Veneto Holdings, LLC Responds to Generex Claims

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|Jan 28|magazine34 min read

DALLAS, Jan. 27, 2020 /PRNewswire/ -- Veneto Holdings, LLC, is a private business; its shareholders are or were private shareholders of Generex Biotechnology, Inc. ("Generex").  Veneto writes to correct the false record Generex, and its CEO, Joe Moscato, have placed in the public domain. Mr. Moscato has made numerous false and defamatory public statements about Veneto and its shareholders, including a series of them in Generex's press releases, including those dated January 15 and January 16, 2020, and on a public investor conference call on January 21, 2020.  Veneto cannot comment about any unrelated parties referenced in Generex's press releases nor its public investor call, however, Veneto wishes to provide the following facts about its own dealings with Generex:

1.  In October 2018, after months of diligence and negotiation, NuGenerex – a subsidiary of Generex Biotherapeutics, and Veneto entered into an Asset Purchase Agreement (the "APA") wherein Generex purchased certain "operating assets of eight of Veneto's pharmacies, a wholesale pharmacy purchasing company and an in-network laboratory." Most importantly, Generex purchased Veneto's MSO Platform (see Generex public announcement dated October 9, 2018, pg. 1). Schedule 2.1(c) of the October APA shows that Generex did NOT purchase several Veneto assets, including Veneto itself, as well as "Medoc Health Services, LLC, Total Rx Care, LLC, Messorio Healthcare Services, LLC, Forman Pharmacy Management, LLC, Smile Pharmaceutical, Inc., Luna Pharmacy Management, LLC, Pure Pharmacy, LLC, Growth Pharmacy Management, LLC, Pharmacare Texas, Inc. and any entity which has been formed by the Seller but does not conduct any business operations or own any of the assets at the time of Closing."

2.  The original purchase price in the APA was $30,000,000 cash, payable at a closing which was to occur on or before November 1, 2018, (after ownership and control over Veneto's pharmacy assets had already been transferred).

3.  On November 1, 2018, Veneto closed on the transaction with Generex. However, NuGenerex converted its cash payment price into a $35,000,000 note payable on or before January 15, 2019, (the "First APA Amendment"). The note was guaranteed by Generex and by Joe Moscato, personally. On November 2, 2018, Generex issued a press release titled "Generex Biotechnology finalizes acquisition of Remaining Veneto Operating Assets." Therein, Mr. Moscato touted the MSO platform in particular and the promise it held for Generex's business.

4.  In January 2019, Generex approached the Veneto shareholders with the realization that it would not be able to fund the $35,000,000 note on January 15, 2019. The parties agreed this time to amend the note and the APA (the "Second APA Amendment"), to allow Generex to issue $15,000,000 worth of Generex shares to the Veneto shareholders directly at $2.50 per share, on or before January 21, 2019, and the balance would be paid either in cash, or if Veneto or its shareholders so elected, in Generex shares, on or before April 30, 2019. The Second Amendment also gave Veneto's shareholders shares of Antigen Express (now NGIO) as an inducement. At no time was any duty for Veneto to provide any unpaid consideration ever identified during the negotiations or in the Second APA Amendment.

5.  Once the Second APA Amendment was signed, Generex publicly praised Veneto and the assets it had acquired: "I am also pleased to announce that we have been able to restructure our $35 million debt obligation in a timely manner with the Veneto Group partners through an agreement on the payment of $15.75 million in Generex common stock at the up-market price of $2.50 per share, that satisfies a significant portion of the $35 million obligation, plus $20 million in cash or stock to follow within 90 Days…[T]he stock transaction demonstrates the Veneto Group's confidence in our strategic growth plan, because the deal is at a significant premium to our current market valuation."  However, Generex failed to issue the promised shares to Veneto on January 21, 2019, as it was contractually obligated to do. On a shareholder call on February 26, 2019, Mr. Moscato explained that Veneto and its shareholders were "entitled" to their Generex stock and to the 4-1 dividend Moscato had announced on January 21, 2019. By this time, Generex had been controlling and operating the Veneto assets for five months. It had full knowledge of Veneto's assets' operations and the cash position, and said nothing of any missing consideration.

6.  Now in default on the November 1, 2018, Note and on the Second APA Amendment, on March 15, 2019, Generex again renegotiated the transaction. Ostensibly due to Generex's inability to recredential certain Veneto pharmacies, Generex sought a reduction in the purchase price—even though those assets had been tendered by Veneto, and their successful recredentialing had never been guaranteed in the APA nor in any of its Amendments. Still, Veneto and Generex entered into a restructuring agreement (the "Restructuring Agreement") on March 29. 2019. The Restructuring Agreement provided that Generex would issue $21,000,000 worth of Generex shares to Veneto's shareholders at $2.50 per share (8,400,000 shares). In exchange, Veneto and its Shareholders would forgive $14,000,000 of the note principal and accrued interest.

