by Lilly (i.e., [**] % of all
                           consideration paid by Lilly in connection with such
                           acquisition including, without limitation up-front
                           payments, milestones payments and royalties) for
                           access to Third Person Rights via license or
                           otherwise shall be credited against future royalties
                           owed to Generex by Lilly in respect of activities in
                           the subject country or countries for that particular
                           Product under this Agreement.

                  2.       Royalty Floor As a Result of Acquisitions. Except as
                           the Parties may otherwise agree in writing,
                           notwithstanding the foregoing, under no circumstance
                           shall Lilly acquisition of Third Person intellectual
                           property rights under the provisions of this Section
                           6.3(c) result in a reduction of royalties payable to
                           Generex under this Agreement by more than [**]
                           percent ( [**] %) of the then-current royalty rate.

                  3.       Exception for Intellectual Property Rights [**] . If
                           access to Intellectual Property Rights of [**] become
                           necessary to make, use, sell, offer for sale, and/or
                           import the Product in the Field [**] , then Generex

                                      -27-
<PAGE>

                           agrees to be fully responsible for all costs and
                           expenses associated with the use or acquisition of
                           such Intellectual Property Rights.

         (d)      Current Royalty Obligations (as of Effective Date).
                  Notwithstanding anything to the contrary in this Agreement
                  (including, without limitation, Section 6.3(c)), both Parties
                  acknowledge and hereby agree that each is solely responsible
                  for any and all royalty obligations that have accrued or may
                  accrue in the future with respect to any agreements and/or
                  arrangement that such Party may have agreed to prior to the
                  Effective Date.

         (e)      Royalty Payments. Lilly shall pay royalties owed under this
                  Section 6.3 as follows:

                  1.       Duration of Royalties Paid for Compound Products.
                           During the Royalty Period (such period being
                           determined for each Compound Product on an individual
                           Compound Product basis and country-by-country basis),
                           royalty payments hereunder shall be paid by Lilly to
                           Generex on Net Sales of each Compound Product for the
                           particular country and Compound Product at issue.

                                    Upon expiration of the Royalty Period, with
                           respect to a particular Compound Product in a
                           particular country, Lilly shall have a fully paid-up,
                           exclusive license under the Generex Rights and
                           Program Rights in such country at issue to make, use,
                           sell, offer to sell and import such Compound Product.

                  2.       Payment Terms. Annual Net Sales shall be calculated
                           on a Calendar Year basis. For partial years the
                           royalty tiers will be prorated based on the number of
                           days remaining in the year after initial launch that
                           the Product was actually sold divided by three
                           hundred sixty-five (365). Royalty payments due
                           Generex under this Section 6.3 will be paid by Lilly
                           for Net Sales made by Lilly not later than sixty (60)
                           days following the end of each Calendar Quarter
                           during the Royalty Period for Compound Product and
                           each such royalty payment shall be accompanied by a
                           report in writing showing the Calendar Quarter for
                           which such royalty payment applies on a
                           Product-by-Product basis, the amount of Net Sales
                           during such Calendar Quarter for which a royalty
                           payment is due on a country-by-country basis and the
                           total royalty payment due.

                                    Notwithstanding the foregoing, with respect
                           to any sublicensee sales of Product, Lilly shall
                           report its sublicensee's Net Sales to Generex (and
                           pay any royalties on same to Generex not previously
                           paid by Lilly's sublicensee) as of the next Calendar

                                      -28-
<PAGE>
                           Quarter payment from the time when Lilly receives
                           such information from its sublicensee. Lilly shall
                           require such information from its sublicensees not
                           less frequently than quarterly. Generex or its
                           representatives shall have the right to audit Lilly's
                           records with respect to such reports in accordance
                           with Section 8.2 of this Agreement.

6.4      Milestones. In addition to the royalty payments provided in Section 6.3
         and the signing fees in Section 6.2, Lilly shall make the following
         non-refundable milestone payments to Generex within thirty (30) days
         following the first occurrence of each of the following events:

                  [**]                                          US$ [**]

                  [**]                                          US$ [**]

                  [**]                                          US$ [**]

                  [**]                                          US$ [**]

                  [**]                                          US$ [**]
                  ------------------------------------------------------
                  Total Milestones per Compound Product         US$ [**]

                  Such milestone payments shall be made by Lilly to Generex only
         once per Compound Product regardless of how many times such
         milestone(s) is/are reached by the Parties during the term of this
         Agreement.

                  One hundred percent (100%) of all milestones paid for a
         Compound Product are creditable against future royalties for that
         Compound Product; however, such milestones shall not be credited
         against more than [**] percent ( [**] %) of the royalties otherwise
         payable to Generex in any Calendar Year, i.e., Lilly will continue to
         make payments on a quarterly basis and such payments will be reduced by
         [**] %. Milestones will apply to each Compound Product developed in the
         Field subject to the Failure Credit as defined in Section 6.5.

                  In the event that Compound Product launch occurs after receipt
         of marketing authorization by a regulatory authority in a Major Market
         and (for whatever reason) a previous milestone event has not occurred
         at such time (e.g., Phase III Clinical Trials are waived for
         compassionate purposes and Compound Product launch in a Major Market is
         approved immediately), then [**] notwithstanding anything to the
         contrary in this Agreement. Under no circumstance shall Lilly make
         aggregate milestone payments to Generex under this Agreement in excess
         of [**] U.S. Dollars (US$ [**] ) for a Compound Product.

                                      -29-

<PAGE>
6.5      Failure Credit. In the event that after reaching any of the milestones
         listed above, the development of a Compound Product is terminated, the
         milestones that have already been paid will be credited against future
         milestones (the "Failure Credit") that are applicable to a subsequent
         Product.

6.6      Currency of Payment/Exchange Rates. All payments to be made under this
         Agreement shall be made in U.S. Dollars. For those sales involving
         Product which occur outside the United States, the royalty due on such
         sales will be calculated on the basis of the local currency sales
         figures translated into U.S. Dollars according to Lilly's standard
         methodology. The methodology employed by Lilly shall be that
         methodology used by Lilly in the translation of its foreign currency
         operating results for external reporting and shall be consistent with
         United States GAAP.

6.7      Taxes. Any and all income or similar taxes levied on account of
         royalties or milestones accruing to Generex under this Article 6 shall
         be paid by Generex. If laws or regulations require withholding of
         taxes, such taxes will be deducted by Lilly or its sublicensee from
         such remittable royalties or milestones and will be paid by Lilly or
         its sublicensee to the proper taxing authority. Proof of each payment
         shall be sent to Generex within ninety (90) days following December
         31st of each reporting year.

6.8      Status of Generex Patent Rights. Within sixty (60) days (or a
         reasonable time period as approved by Lilly) after each Calendar
         Year-end, Generex shall provide Lilly with a report describing the
         status of the Generex Patent Rights. Such report shall include, at a
         minimum, the patent country, patent and application numbers, filing
         date, issue date, expiration date and any other relevant information
         title or an abstract of the patent or patent application. Such report
         shall be mailed to:

                      Eli Lilly and Company
                      Attention: Royalty Administration, D.C. 1058
                      Lilly Corporate Center
                      Indianapolis, IN  46285

                                    ARTICLE 7
                        SUPPLY OF FORMULATION AND DEVICES

7.1      Manufacturing Agreement. For purposes of this Article 7, the use of
         Product shall refer specifically to initial Product. If Generex is
         selected by the Parties to supply Product as set forth below, the
         Parties agree to enter into a Manufacturing Agreement between Lilly and
         Generex for Product. In order for Generex to be selected to manufacture
         and supply Product to Lilly, Generex must establish to both Parties
         that it can manufacture and supply Product having appropriate quality,
         cost and on time delivery relative to the quality, cost and delivery
         capability of Lilly or a Third Person to manufacture and supply the

                                      -30-
<PAGE>

         Product. In addition, Generex must establish that it can supply initial
         Product in compliance with all applicable cGMP's, regulatory
         requirements and quality standards. The Manufacturing Agreement shall
         include but not be limited to the terms and provisions as described in
         this Article 7.

         (a)      General and Purchase Price. If Generex establishes to the
                  satisfaction of the Steering Committee that Generex is able to
                  supply Product with appropriate quality, cost and on time
                  delivery relative to the delivery capability of Lilly or any
                  Third Person, Generex will be considered to be the exclusive
                  manufacturer of Product(s) and/or components thereof and as
                  such shall exclusively manufacture or have manufactured and
                  supply the same as required by Lilly as part of this
                  Agreement, subject to Section 7.1(d) and subject to this
                  Section 7.1(b). Prior to the Lilly Initiation of Phase III
                  Clinical Trials (with respect to supply of Product for
                  clinical trials), or sooner if agreed by Lilly and Generex,
                  Generex and Lilly shall then draft and agree in good faith
                  upon a Manufacturing Responsibilities Document (Exhibit B). In
                  addition, upon commencement of Phase III Clinical Trials, or
                  sooner if agreed by Lilly and Generex, the Parties shall
                  negotiate in good faith and enter into a manufacturing and
                  supply agreement (the "Manufacturing Agreement") consistent
                  with the terms provided in this Article 7 and such other terms
                  to be mutually agreed upon, including but not limited to,
                  provisions dealing with forecasting of Lilly's requirements
                  for Product, Generex's Compound requirements, rejection of
                  Product, standard late delivery penalties, environmental
                  assessment, recall of Product, inspection of Generex's
                  manufacturing facilities (and Lilly's right to participate in
                  such inspections of regulatory authorities), indemnification,
                  debarment, Generex's manufacturing efficiency (including,
                  without limitation, Compound wastage), Generex's obligation to
                  not discriminate against Lilly when allocating Devices among
                  multiple collaborative partners, Generex's obligation to
                  assist Lilly in tracking Compound supplied to Generex pursuant
                  to the provisions of Section 7.1(e), Generex's responsibility
                  for losses of bulk Compound which occur at Generex facilities,
                  Lilly's and Generex's responsibilities with respect to
                  compliance with global governmental regulations (e.g.,
                  regulatory and environmental). Such agreement shall be
                  executed by the Parties no later than the earliest of [**] ,
                  whereby Generex will be appointed as Lilly's exclusive
                  supplier of Product and components thereof subject to Section
                  7.1(b). In addition to the foregoing, such Manufacturing
                  Agreement shall contain terms and conditions customarily found
                  in agreements of that nature. Moreover, subject to Section
                  7.1(d), the purchase price Lilly shall pay Generex for Product
                  (packaged in bulk, labeled to at least the minimal legal
                  requirements for individual capsules and devices and delivered
                  to Lilly in Indianapolis or such other single U.S. location
                  Lilly chooses) shall be as provided in the following
                  paragraph.