7.  Indeed, right after this transaction was consummated, Generex's March 28, 2019, press release focused on the fact that Generex had "saved" shareholders $14,000,000, and that the MSO was the primary valuable asset harvested from the Veneto transaction. This admission would be later adopted by the Delaware Chancery Court when the Vice Chancellor ruled against Generex's lawsuit that sought to claw back the Generex shares from Veneto. The Delaware Chancery Court explained that "Moscato proudly touted the [Restructuring] agreement which reflected a $14 million discount from the original transaction price to reflect the 'true value of the acquired business[.]'" As if affirming the Chancery Court's acknowledgement of Generex's prior statements, on a recent investor conference call on January 21, 2019, Mr. Moscato stated that the real asset Generex was after from Veneto was the MSO platform, and that Generex received it.

8.  Generex's repeated claim that Veneto received shares it should not have, and that its shareholders' Rule 144 opinion letters were fraudulent because Veneto still owes consideration to Generex is contradicted by the Restructuring Agreement itself. In that agreement, Veneto agreed to take $14,000,000 less in consideration but only if Generex delivered the shares it promised (8,400,000) by April 20, 2019. The March 28, 2019, Restructuring Agreement makes no mention of any further obligation Veneto or its shareholders have to deliver any consideration to Generex (nor had, for that matter, the First or Second APA Amendments). In fact, the face of the Restructuring Agreement reflects the opposite: that no further consideration is owed.

9.  Paragraph 29 of the Restructuring Agreement says that "The Generex, Antigen, and LTIP Shares, when delivered to the Veneto Members (and Veneto in the case of the LTIP Shares) in accordance with this Agreement for the consideration expressed herein, will be validly issued, fully paid, and nonassessable with no personal liability attaching to the ownership thereof and will be free and clear of all liens." This paragraph's reference to the fact that (a) the shares were being delivered to Veneto and its members "for the consideration expressed herein" – and that agreement says nothing of any collateral consideration owed to Generex under the original APA or its amendments; and (b) that once delivered, the shares are "fully paid", conclusively rebuts Mr. Moscato's false rationalization that Generex is still "owed" some unspecified "consideration" for those shares. The truth is that Generex contracted away any further consideration in exchange for a reduction of $14,000,000 in the purchase price, and for the release of Mr. Moscato's personal guarantee of the $35,000,000 note. Thus, when Generex claims that the Veneto Members sold all of their shares in violation of SEC Rule 144 because not all consideration was received for the shares, it is simply untrue.

10.   Generex failed to issue the shares on April 20, 2019 as promised. Generex was compelled by Veneto and its shareholders' lawyers to issue the Generex and Antigen shares, finally, around May 8, 2019.

11.   However, to prevent Veneto or its shareholders from selling any Generex shares, Generex sued Veneto and its shareholders in Delaware Chancery Court in September 2019. Generex at the time did not argue to the Delaware Court that consideration was still owed. In fact, Generex's filings in Delaware are completely silent on that issue. Instead, Generex contended that Veneto had not disclosed material risks related to certain assets. The Chancery Court rejected Generex's entire theory. For one thing, the material risks Generex identified had in fact been disclosed to Generex and were listed in the schedules to the APA. And in any event, the risks Generex cited in its pleadings related to assets that Generex did not even purchase—those assets were among those expressly excluded on Schedule 2.1(c) of the APA. The Chancery Court also found that Generex's stock price actually increased even after some of those risks materialized.

12.   Generex is again suing Veneto and its shareholders in an Arbitration in Dallas to claw back the shares claiming that Veneto misrepresented material risks (a theory which the Delaware court already treated as meritless), and that Veneto has not fully tendered consideration for the 8,400,000 shares. Both of these theories are false and Moscato's continued expenditures of valuable shareholder dollars in what appears to be a personal crusade, is tragic.

13.   Neither Veneto nor any of its members has had any control over Generex's operations. Therefore, Mr. Moscato's (again, incorrect) assertion that they should have filed any SEC process, or that their Rule 144 restrictions should have lasted 1 year instead of six months, is both legally and factually inaccurate.

14.   As per the Restructuring Agreement dated 3/28/19, Veneto and its shareholders sold certain assets to Generex for stock at $2.50 per share and have not had the right to sell since October 2019, at the earliest, meaning Veneto and its shareholders have not enjoyed a public stock price above their purchase price at any time, and Generex's delays have cost Veneto and its shareholders millions of dollars in lost shareholder value.

In summary, Veneto's interests are aligned with all public shareholders' interests. Veneto rejects Mr. Moscato's false and disingenuous recitations of the facts as unproductive and unprofessional. His assertions that the Veneto shareholders were "puking shares" onto the market and that Veneto CEO Kevin Kuykendall misappropriated working capital from Generex are entirely specious. Veneto views these statements as distracting Generex's management from the important business of building Generex's value for all shareholders. Veneto reserves all its legal rights and remedies against Generex and Mr. Moscato.

 

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SOURCE Veneto Holdings