                                      -31-
<PAGE>
                           After Product has been sold for [**] , Lilly shall be
                  entitled to a reduction in Product purchase price in an amount
                  equal to a Cost Saving Adjustment, and Generex shall be
                  entitled to a Cost Savings Adjustment as an incentive for
                  reducing manufacturing costs. The Cost Savings Adjustment
                  shall be calculated as follows: after such [**] of sales,
                  Generex shall determine the Generex Fully Burdened
                  Manufacturing Cost for Product at that time. Generex shall
                  promptly (and in no event later than thirty (30) days after
                  the expiration for such [**] period) provide Lilly with a
                  written statement setting forth a detailed description of all
                  categories of cost and the amounts of such costs used to
                  calculate such Fully Burdened Manufacturing Cost. Such Fully
                  Burdened Manufacturing Cost will be used as a baseline against
                  which future cost savings will be calculated ("Baseline"). If
                  Generex reduces the Fully Burdened Manufacturing to an amount
                  less than the Baseline, the Parties agree to share such cost
                  savings difference equally. The "Cost Savings Adjustment" will
                  be [**] percent ( [**] %) of the difference between Generex
                  Fully Burdened Manufacturing Cost achieved from time to time
                  after the Baseline has been established, and the Baseline.
                  Accordingly, until the Baseline is established, Lilly's cost
                  for Product for all markets shall be Generex Fully Burdened
                  Manufacturing Cost plus [**] percent ( [**] %) subject to
                  Section 7.1(d) of this Agreement. Conversely, after the
                  Baseline is established, Lilly's cost for Product for all
                  markets shall be computed as follows:

                  [**]

                  See Exhibit H for Cost Savings Adjustment Example.

                  In the event that there are no Cost Savings Adjustments, Lilly
                  shall pay Generex the Generex Fully Burdened Manufacturing
                  Cost plus [**] percent ( [**] %).

         (b)      Parallel Manufacturing Facility. Lilly shall have the right to
                  have parallel manufacturing facilities in place to protect the
                  quality, integrity and supply of Compound Product(s).

         (c)      Profit Cap. Generex profits resulting from Generex's supply to
                  Lilly of Product under the Manufacturing Agreement will be
                  capped at US$ [**] per [**] , not to exceed [**] percent (
                  [**] %) of Net Sales. The US$ [**] profit cap will be adjusted
                  annually on the anniversary date of initial Product Launch
                  using the Producer Price Index for indexing (Producer Price
                  Index for finished goods less food and energy in July of 2000
                  = 147.5 (WPUSOP3500), base date 1982 = 100) to account for
                  inflation. For the avoidance of any doubt, the Producer Price
                  Index at the time of initial Product Launch will be the basis

                                      -32-
<PAGE>

                  for such adjustment in profit cap, and the US$ [**] profit cap
                  shall be held constant up to and including the initial Product
                  Launch.

         (d)      Most Favored Partner. If Generex is selected to supply
                  Product, the Product and or components thereof shall be sold
                  by Generex to Lilly at prices no less favorable to Lilly than
                  those Generex offers to Third Persons for the supply of
                  comparable products and/or components thereof for comparable
                  volumes and terms excluding any cost savings that Generex
                  achieves as described in Section 7.1(a) of this Agreement. As
                  part of the Manufacturing Agreement between Lilly and Generex,
                  Lilly and Generex shall agree upon a mechanism to allow Lilly,
                  through a Third Person, to monitor Generex's compliance with
                  this clause.

         (e)      Failure to Supply. Should Generex ever fail to supply all of
                  Lilly's (as well as any sublicensee of Lilly's) needs for
                  Products to the extent Lilly has forecasted such needs or if
                  there is a Change in Control of Generex, Lilly may then either
                  by itself, and/or by utilizing the services of a Third Person,
                  manufacture and supply Products and/or components thereof
                  without any payment obligation to Generex except payments
                  under Sections 6.3 and 6.4. In such event, the following terms
                  shall apply:

                  1.       License Amendment. Lilly's license in Section 5.1 and
                           Section 5.2 shall be amended to include "make"
                           Product without restriction. Generex shall transfer
                           to Lilly all manufacturing documents, including,
                           without limitation, standard operating procedures,
                           manufacturing tickets, and quality control and
                           assurance documentation for manufacture of Product
                           and shall permit Lilly to have the right to reference
                           the DMFs and, if necessary, utilize any information
                           in the DMFs to manufacture, and obtain any regulatory
                           approval to manufacture Product.
                  2.       Transfer of or Access to Generex Know-How. If Lilly
                           chooses to, either by itself or by utilizing the
                           services of a Third Person, manufacture and supply
                           Products (and/or components thereof), Generex shall
                           transfer to, or otherwise grant satisfactory access
                           to, Lilly or such Third Person, as appropriate, any
                           Generex Know-How required in order to enable Lilly or
                           such Third Person to manufacture and supply such
                           items to Lilly and shall provide Lilly or such Third
                           Person, as appropriate, all reasonable assistance
                           required in order to accomplish such Third Person or
                           Lilly manufacture and supply. Generex shall, to the
                           extent that it has not already done so under other
                           provisions of this Agreement, also grant Lilly or
                           such Third Person any, as appropriate and as
                           designated by Lilly, royalty-free licenses with no
                           costs to Lilly (i.e., no milestones, fees or other
                           consideration to be paid by Lilly other than as
                           provided in this Agreement) to Generex Rights

                                      -33-
<PAGE>
                           necessary for Lilly or such Third Person to
                           manufacture and supply any of such items to Lilly.
                  3.       Fill Finish. Should Lilly (either by itself or by
                           utilizing the services of a Third Person) choose to
                           fill, package and supply Products to Lilly, Lilly may
                           choose to process such formulations required for such
                           Products itself, utilize services of a Third Person
                           in any processing required for such Products or may
                           use Generex for such processing (at a cost mutually
                           agreed upon by Generex and Lilly).
                  4.       Limitations on use of Generex Rights to Manufacture.
                           Should Lilly or any Third Person manufacture Product
                           or any component thereof pursuant to this Section
                           7.1(e), such Third Person or Lilly shall only be
                           entitled to utilize Generex Rights for the
                           manufacture of Product for Lilly (or any sublicense
                           of Lilly) and for no other purpose.
                  5.       Technology Transfer Costs. Should Lilly decide,
                           either by itself or by utilizing the services of a
                           Third Person, to manufacture Products and/or
                           components thereof pursuant to the provisions of this
                           section, Generex shall bear all reasonable costs
                           incurred by Generex related to any technology
                           transfer and manufacturing set-up by Generex
                           necessary to enable Lilly or such Third Person to
                           perform such manufacturing; however, Lilly shall bear
                           full responsibility for all costs incurred by Lilly
                           and all costs to the Third Person.

         (f)      Additional Manufacturing & Supply Agreement Terms. In addition
                  to negotiating the items described above in this Section 7.1,
                  as part of the Manufacturing Agreement between Lilly and
                  Generex, if Generex is selected to supply Product, the Parties
                  hereby agree to the following:

                  1.       Compound Supply. Lilly shall supply the amounts of
                           Compound, at no cost, reasonably required by Generex
                           to meet Generex's obligation to supply Product to
                           Lilly.
                  2.       Capital Expenditures. All capital expenditures
                           directly incurred in connection with Generex meeting
                           its supply obligation of Product to Lilly shall be
                           borne entirely by Generex. Such costs will be
                           capitalized and any portion thereof that is
                           specifically allocable to the manufacture of the
                           Product shall be ultimately incorporated into the
                           Generex Fully Burdened Manufacturing Cost through an
                           appropriate depreciation method consistent with
                           United States GAAP and Generex internal depreciation
                           methodology used for other products.
                  3.       Product Recall. Lilly, after consultation with
                           Generex, shall have the right and responsibility to
                           determine whether Product must or should be recalled.
                           Lilly shall also be responsible for managing the
                           recall and Generex will cooperate with Lilly as Lilly

                                      -34-
<PAGE>

                           may reasonably request. Generex shall be responsible
                           for all costs incurred due to a recall that is the
                           result of the manufacture of the Product by Generex
                           (a "Manufacture Related Recall"). Notwithstanding the
                           foregoing, under no circumstance shall the obligation
                           of Generex under this Section 7.1(e)(3) exceed the
                           total payments made to Generex by Lilly in any given
                           twelve (12) month period from the date of such recall
                           including, without limitation, milestones, royalties
                           and manufacturing compensation. Further, it is
                           understood that Generex shall not be responsible for
                           the cost associated with the cost of Compound that is
                           recalled in a Manufacture Related Recall; however,
                           Generex will be responsible for the cost associated
                           with reprocessing any affected Compound or new
                           Compound to the extent of such recall at no cost to
                           Lilly. Product recall costs incurred by Generex in a
                           Manufacture Related Recall shall be specifically
                           excluded from Generex Fully Burdened Manufacturing
                           Cost. Lilly shall bear the costs of any Product
                           recall that is not a Manufacture Related Recall.
                  4.       Disaster Recovery Plan. Generex shall have in place
                           an appropriate disaster recovery plan to handle in an
                           efficient and effective manner any unexpected events
                           that may occur in manufacturing Product.
                  5.       Wasted Compound. Generex shall be solely responsible
                           for any wastage, loss or other damage to Compound
                           that would render such Compound unusable for
                           manufacturing into Product that either exceeds a
                           certain wastage limit to be negotiated under the
                           Manufacturing Agreement or that was caused due to
                           Generex's negligence, misconduct or noncompliance
                           with the Manufacturing Agreement (i.e. Wasted
                           Compound") and, therefore, Generex shall promptly
                           reimburse Lilly for any such Wasted Compound an
                           amount to be determined as part of the Manufacturing
                           Agreement. Wasted Compound costs incurred by Generex
                           shall be specifically excluded from Generex Fully
                           Burdened Manufacturing Cost. Notwithstanding any
                           other provision in this Section, Lilly shall be
                           solely responsible for any Wasted Compound cost
                           resulting from Lilly negligence, misconduct or
                           noncompliance with the Manufacturing Agreement.
                  6.       Subcontracting by Generex. To ensure that the quality
                           of Product (and/or major components thereof) is
                           maintained, the Parties agree that any subcontracting
                           of the manufacture of Product (and/or major
                           components thereof) by Generex is only permissible
                           provided such subcontract and business terms related
                           thereto is first approved in writing by the Parties.
                           Furthermore, in connection with any subcontracting of
                           manufacturing rights by Generex to a Third Person,
                           such subcontractor shall be required to perform all
                           subcontracted work in accordance with, and in

                                      -35-
<PAGE>

                           facilities that meet, cGLPs, cGMPs or QSRs to the
                           extent applicable.

7.2      Packaging. Unless otherwise negotiated between Generex and Lilly
         pursuant to the Manufacturing Agreement, if Generex is selected to
         supply Product, Generex shall supply Lilly with Product, labeled to at
         least the minimal legal requirements for individual Devices and
         delivered to Lilly in Indianapolis or such other single United States
         location Lilly chooses. Lilly may have Generex deliver Product and/or
         components thereof to multiple sites, both in the United States and
         countries outside the United States, or to sites located in countries
         outside the United States so long as Lilly pays the cost of any
         incremental shipping costs required to ship Products to sites other
         than Indianapolis or the other single United States location selected
         by Lilly. Lilly shall be responsible for developing any further
         packaging and labeling required for such Products. If Generex so
         requests, and to the extent allowable by law, Lilly will identify, in
         packaging and package inserts for Products developed under this
         Agreement, Generex as the licensor and/or manufacturer of such
         Products.

                                    ARTICLE 8
                            RECORD-KEEPING AND AUDITS

8.1      Records Retention. The Parties shall keep complete and accurate records
         pertaining to the development, use and sale of Products in sufficient
         detail to permit the other Party to confirm, in the case of Generex,
         its research and development efforts hereunder, and in the case of
         Lilly, its research, development and commercialization efforts and the
         accuracy of calculations of all payments due hereunder. For those
         records pertaining to Lilly's commercialization efforts or to the
         accuracy of calculations for any payment due hereunder, such records
         shall be maintained for a minimum of two (2) year period following the
         year in which any such efforts or payments were made hereunder. For
         those records pertaining to Generex's research and development efforts
         hereunder or Lilly's development efforts, such records shall be
         maintained for a period consistent with confidentiality in Article 14.
         Notwithstanding the foregoing, for those records pertaining to
         regulatory filings and other regulatory commitments (e.g.,
         manufacturing tickets, manufacturing procedures, etc.), such records
         shall be held for such period as is mutually agreed upon between the
         Parties in writing that is reasonably necessary to comply with
         regulatory requirements.

8.2      Audit Request. Each of the Parties shall have the right to request an
         audit of such records, at its own expense and on an annual basis, to
         determine, with respect to any of the two (2) preceding Calendar Years,
         the correctness of any report or payment made under this Agreement. If
         a Party desires to audit such records, it shall utilize an independent,
         certified public accountant (including, if the Party so determines, the
         accountant of the other Party), to examine financial records and may
         utilize an independent scientist reasonably acceptable to the other

                                      -36-
<PAGE>
         Party to audit scientific records. Such accountant/scientist shall be
         instructed to provide the Party desiring the audit a report on the
         findings of the agreed upon procedures which verifies any previous
         report made, payment submitted, or work performed by the audited Party
         during such period. The expense of such audit shall be borne by the
         auditing Party; provided, however, that if an error in favor of the
         auditing Party of more than ten percent (10%) is discovered, then such
         expenses shall be paid by the audited Party. Any Information received
         by a Party pursuant to this Section 8.2 shall be deemed to be
         Confidential Information hereunder.

8.3      Survival. This Article 8 shall survive any termination of this
         Agreement for a period of two (2) years.

                                    ARTICLE 9
                          PROGRAM INTELLECTUAL PROPERTY

9.1      Ownership of Program Know-How. Any and all Program Know-How shall be
         jointly owned by the Parties.

9.2      Notification of Program Know-How. Upon the discovery, generation or
         development of any particular Program Know-How, the Party so
         discovering, generating or developing such Program Know-How shall
         promptly disclose to the other Party the particular Program Know-How at
         issue. In addition, each Party shall inform the other Party promptly
         upon any decision to file a patent application that discloses or claims
         any invention directed at Program Know-How no later than the filing
         date of such application. Inventorship shall be mutually determined by
         the Parties after the Parties have had a reasonable opportunity to
         review and discuss the particular invention.

9.3      Ownership of Program Patent Rights. Ownership of Program Patent Rights)
         shall be assigned to the Parties in accordance with the United States
         laws of inventorship. Specifically, patents that claim inventions that
         were invented solely by one Party's employees including any persons
         working on the Program under that Party's direction where such persons
         have an obligation to assign inventions to that Party ("Sole
         Invention") shall be assigned solely to that Party. Patents relating to
         Program Know-How invented jointly by employees of both Parties,
         including any persons working on the Program under a Party's direction
         where such persons have an obligation to assign inventions to that
         Party ("Joint Invention"), shall be assigned jointly to both Parties.

9.4      Patent Filing and Prosecution. Each Party will prepare, file, and
         prosecute patent applications and maintain patents that Cover
         inventions for its Sole Inventions and shall be responsible for related
         interference proceedings and opposition proceedings. Each Party will
         endeavor to file and prosecute patent applications that contain valid
         claims which the Parties in good faith believe to be patentable, and

                                      -37-
<PAGE>

         which, if issued would be Valid Claims that Cover the Product(s). In
         addition, the Parties will ensure that such patent applications are
         filed before any public use or public disclosure by either Party in
         order to maintain the validity of patent applications filed outside of
         the United States. The Parties will also ensure that any patent
         applications filed in the United States are filed within one (1) year
         after any publication, offer for sale or commercial use of such
         invention. Each Party shall cooperate with the other in preparing,
         filing and prosecuting any patent applications relating to Program
         Patents. Each Party shall also cooperate with the other in executing
         and delivering any instrument required to assign, convey or transfer to
         such other Party its interest should such assignment, conveyance or
         transfer be required by the terms of this Agreement. At least thirty
         (30) days prior to the contemplated filing date, each Party shall
         submit to the other a substantially complete draft of any patent
         application for Sole Inventions arising under this Agreement and will
         make every reasonable effort to adopt the other Party's suggestions
         regarding such draft. Furthermore, each Party will confer with the
         other, and make every reasonable effort to adopt the other Party's
         suggestions regarding the prosecution of such patent applications of
         Sole Inventions and will copy the other Party with any official actions
         and submissions in such patent applications.

9.5      Patent Costs. Each Party shall bear [**] percent ( [**] %) of all costs
         associated with the preparation, filing, prosecution and maintenance of
         all their respective Sole Inventions including the costs associated
         with related interference proceedings and opposition proceedings;
         however, Lilly shall bear [**] percent ( [**] %) of all costs
         associated with any Program Patent Rights that contain or result in a
         claim that is necessary or useful in the Field.

9.6      Discontinuance of Patent Coverage. Should either Party not wish to file
         or prosecute any patent application, or issue or maintain any patent
         within (a) their Program Patent Rights as determined according to
         Section 9.3, or (b) the Generex Patent Rights, in any particular
         country, that Party will so notify the other Party of its intentions
         ("Discontinuance Election"). Upon receipt of such Discontinuance
         Election, the other Party may elect to have the right to file,
         prosecute, maintain or issue such patent application or patent at its
         own expense by providing written notice of the same within thirty (30)
         days of its receipt of the Discontinuance Election. Upon such election:
         (i) the discontinuing Party shall grant the other Party any necessary
         authority to file, prosecute, issue and maintain such patent
         application and/or patent; and (ii) shall assign such patent
         application or patent to the other Party. Until such assignment is
         complete, the discontinuing Party shall take reasonable efforts to
         maintain or otherwise ensure that patent protection will not be lost
         with respect to such patent application and/or patent provided the
         other Party does not unreasonably delay the assignment thereof.
         Finally, upon any such assignment by Generex, the patent and/or patent
         application at issue shall no longer be considered a Generex Patent
         Right. Any such transfer shall be without charge by the transferor but
         at the expense of the transferee.

                                      -38-
<PAGE>

9.7      Notice of Certification. Generex and Lilly each shall immediately give
         notice to the other of any certification filed under the U.S. "Drug
         Price Competition and Patent Term Restoration Act of 1984" claiming
         that a patent under Generex Patent Rights or Lilly Patent Rights is
         invalid or that an infringement will not arise from the manufacture,
         use, import, offer for sale or sale of any Product by a Third Person.
         If Generex decides not to bring infringement proceedings against the
         entity making such a certification, Generex shall give notice to Lilly
         of its decision not to bring suit within twenty-one (21) days after
         receipt of notice of such certification. Lilly may then, but is not
         required to, bring suit against the party that filed the certification.
         Any suit by Lilly or Generex shall either be in the name of Lilly or in
         the name of Generex, or jointly by Lilly and Generex, as may be
         required by law. For this purpose, the Party not bringing suit shall
         execute such legal papers necessary for the prosecution of such suit as
         may be reasonably requested by the Party bringing suit.

9.8      Patent Term Extensions. The Parties shall cooperate with each other in
         gaining patent term extension wherever applicable to any patents
         including any Generex Patent Rights or Program Patents that contain a
         Valid Claim that Covers Product. The Party first eligible to seek
         extension of such patent shall have the right to do so; provided, the
         first Party shall consult with the other Party before making the
         election. If more than one patent is eligible for extension, the
         Steering Committee (with advice from appropriate patent counsel) shall
         agree upon a strategy that will maximize patent protection for the
         Product. All filings for such extensions and certificates shall be made
         by the Party to whom the patent is assigned, provided, however, that in
         the event that the Party to whom the patent is assigned elects not to
         file for an extension or supplementary protection certificate, such
         Party shall (i) inform the other Party of its intention not to file and
         (ii) grant the other Party the right to file for such extension or
         certificate.

                                   ARTICLE 10
                         REPRESENTATIONS AND WARRANTIES

10.1     Generex Representations. Generex hereby represents and warrants to
         Lilly as follows:

         (a)      Patents, Prior Art. Generex represents and warrants that, to
                  the best of Generex's belief, it has sufficient legal and/or
                  beneficial title under Generex Patent Rights and Generex
                  Know-How including any and all rights to the Generex
                  Formulation, including the Device, as is necessary to grant
                  the licenses contained herein.

                  1.       Third Persons. Generex represents and warrants that
                           it is not aware of any communications alleging that
                           it has violated or, by conducting its business as
                           currently proposed under this Agreement, would
                           violate any of the Intellectual Property Rights of

                                      -39-
<PAGE>
                           any Third Person other than [**] in carrying out its
                           responsibilities under this Agreement or in granting
                           the licenses under this Agreement.

                  2.       [**]. Generex represents and warrants, to the best of
                           Generex's belief, that there is no material
                           unauthorized use, infringement or misappropriation by
                           Generex of Intellectual Property Rights of [**] .
                           Specifically, Generex represents and warrants that,
                           to the bests of its knowledge, the Generex Patent
                           Rights, Generex Know-How and Generex Formulation [**]
                           .

         (b)      Freedom to Operate. Generex further represents and warrants
                  that, to the best of Generex's belief, the Generex Patent
                  Rights and Generex Know-How are sufficient rights to enable
                  the Parties to achieve the purposes of this Agreement and that
                  there are no Intellectual Property Rights owned or Controlled
                  by any Third Person that would be necessary for such purposes.

         (c)      Full Disclosure. Generex represents and warrants that it
                  believes that it has provided Lilly with all information that
                  Lilly has requested for deciding the merits of entering into
                  this Agreement and all information reasonably useful or
                  necessary to enable Lilly to make an informed decision
                  regarding entering into this Agreement including, without
                  limitation, all material information that potentially could
                  have an impact on this Agreement and/or any rights granted
                  hereunder. Such information includes, but is not limited to,
                  information related to the Generex Formulation including the
                  Device, any material details of how to make the Generex
                  Formulation including the Device, the changes that have been
                  made to the Formulation since beginning clinical trials,
                  [**].

         (d)      Product Quality. If Generex is selected to supply Product,
                  Generex hereby represents and warrants that:

                  1.       it will use diligent efforts to set in place any
                           applicable quality systems necessary for Lilly to
                           obtain appropriate ISO9000 series designation in the
                           U.S. and C.E. marking in Europe, for Devices, if
                           necessary, in accordance with the Product Development
                           Plan; and
                  2.       any Product manufactured by Generex hereunder shall:
                           (i) conform to the specifications for the Product in
                           effect at the time of delivery; (ii) not be
                           adulterated or misbranded within the meaning of the
                           U.S. Food, Drug and Cosmetic Act of 1938, as amended
                           from time to time, nor constitute an article that may
                           not be introduced into interstate commerce under the
                           provisions of Section 505 of said Act; (iii) conform
                           to the certificates of analysis supplied with the
                           shipment of the Product; (iv) meet applicable cGLPs,
                           cGMPs and QSRs and be manufactured in facilities that

                                      -40-
<PAGE>
                           meet applicable cGMPs and QSRs; and (v) be packaged
                           and shipped in accordance with mutually agreed to
                           procedures.

         (e)      Employee Obligations. Generex hereby represents and warrants
                  that all of its employees, officers and consultants who will
                  work on the Product Development Program have legal obligations
                  requiring, in the case of employees and officers, assignment
                  to Generex of all inventions made during the course of and as
                  a result of their association with Generex and obligating the
                  individual to maintain as confidential the Confidential
                  Information of Generex, as well as the Confidential
                  Information of a Third Person which Generex may receive.

         (f)      Compliance with Laws. Generex hereby represents and warrants
                  that in carrying out its work under the Product Development
                  Program such work will be carried out in compliance with any
                  applicable laws including, without limitation, federal, state,
                  or local laws, regulations, or guidelines governing the work
                  at the site where such work is being conducted. Moreover,
                  Generex represents and warrants that in connection with
                  carrying out its work under the Product Development Program,
                  as applicable based on the specific work to be conducted, it
                  will carry out such work under the Product Development Program
                  in accordance with current cGLP, cGCP, cGMP and QSRs.

         (g)      No Debarment. Generex hereby represents and warrants that it
                  will comply at all times with the provisions of the Generic
                  Drug Enforcement Act of 1992 and will upon request certify in
                  writing to Lilly that none of it, its employees, or any person
                  providing services to Generex in connection with the
                  collaboration contemplated by this Agreement have been
                  debarred under the provisions of such Act.

10.2     Lilly Representations. Lilly hereby represents and warrants to Generex
         as follows:

         (a)      Employee Obligations. Lilly hereby represents and warrants
                  that all of its employees, officers and consultants have legal
                  obligations requiring, in the case of employees and officers,
                  assignment to Lilly of all inventions made during the course
                  of and as a result of their association with Lilly and
                  obligating the individual to maintain as confidential the
                  confidential information of Lilly, as well as the confidential
                  information of a Third Person which Lilly may receive.

         (b)      Compliance with Laws. Lilly hereby represents and warrants
                  that in carrying out its work under the Product Development
                  Program such work shall be carried out in compliance with any
                  applicable laws including, without limitation, federal, state,
                  or local laws, regulations, or guidelines governing the work
                  at the site where such work is being conducted. Moreover,

                                      -41-
<PAGE>
                  Lilly represents and warrants that in connection with carrying
                  out its work under the Product Development Program, as
                  applicable based on the specific work to be conducted, it will
                  carry out such work under the Product Development Program in
                  accordance with current cGLP, cGCP, cGMP.

         (c)      No Debarment. Lilly hereby represents and warrants that it
                  will comply at all times with the provisions of the Generic
                  Drug Enforcement Act of 1992 and will upon request certify in
                  writing to Generex that none of it, its employees, or any
                  person providing services to Lilly in connection with the
                  collaboration contemplated by this Agreement have been
                  debarred under the provisions of such Act.

                                   ARTICLE 11
                       INFRINGEMENT OF THIRD PERSON RIGHTS

11.1     Notice. If the research, development, manufacture, use, sale, offer for
         sale or importation of a Product results in a claim for patent
         infringement, the Party to this Agreement first having notice shall
         promptly notify the other Party in writing. The notice shall set forth
         the facts of the claim in reasonable detail.

11.2     Litigation Involving Product. Lilly shall defend against any such Third
         Person claim of infringement involving the manufacture, use, sale,
         offer for sale or importation of a Product. Generex shall cooperate
         with Lilly at Lilly's request in such defense and shall have the right
         to be represented by counsel of its own choice at Generex's expense. If
         Lilly is required by a final court order or a settlement entered into
         in good faith to make payments (including royalty payments on future
         Net Sales of Products by Lilly) to a Third Person in connection with
         the disposition of such claim, Lilly shall make all such payments,
         which shall be deemed a cost associated with the acquisition of
         intellectual property as described in Section 6.3(c) and, therefore
         shall be creditable against royalties in accordance with and subject to
         the provisions of Section 6.3(c) of this Agreement.

                                      -42-

<PAGE>
                                   ARTICLE 12
                          INFRINGEMENT BY THIRD PERSONS

12.1     Notice. If any Generex Right that involves Product is infringed and/or
         misappropriated by a Third Person, the Party first having knowledge of
         such infringement/misappropriation shall promptly notify the other in
         writing. The notice shall set forth the facts of such infringement
         and/or misappropriation in reasonable detail.

12.2     Prosecution of Actions Involving Product.

         (a)      Lilly shall have the primary right, but not the obligation, to
                  institute, prosecute and control any action or proceeding with
                  respect to any infringement/misappropriation of any of the
                  Generex Rights arising from the use thereof and involving
                  Product, by counsel of its own choice. Generex shall cooperate
                  with Lilly at Lilly's request in the prosecution of such
                  action or proceeding. If Lilly reasonably determines that
                  Generex is an indispensable party to the action, Generex
                  hereby consents to be joined. In such event, Generex shall
                  have the right to be represented in that action by counsel of
                  its own choice and at Generex's expense.

         (b)      If Lilly fails to bring an action or proceeding within a
                  period of ninety (90) days after receiving written notice from
                  Generex or otherwise having knowledge of that
                  infringement/misappropriation of Generex Rights involving
                  Product, as described in Section 12.2(a) of this Agreement,
                  Generex shall have the right to bring and control any such
                  action by counsel of its own choice and expense. If Generex
                  reasonably determines that Lilly is an indispensable party to
                  the action, Lilly hereby consents to be joined. In such event,
                  Lilly shall have the right to be represented in that action by
                  counsel of its own choice and at Lilly's expense.

         (c)      No settlement, consent judgment or other voluntary final
                  disposition of a suit under this Section 12.2 may be entered
                  into without the joint consent of Lilly and Generex (which
                  consent shall not be unreasonably withheld).

         (d)      If Lilly brings action, any damages or other monetary awards
                  recovered by Lilly attributable to sales of Products, shall be
                  applied first to defray the reasonable costs and expenses
                  incurred in the action by both Parties. If any balance
                  remains, Lilly shall pay Generex an amount equal to [**] of
                  such remaining balance.

         (e)      If Lilly fails to bring action and Generex brings action, any
                  damages or other monetary awards recovered by Generex
                  attributable to sales of Product derived therefrom, shall be
                  applied first to defray the reasonable costs and expenses
                  incurred in the action by both Parties. If any balance

                                      -43-
<PAGE>
                  remains, Generex shall first retain an amount equal to [**] of
                  such balance, then any remaining balance would be paid to
                  Lilly.

12.3     Infringement of Generex Rights Outside Field. In the event that any
         Generex Rights that have application outside the Field are infringed
         and/or misappropriated outside the Field by a Third Person, the Party
         first having knowledge of such infringement and/or misappropriation
         shall notify the other as set forth above and the Parties shall consult
         with each other as to how they should proceed, but each Party shall be
         free to pursue or protect its own respective interests to the extent it
         is legally entitled to do so. Generex hereby agrees to use commercially
         reasonable efforts to diligently enforce such Generex Rights that have
         application outside the Field provided that Generex shall not be
         required to initiate litigation in connection with said efforts.

                                      -44-
<PAGE>

                                   ARTICLE 13
                             MUTUAL INDEMNIFICATION

13.1     Responsibility and Control. Lilly and Generex shall each be solely
         responsible for the safety of its own employees, agents, licensees or
         sublicensees with respect to Product research and development,
         marketing, selling and detailing the Products, and each shall hold the
         other harmless with regard to any liability for damages or personal
         injuries resulting from acts of its respective employees, agents or
         Affiliates.

13.2     Generex's Right to Indemnification. Lilly shall indemnify each of
         Generex, its successors and assigns, and the directors, officers,
         employees, agents and counsel thereof (the "Generex Indemnitees"),
         defend and hold each Generex Indemnitee harmless from and against any
         and all liabilities, damages, losses, settlements, claims, actions,
         suits, penalties, fines, costs or expenses (including, without
         limitation reasonable attorneys' fees) (any of the foregoing,
         "Damages") incurred by or asserted against any Generex Indemnitee of
         whatever kind or nature, including, without limitation, any claim or
         liability based upon negligence, warranty, strict liability, violation
         of government regulation or infringement of patent or other proprietary
         rights, but only to the extent arising from or occurring as a result of
         a claim or demand made by a Third Person (a "Third Person Claim")
         against any Generex Indemnitee because of

         (a)      breach of any warranty made by Lilly pursuant to Article 10;
         (b)      the safety or dosage of the Product, unless attributable to an
                  item identified in Section 13.3 below which is under the
                  responsibility of Generex;
         (c)      the manufacture, processing, testing, packaging, sale or
                  promotion of any Product, or the establishment of
                  specifications for the manufacture, processing, testing, sale
                  or packaging of a Product by or on behalf of Lilly or its
                  sublicensees (except activities undertaken by Generex);
         (d)      the failure of Lilly to disclose any material or drug safety
                  information in Lilly's possession to Generex regarding any
                  Product;
         (e)      the labeling, warehousing, distribution or detailing of any
                  Product by or on behalf of Lilly or its sublicensees; or
         (f)      any breach of this Agreement by Lilly, except, in each such
                  case, to the extent that such Damages are finally determined
                  to have resulted from the negligence or misconduct of Generex
                  or an Affiliate of Generex.

                  Generex shall promptly notify Lilly of any Third Person Claim,
         upon becoming aware thereof, shall permit Lilly at Lilly's cost to
         defend against such Third Person Claim and to control the defense and
         disposition (including, without limitation, all decisions to litigate,
         settle or appeal) of such claim and shall cooperate in the defense
         thereof. Generex may, at its option and expense, have its own counsel
         participate in any proceeding that is under the direction of Lilly and
         shall cooperate with Lilly and its insurer in the disposition of any
         such matter.

                                      -45-
<PAGE>

13.3     Lilly's Right to Indemnification. Generex shall indemnify each of
         Lilly, its successors and assigns, and the directors, officers,
         employees, agents and counsel thereof (the "Lilly Indemnitees"), defend
         and hold each Lilly Indemnitee harmless from and against any and all
         Damages incurred by or asserted against any Lilly Indemnitee of
         whatever kind or nature, including, without limitation, any claim or
         liability based upon negligence, warranty, strict liability, violation
         of government regulation or infringement of patent or other proprietary
         rights, but only to the extent arising from or occurring as a result of
         a Third Person Claim against any Lilly Indemnitee because of

         (a)      breach of any warranty made by Generex pursuant to Article 10;
         (b)      the failure of Generex to manufacture, process, test or
                  package Product according to specifications, and the sale or
                  promotion of any Product by or on behalf of Generex (except
                  for activities undertaken by Lilly);
         (c)      the failure of Generex to disclose any material or drug safety
                  information in Generex's possession to Lilly regarding any
                  Product;
         (d)      the labeling, warehousing, distribution or detailing of a
                  Product by Generex; or
         (e)      any breach of this Agreement by Generex, except, in each such
                  case, to the extent that such Damages are finally determined
                  to have resulted from the negligence or misconduct of Lilly,
                  sublicensee of Lilly or an Affiliate of Lilly.

                  Lilly shall promptly notify Generex of any Third Person Claim,
         upon becoming aware thereof, and permit Generex at Generex's cost to
         defend against such Third Person Claim and to control the defense and
         disposition (including, without limitation, all decisions to litigate,
         settle or appeal) of such Third Person Claim and shall cooperate in the
         defense thereof. Lilly may, at its option and expense, have its own
         counsel participate in any proceeding that is under the direction of
         Generex and will cooperate with Generex or its insurer in the
         disposition of any such matter.

                                   ARTICLE 14
                        CONFIDENTIALITY AND PUBLICATIONS

14.1     Confidentiality. Unless otherwise set forth in this Agreement, for a
         period from the Effective Date until five (5) years following the later
         of: (a) the expiration or termination of this Agreement, or (b) if
         Lilly is marketing a Product, the date on which Lilly ceases to market
         any Product, Lilly and Generex shall maintain in confidence all
         Confidential Information disclosed by the other Party (the "Disclosing
         Party") or generated pursuant to a Product Development Plan, and shall
         not, except as contemplated by this Agreement, use such Confidential
         Information for its benefit or the benefit of others, without the
         written consent of the Disclosing Party. In addition, Lilly and Generex
         agree not to disclose any trade secret information belonging to the

                                      -46-
<PAGE>

         other Party for so long as the trade secret remains confidential.
         Documents made available to the receiving Party shall remain the
         property of the Disclosing Party and shall be returned upon written
         request, except that one copy of all such information may be retained
         for legal archival purposes by the receiving Party.

14.2     Publications. While it is understood that employees of Lilly and
         Generex at some point shall be free to publish the results of their
         studies carried out under this Agreement, each Party agrees that the
         Steering Committee will review and approve a disclosure policy to
         provide the Parties with guidance as to the content and timing of all
         disclosures. In addition, each Party shall provide the other Party the
         opportunity to review any proposed manuscripts that disclose research
         carried out under the Product Development Program at least sixty (60)
         days prior to their intended submission for disclosure and, upon
         request, shall delay submission for a period sufficient to permit
         adequate steps to be taken to seek patent protection for any patentable
         subject matter referred to therein. The disclosing Party shall avoid
         disclosure of any Confidential Information or trade secret information
         of the other Party. Each Party agrees to respond to requests for review
         within sixty (60) days of receipt. In the event the Parties disagree
         with respect to the nature of the disclosure to be made in a proposed
         disclosure, the Parties shall refer such disagreement to the Steering
         Committee for resolution. All publications shall give due credit to all
         individuals contributing to the developments described in the
         publication.

                  Notwithstanding the provisions of Section 14.1 hereof, Generex
         and Lilly may, to the extent necessary, disclose and use Confidential
         Information to secure patent protection for an invention developed as a
         result of the collaboration undertaken pursuant to this Agreement or to
         obtain institutional or government approval to clinically test or
         market any Product.

                                   ARTICLE 15
                                    PUBLICITY

15.1     Disclosure of Agreement. Neither Party to this Agreement may release
         any Confidential Information to any Third Person regarding the terms or
         existence of this Agreement without the prior written consent of the
         other Party. Without limitation, this prohibition applies to press
         releases, educational and scientific conferences, promotional
         materials, governmental filings and discussions with public officials
         and the media. However, this provision does not apply to any internal
         publications, disclosures regarding this Agreement or related
         information to regulatory agencies such as the FDA, Securities and
         Exchange Commission or Federal Trade Commission and/or Department of
         Justice which may be required by law, including requests for a copy of
         this Agreement or related information by tax authorities. If either
         Party to this Agreement determines a release of information regarding
         the existence or terms of this Agreement is required by law, that Party

                                      -47-
<PAGE>

         will notify the other Party as soon as practical and give as much
         detail as possible in relation to the disclosure required. The Parties
         will then cooperate with respect to determining what information will
         actually be released; notwithstanding, Lilly shall have the right to
         review and comment on all filings required by the SEC or other
         agencies. The Parties hereby agree to issue a press release upon
         complete execution of this Agreement. Such press release may reference
         insulin products and may state that the Device may be used for other
         products without specifically indicating which products. However, the
         press release on this Agreement shall not identify the Option
         Compounds. In addition, the press release shall not provide financial
         information. A copy of such press release is attached hereto as Exhibit
         C of this Agreement.

15.2     Cooperation on Hart-Scott-Rodino Filing and Approval. If in the
         reasonable opinion of either or both Parties, filing under the HSR Act
         is required, then as soon as reasonably practicable after the date that
         both Parties have executed this Agreement, both Lilly and Generex will
         file with the Federal Trade Commission ("FTC") and the Antitrust
         Division of the United States Department of Justice ("DOJ") the
         notification and report form (the "HSR Report") required of each of
         them regarding the transactions described in this Agreement. After
         submitting such HSR Report, each Party will use its reasonable efforts,
         including promptly producing documents, witnesses, and information,
         rightfully requested by the FTC or DOJ, to obtain HSR Act approval of
         such transaction, whether pursuant to expiration or early termination
         of applicable HSR Act waiting periods or court approval ("Required HSR
         Approval"). Each Party will cooperate with the other to the extent
         necessary in preparing the other Party's HSR Report and in obtaining
         Required HSR Approval. Each Party will be responsible for its own
         costs, expenses, and filing fees associated with any of its filings
         under the HSR Act.

15.3     Termination. Both Parties agree that if this Agreement is terminated,
         neither Party will disclose its reasons for not proceeding to any Third
         Person without the express written consent of the other Party.

                                   ARTICLE 16
                              TERM AND TERMINATION

16.1     Term. This Agreement shall commence as of the Effective Date and,
         unless sooner terminated in whole or in part as specifically provided
         in the Agreement, shall continue in effect with respect to a particular
         Compound Product until the expiration of the Royalty Period applicable
         to that Compound Product.

                                      -48-
<PAGE>

16.2     Termination By Lilly.

         (a)      Termination Right prior to Product Launch. Lilly may terminate
                  this Agreement for any reason at any time prior to Product
                  Launch provided Lilly furnishes Generex with ninety (90) days
                  written notice of the same.

         (b)      Termination Right after Product Launch. Lilly may terminate
                  this Agreement for any reason at any time after Product Launch
                  provided Lilly furnishes Generex with one hundred and eighty
                  (180) days written notice of the same.

         (c)      Consequences of Termination under this Section 16.2. In
                  addition to the provisions set forth in Sections 16.5 and
                  16.6, in the event that Lilly terminates this Agreement
                  pursuant to this Section 16.2 of this Agreement, Generex, upon
                  the effective date of such termination, shall be entitled to
                  the following:

                  1.       License Termination. The following licenses shall
                           terminate after Lilly and Generex have negotiated the
                           cost to Generex of transferring Regulatory Material
                           from Lilly to Generex under this Section 16.2(c)(2):

                                    (i) the license granted under Generex Rights
                           in Section 5.1 of this Agreement shall terminate and
                           revert in its entirety to Generex.

                                    (ii) the license granted under Program
                           Patent Rights in Section 5.2 (that claim Sole
                           Inventions of Generex) shall terminate and revert in
                           its entirety to Generex.

                                    (iii) the license granted under Program
                           Patent Rights in Section 5.2 (that claim Joint
                           Inventions of Lilly and Generex) shall terminate and
                           revert to Generex (to the extent that Generex has an
                           interest in such Patent Rights);

                                    (iv) the license granted under Program
                           Know-How in Section 5.2 shall terminate and revert to
                           Generex (to the extent that Generex has an interest
                           in such Know-How).

                                    For avoidance of doubt, any Program Patent
                           Rights that claim Joint Inventions shall remain
                           jointly owned.

                  2.       Access to Regulatory Material. Lilly shall, to the
                           extent that it is legally entitled to do so,
                           immediately transfer possession and legal ownership
                           to all Regulatory Materials (and shall cause any
                           subcontractor used by Lilly to do the same) provided
                           that such transfer does not affect in any way Lilly's
                           rights under this Agreement. Subsequent to such
                           transfer, Generex may continue with the research and

                                      -49-
<PAGE>

                           development under this Agreement as long as Generex
                           continues to negotiate in good faith a price for
                           Generex's continued use of the Regulatory Material.
                           Such price shall take into account Lilly's fully
                           burdened costs incurred in developing such Regulatory
                           Material and may include the payment of a royalty to
                           Lilly on Net Sales of Product in the Territory for
                           the Royalty Period.

                  3.       Supply Agreement. In the event that Generex elects to
                           continue to develop and commercialize a buccal
                           delivery system for insulin, and upon Generex's
                           request and subject to the transfer of Regulatory
                           Material in Section 16.2(c)(2), Lilly will negotiate
                           a price of no more than [**] per gram of insulin at
                           which it is willing to supply insulin to Generex and
                           thereafter the Parties shall discuss resourcing any
                           capital expenses if it is necessary for Lilly to
                           increase capacity for supplying insulin to Generex.

                                    The price of no more than [**] per gram of
                           insulin will be adjusted upward annually on the
                           anniversary date of this Agreement commencing in the
                           year after the Effective Date using the Consumer
                           Price Index indexing [U.S. Bureau of Labor Statistics
                           for all urban consumers, U.S. city average (July 2000
                           equals 172.6 and -1982 to 1984 equals 100; Series
                           CUUR0000SA0] to account for inflation. This agreement
                           to supply is specific to insulin.

                  4.       Sales of Product. If Lilly terminates this Agreement
                           under Section 16.2(b), Lilly may elect to continue to
                           sell Product until the Parties have negotiated the
                           transfer of Regulatory Material and a reasonable
                           royalty rate under Section 16.2(c)(2).

         Notwithstanding the foregoing, if Lilly terminates this Agreement under
         this Section 16.2 because of Product safety or health concerns Lilly
         shall be under no obligation to transfer possession and legal ownership
         to Regulatory Material to Generex under this Section 16.2 of this
         Agreement. Further, if Lilly terminates this Agreement under Section
         16.2 because of a Product's unacceptable clinical trial results or for
         any other significant technical failure, Lilly shall retain
         non-exclusive rights under any Program Patent Rights that claim Sole
         Inventions of Generex and Program Know-How that relate to a Lilly
         Compound.

16.3     Termination for Breach.

         (a)      Notification and Opportunity to Cure. If either Party believes
                  the other Party is in breach of any material obligations under
                  this Agreement or the Manufacturing Agreement, it may give
                  notice of such breach to the other Party, which Party shall

                                      -50-
<PAGE>

                  have ninety (90) days in which to remedy such breach. Such
                  ninety (90) day period shall be extended in the case of a
                  breach not capable of being remedied in such ninety (90) day
                  period so long as the defaulting Party uses diligent efforts
                  to remedy such breach and is pursuing a course of action that,
                  if successful, will effect such a remedy. If such breach is
                  not remedied in the time period set forth above or if the
                  Party alleged to be in breach disputes the existence of any
                  breach, the Party alleging breach shall refer the matter to
                  the President of Generex and to the Lilly President of
                  Diabetes and Growth Disorders Product Group (or successor
                  position) for business issues and the Lilly Executive Director
                  of BioPharma Science/Delivery Systems (or successor position)
                  for scientific issues who shall meet and confer within fifteen
                  (15) days after notice from the non-defaulting Party of its
                  desire for such a meeting.

         (b)      Generex Material Breach. In the case of any dispute relating
                  to a breach that Lilly claims is a Generex Material Breach (as
                  defined below) that is not resolved pursuant to (a) above,
                  Lilly may give written notice to Generex of termination of
                  this Agreement pursuant to this Section 16.3, which
                  termination shall be effective thirty (30) days after such
                  notice. Upon such termination, the following terms shall
                  apply:

                  (1)      Lilly may, at its sole discretion, continue selling
                           or terminate in all countries any Product that has
                           received Regulatory Approval in any country,
                           provided, however, that Lilly shall continue to be
                           obligated to pay all financial obligations under this
                           Agreement subject to Section 16.3(b)(4) below;

                  (2)      Lilly may, at its sole discretion, continue or
                           terminate independent development of any Product that
                           has not received Regulatory Approval contemplated by
                           this Agreement in which case all licenses granted to
                           Lilly by Generex under Article 5 shall survive
                           termination of the Agreement and Lilly shall continue
                           to be obligated to pay all financial obligations
                           under this Agreement subject to Section 16.3(b)(4)
                           below;

                  (3)      In the event that Lilly elects to terminate sales or
                           development of any Product, Lilly is under no
                           obligation to supply insulin to Generex or to
                           transfer any Know-How or Regulatory Material to
                           Generex;

                  (4)      If a Generex Material Breach relates to the supply of
                           Product, Lilly may, at its sole discretion, continue
                           to have Generex supply Product under the
                           Manufacturing Agreement in which case Lilly shall
                           place into escrow [**] of the then-current royalty on
                           Net Sales of Product during the time period in which
                           Generex is in Material Breach if such Breach is
                           related to the supply of Product to Lilly, and [**]
                           of the then current royalty on Net Sales of Product
                           during the time period in which Generex is in

                                      -51-
<PAGE>

                           Material Breach if such Breach is not related to the
                           supply of Product to Lilly.

         (c)      Generex Material Breach Defined. For purposes of this Section
                  16.3, the term Generex Material Breach shall mean a breach of
                  this Agreement by Generex that results in a substantial
                  reduction in the value of the licenses and other rights
                  granted to Lilly by Generex under this Agreement, taking into
                  account the value of such rights prior to and after such
                  breach and all other factors deemed relevant by the Court
                  adjudicating this dispute.

                  In addition, any breach of a representation or warranty by
                  Generex relating to intellectual property is deemed to be a
                  Generex Material Breach.

         (d)      Remedies Following Termination Under Section 16.3 Upon a final
                  judicial determination of whether Generex has breached this
                  Agreement, whether or not any such breach is a Generex
                  Material Breach, and the amount of damages that Lilly has
                  incurred as a result of any such breach, the following
                  provisions shall apply:

                  (1)      If it is determined that Generex has breached the
                           Agreement, Lilly shall be entitled to all monetary
                           damages resulting from such breach, and such other
                           relief as the Court may award. To the extent that the
                           funds paid into escrow by Lilly pursuant to Section
                           16.3(b)(4) are sufficient for such purpose, such
                           damages shall be remitted to Lilly direct from the
                           escrowed funds.

                  (2)      If it is determined that a Generex Material Breach
                           has occurred, in addition to the relief described in
                           16.3(b)(1) above, Lilly shall be entitled to recover
                           its litigation costs and interest at the rate
                           applicable to money judgments in the jurisdiction in
                           which such matter is determined on all funds paid
                           into escrow by Lilly pursuant to Section 16.3(b)(4)
                           up to the total amount of damages to which Lilly is
                           entitled.

                  (3)      If it is determined that a Generex Material Breach
                           has not occurred, the Agreement shall be reinstated
                           in full, and Generex shall be entitled to monetary
                           damages resulting from Lilly's termination of the
                           Agreement and actions under Section 16.3(c), and such
                           other relief as the Court may award.

                  (4)      If it is determined that Generex has not breached the
                           Agreement, in addition to the relief described in
                           Section 16.3(b)(3) above, Generex shall be entitled
                           to recover its litigation costs and interest at the
                           rate applicable to money judgments in the
                           jurisdiction in which such matter is determined on
                           all funds paid into escrow by Lilly up to the total
                           amount of damages to which Generex is entitled.

                                      -52-
<PAGE>
         (e)      Generex's Termination due to Lilly's breach. If Generex
                  terminates this Agreement because of Lilly's material breach,
                  the Parties agree to the following, subject to a court
                  determination that Lilly has materially breached the
                  Agreement:

                  (1)      all license rights granted to Lilly under Article 5
                           shall terminate;

                  (2)      Lilly shall transfer Know-How and Regulatory Material
                           to Generex;

                  (3)      Lilly shall continue to supply insulin at a price
                           consistent with Section 16.2 to Generex for
                           subsequent development and commercialization of
                           Product.

16.4     Termination for Insolvency. Either Party may terminate this Agreement
         upon notice to the other should the other Party become insolvent or
         file or consent to the filing of a petition under any bankruptcy or
         insolvency law or have any such petition filed against it which has not
         been stayed within sixty (60) days of such filing.

16.5     Change of Control. In the event of a Change of Control, Generex shall
         notify Lilly of such change specifying the effective date of the change
         and the name(s) of the controlling party or parties. Lilly shall have
         thirty (30) days from the date of such notice to notify Generex of
         Lilly's decision to terminate any on-going Product Development
         Program(s) and thereafter conduct all research, development and
         manufacturing activities independently or terminate the Agreement. In
         such event, all rights and obligations in the present Agreement shall
         remain in force including Lilly's right to select Generex to supply
         Product under a Manufacturing Agreement as provided herein. Lilly shall
         be under no obligation to supply insulin or transfer Regulatory
         Materials to Generex under a Change of Control.

16.6     Surviving Rights. Termination of this Agreement shall not terminate
         Lilly's obligation to pay all milestone payments, royalties and other
         payments which shall have accrued hereunder (including any milestone
         payments then accrued but not yet due under Section 6.4). The
         obligations of the Parties under Articles 8 (Record-Keeping and
         Audits), 9 (Intellectual Property), 12 (Infringement by Third Persons),
         13 (Mutual Indemnification), 14 (Confidentiality) and 16 (Termination)
         of this Agreement will survive the termination or expiration of this
         Agreement.

16.7     Accrued Rights, Surviving Obligations. Termination, relinquishment or
         expiration of the Agreement for any reason shall be without prejudice
         to any rights which shall have accrued to the benefit of either Party
         prior to (or as a result of, including, without limitation, rights
         available under law and equity) such termination, relinquishment or

                                      -53-
<PAGE>

         expiration. Such termination, relinquishment or expiration shall not
         relieve either Party from obligations that are expressly indicated to
         survive termination or expiration of the Agreement.

16.8     Remedies Not Exclusive. The remedies provided in this Section 16 are
         not exclusive and, therefore, shall neither preclude nor prejudice any
         other rights or remedies available to the Parties including, without
         limitation, any rights or remedies that may be available at law or in
         equity.

                                   ARTICLE 17
                                   EXCLUSIVITY

17.1     Exclusivity. During the term of this Agreement, each Party agrees to
         work exclusively with the other in the Field notwithstanding Lilly's
         right to sublicense in accordance with Section 5.1 and Section 5.2,
         herein, and Generex shall not license or collaborate with any Third
         Person with regard to Compounds.

         However, Lilly retains the right to enter into [**] agreements with
         Third Persons related to [**] including for purposes of this Agreement.
         Lilly also retains the right to enter into other agreements related to
         [**] with Third Persons; provided that Lilly shall notify Generex prior
         to entering any agreement relating to [**] .

                  In addition, both Parties agree that either Party may enter
         into Third Person agreements related to the [**] .

                  Each Party hereby represents that as of the Effective Date,
         such Party does not have any [**] .

                                   ARTICLE 18
                                  MISCELLANEOUS

18.1     Agency. Neither Party is, nor shall be deemed to be, an employee,
         agent, co-venturer or legal representative of the other Party for any
         purpose. Neither Party shall be entitled to enter into any contracts in
         the name of, or on behalf of the other Party, nor shall either Party be
         entitled to pledge the credit of the other Party in any way or hold
         itself out as having the authority to do so.

18.2     Assignment. Except as otherwise provided herein, neither this Agreement
         nor any interest hereunder shall be assignable by any Party without the
         prior written consent of the other (which consent shall not be
         unreasonably withheld; provided, however, that either Party may assign
         this Agreement to any wholly-owned subsidiary or to any successor by
         merger or sale of substantially all of its business unit to which this
         Agreement relates in a manner such that the assignor (if it continues
         as a separate entity) shall remain liable and responsible for the
         performance and observance of all its duties and obligations hereunder.

                                      -54-
<PAGE>

         This Agreement shall be binding upon the successors and permitted
         assignees of the Parties and the name of a Party appearing herein shall
         be deemed to include the names of such Party's successors and permitted
         assigns. Any assignment not in accordance with this section shall be
         void.

18.3     Further Actions. Each Party agrees to execute, acknowledge and deliver
         such further instruments, and to do all such other acts, as may be
         necessary or appropriate in order to carry out the purposes and intent
         of this Agreement.

18.4     Force Majeure. Neither Party shall be liable to the other for loss or
         damages or shall have any right to terminate this Agreement for any
         default or delay attributable to any force majeure event, including but
         not limited to acts of God, acts of government, war, fire, flood,
         earthquake, strike, labor dispute and the like, if the Party affected
         shall give prompt notice of any such cause to the other Party. The
         Party giving such notice shall thereupon be excused from such of its
         obligations hereunder as it is thereby disabled from performing for so
         long as it is so disabled and for sixty (60) days thereafter; provided,
         however, that such affected Party commences and continues to take
         reasonable and diligent actions to cure such cause.

18.5     Notices. All notices and other communications hereunder shall be in
         writing and shall be deemed effective upon actual receipt given if
         delivered personally or by facsimile transmission (receipt verified),
         telexed, mailed by registered or certified mail (return receipt
         requested), postage prepaid, or sent by express courier service, to the
         Parties at the following addresses (or at such other address for a
         Party as shall be specified by like notice; provided, that notices of a
         change of address shall be effective only upon receipt thereof):

         If to Lilly, addressed to:         Eli Lilly and Company
                                            Lilly Corporate Center
                                            Indianapolis, Indiana 46285
                                            Attn:  General Counsel

         If to Generex, addressed to:       Generex Biotechnology Corporation
                                            33 Harbour Square, Suite 202
                                            Toronto, Ontario
                                            CANADA M5J 2G2
                                            Attn:  Anna Gluskin, CEO

18.6     Amendment. No amendment, modification or supplement of any provision of
         the Agreement shall be valid or effective unless made in writing and
         signed by a duly authorized officer of each Party.

18.7     Waiver. No provision of the Agreement shall be waived by any act,
         omission or knowledge of a Party or its agents or employees except by

                                      -55-
<PAGE>

         an instrument in writing expressly waiving such provision and signed by
         a duly authorized officer of the waiving Party.

18.8     Counterparts. The Agreement may be executed simultaneously in two
         counterparts, either one of which need not contain the signature of
         more than one Party but both such counterparts taken together shall
         constitute one and the same agreement.

18.9     Descriptive Headings. The descriptive headings of this Agreement are
         for convenience only, and shall be of no force or effect in construing
         or interpreting any of the provisions of this Agreement.

18.10    Governing Law. This Agreement shall be governed by and interpreted in
         accordance with the substantive laws of the State of New York, without
         regard to its choice of law rules.

18.11    Severability. Whenever possible, each provision of the Agreement will
         be interpreted in such manner as to be effective and valid under
         applicable law, but if any provision of the Agreement is held to be
         prohibited by or invalid under applicable law, such provision will be
         ineffective only to the extent of such prohibition or invalidity,
         without invalidating the remainder of the Agreement. In the event of
         such invalidity, the Parties shall seek to agree on an alternative
         enforceable provision that preserves the original purpose of this
         Agreement.

18.12    Compliance with Law. Nothing in the Agreement shall be deemed to permit
         Lilly to export, re-export or otherwise transfer any Information
         transferred hereunder or Products manufactured therefrom without
         compliance with applicable laws.

18.13    Entire Agreement of the Parties. This Agreement, including the Exhibits
         attached hereto, constitutes and contains the complete, final and
         exclusive understanding and agreement of the Parties hereto, and
         cancels and supersedes any and all prior negotiations, correspondence,
         understandings and agreements, whether oral or written, between the
         Parties respecting the subject matter hereof. In the event there is a
         discrepancy between the Exhibits and the Agreement the Agreement shall
         control.

18.14    Jointly Prepared. This Agreement has been prepared jointly and shall
         not be strictly construed against either party.

18.15    Dispute Resolution. Disputes arising under this Agreement regarding the
         Product Development Program and/or Product Development Plan thereunder
         shall be submitted in the first instance to the Chief Executive Officer
         of Generex (or successor position) and the President of the Diabetes
         Care and Growth Disorders Products Group at Lilly (or successor
         position). The President of the Diabetes Care and Growth Disorders

                                      -56-
<PAGE>

         Products Group at Lilly will make the ultimate determination as to how
         a dispute will be resolved.

                  Any other disputes arising under this Agreement, including its
         interpretation and the enforcement of any rights or obligations
         hereunder, shall be resolved in a court of law. For avoidance of doubt,
         disputes relating to ownership of patents are considered disputes
         relating to enforcement of rights.

18.16    Non-Solicitation of Employees. While the Parties are conducting the
         Product Development Program under this Agreement, and for a period of
         one (1) year thereafter, each Party agrees that it will not directly
         recruit, solicit or induce any employee of the other Party who is
         directly associated with the Product Development Program to terminate
         his or her employment with such other Party. However, nothing set forth
         in this section shall prohibit a Party from indirectly recruiting,
         soliciting or inducing such employees to leave the other Party through
         the use of advertisements in trade journals and the like or from
         discussing employment opportunities with such employees to the extent
         such employees contact such Party first.

         IN WITNESS WHEREOF, the Parties hereto have as of the Effective Date
duly executed this Agreement.

ELI LILLY AND COMPANY                        GENEREX BIOTECHNOLOGY CORPORATION

By:    /s/August M. Watanabe                 By:      /s/Anna E. Gluskin
    ------------------------------              -------------------------------
Name:  August M. Watanabe                       Name:  Anna E. Gluskin
Title: Executive Vice President --              Title: President
       Science/Technology

                                      -57-

<PAGE>

                                    Exhibit A

                           Royalty Calculation Example

In a particular year, Lilly Net Sales for a given year are equal to the
following:

         Compound Product A: $  [**]

         Compound Product B: $  [**]

For simplicity, CPI adjustments are excluded from this example:

For royalties due on Compound Product A with annual Net Sales of $  [**]

Annual Sales ($/yr)                    Royalty        Royalty Due Generex
-------------------------------------------------------------------------
0 to  [**]                             [**]                          $[**]
[**]   to   [**]                       [**]                          $[**]
[**]   to   [**]                       [**]                          $[**]
[**]   to   [**]                       [**]                          $[**]
[**]   to   [**]                       [**]                          $[**]
[**]   to   [**]                       [**]                           [**]
[**]   to   [**]                       [**]                           [**]
over    [**]                           [**]                           [**]
--------------------------------------------------------------------------

                                                 Total             $  [**]

For royalties due on Compound Product B with annual Net Sales of $  [**]

Annual Sales ($/yr)                   Royalty         Royalty Due Generex
-------------------------------------------------------------------------
0 to [**]                             [**]                          $[**]
[**]   to   [**]                      [**]                          $[**]
[**]   to   [**]                      [**]                          $[**]
[**]   to   [**]                      [**]                          $[**]
[**]   to   [**]                      [**]                          $[**]
[**]   to   [**]                      [**]                          $[**]
[**]   to   [**]                      [**]                          $[**]
Over   [**]                           [**]                          $[**]
-------------------------------------------------------------------------

                                                 Total             $ [**]

                                      -58-
<PAGE>

                                    Exhibit B

                           [** -- Five Pages Omitted]

                                      -59-
<PAGE>

                                    Exhibit C

                          Example Press Release (Draft)

                   Lilly and Generex Sign Agreement To Develop
                             Buccal Form of Insulin

Eli Lilly and Company (NYSE: LLY) and Generex Biotechnology Corporation (NASDAQ:
GNBT) today announced that they have signed an agreement to develop a buccal
formulation of insulin that is administered as a fine spray into the oral cavity
using Generex proprietary technology.

Under the terms of the agreement, Generex will receive certain initial fees and
milestone payments. Generex will also receive royalty payments based on product
sales. In exchange, Lilly will receive exclusive worldwide rights to products
resulting from the collaboration. Lilly will be responsible for conducting
clinical trials, securing regulatory approvals and marketing on a worldwide
basis. Clinical trials of the first product candidate are under way in North
America and Europe. Lilly will also have the option to develop a number of
additional products depending on the success of the initial product.

"We look forward to working with Generex, whose buccal spray delivery technology
potentially represents a novel approach to drug delivery," said James A. Harper,
president, diabetes and growth disorders products for Lilly. "A buccal spray
formulation of insulin could provide an attractive alternative for people with
diabetes."

"The opportunity to partner with Lilly, the global leader in diabetes care, to
develop the world's first marketed buccal insulin spray represents very good
news for millions of patients with diabetes throughout the world," said Anna
Gluskin, chief executive officer of Generex. "We are pleased that Lilly has
recognized the potential of buccal delivery of insulin and Generex's
RapidMist(TM) technology for systemic delivery of proteins, peptides and other
large molecule drugs."

                                      -64-
<PAGE>

Today, worldwide costs for treating diabetes and its complications are estimated
to exceed $200 billion annually. It is also estimated that, over the next
decade, the number of people with this disease will more than double. Lilly has
been a leader in diabetes care for more than 70 years. The company continues to
aggressively pursue the goal of being a complete diabetes care company and
intends to provide innovative products to treat all types and stages of
diabetes.

Generex is engaged in the research and development of drug delivery systems and
technologies. To date, it has focused on developing a platform technology for
the buccal delivery (absorption through the inner cheek walls) of large molecule
drugs which, historically, have been administered only by injection. Additional
information about Generex can be found at www.generex.com.

Lilly, a leading innovation-driven corporation, is developing a growing
portfolio of best-in-class pharmaceutical products by applying the latest
research from its own worldwide laboratories and from collaborations with
eminent scientific organizations. Headquartered in Indianapolis, Ind., Lilly
provides answers - through medicines and information - for some of the world's
most urgent medical needs.

Certain statements set forth above may constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
Although Generex and Lilly believe that such statements are based on reasonable
assumptions within the bounds of their knowledge of their business and
operations, there can be no assurance that: (i) Lilly or Generex will not
terminate the collaboration, (ii) that any products will be developed,
manufactured or commercialized successfully, or (iii) that significant funding
will be received by Generex as a result of this collaboration.

Each company's business is subject to significant risks and there can be no
assurance that actual results of the companies' development activities and
results of their operations will not differ materially from expectations. For
information with respect to other factors, which could cause actual results to
differ from expectations, reference is made to the 10-K and 10-Q reports filed
by Generex and Lilly, respectively, with the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended.

                                      -65-
<PAGE>

                                    Exhibit D
                            Product Development Plan

                   [This page was blank in executed agreement]

                                      -66-
<PAGE>

                                    Exhibit E
                                 Generex Patents

                   [This page was blank in executed agreement]

                                      -67-
<PAGE>

                                    Exhibit F
                              Description of Device

                   [This page was blank in executed agreement

                                      -68-
<PAGE>

                                    Exhibit G
                       ADVERSE EVENT REPORTING PROCEDURES

The following are the procedures for handling the reporting of adverse drug
events with Product:

1.       Definitions:

         "Adverse Event" means any untoward happening in a patient or human
         subject after the onset of administration of Product without regard to
         a causal relationship between such Product and the event, and whether
         or not such event is considered drug related.

2.       If Generex or any employee, representative or agent thereof
         (collectively, the `Receiving Party") is contacted with an Adverse
         Event report, the Receiving Party will record the information set forth
         in paragraphs 3 and 4, below, and immediately, but in no event later
         than three (3) working days, FAX a report to Lilly at 317-277-0853.

3.       The Receiving Party will provide the following information to Lilly:

         o        The Receiving Party employee's, representative's or agent's
                  name
         o        Reporter status (e.g., physician) with:
                  o        Name
                  o        Full address
                  o        Telephone number
         o        Drug/medical device information
         o        Adverse experience
         o        Patient outcome
         o        Did the event result in any of the following
                  o        Death
                  o        Life-threatening
                  o        Hospitalization or prolonged hospitalization
                  o        Severe or permanent disability
                  o        Cancer
                  o        Overdose
                  o        Congenital anomaly
                  o        Require intervention

4.       Secondary information:

         o        Patient's name or initials
         o        Sex/age
         o        Therapy dates
         o        Therapy duration
         o        Daily dosage

                                      -69-
<PAGE>
         o        Indication for use
         o        Concomitant medications
         o        Relevant medical history
         o        Drug continued or discontinued
         o        Did event abate
         o        Control (Lot #) if known

5.       Lilly will be responsible for all regulatory reporting relating to
         Product.

6.       Lilly agrees to provide Generex, upon request, with information
         relevant to the safety of the Product in the form of periodic reports.
         Generex agrees to forward to Lilly all Adverse Event reports necessary
         for Lilly to fulfill its regulatory requirements in the Territory. Both
         parties agree to provide adequate and reasonable responses in a timely
         manner to bring about the regulatory reporting required herein.

                                      -70-

<PAGE>

                                    Exhibit H

                         Cost Savings Adjustment Example

         End of Year 3 with 2/3 of Countries Launched per Section 7.1(a)

Generex Cost of Manufacturing Product (Baseline)                          100

Lilly Pays Generex (Baseline plus 15%)                                    115*

         End of Year 4 Example (Generex achieves 20% cost savings)

Generex Cost of Manufacturing Product                                     80

Cost Savings Adjustment (100-80) * 50%                                    10

Lilly Payment to Generex                                                  102*

[(Baseline - 2 * Cost Savings Adjustment) * 1.15] + Cost Savings Adjustment

[(100 - 2 * 10) * 1.15] + 10 = 102

         End of Year 4 Example (Generex cost exceeds Baseline)

Generex Cost of Manufacturing Product                                     102

Cost Savings Adjustment                                                   0

Lilly Payment to Generex (102 * 15%)                                      117.3*

* Subject to Section 7.1 (c) cap.

Note: Cost savings / cost increases to be re-calculated annually. Generex must
maintain cost savings to continue to be eligible for such Cost Savings
Adjustment.

                                      -71-

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