UNITED STATESSECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
(Mark One)
OR
Commission file number 00-26078
eXegenics Inc.
2110 Research RowDallas, Texas 75235(Address of Principal Executive Offices)
(214) 358-2000(Registrant’s Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes x No o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2): Yes o No x
As of November 10, 2003, the registrant had 15,703,579 shares of common stock outstanding.
TABLE OF CONTENTS
eXegenics Inc. TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BALANCE SHEETS(in thousands, except share data)
See accompanying notes.
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STATEMENTS OF OPERATIONS(in thousands, except per share data)
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STATEMENTS OF CASH FLOWS(in thousands)
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NOTES TO FINANCIAL STATEMENTSSeptember 30, 2003(Unaudited)
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
OVERVIEW
In this section, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” references to “we,” “us,” “our,” and “ours” refer to eXegenics Inc.
The following discussion should be read in conjunction with, and is qualified in its entirety by, the Financial Statements and the Notes thereto included in this report. This report contains certain forward-looking statements as that term is defined in the Private Securities Litigation Reform of 1995. Such statements are based on management’s current expectations and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. When used in this report the words “anticipate,” “believe,” “estimate,” “expect” and similar expressions as they relate to our management or us are intended to identify such forward-looking statements. Our actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements. Historical operating results are not necessarily indicative of the trends in operating results for any future period.
Business Strategy
eXegenics historically operated as a drug discovery company. In 2002, however, changing market conditions led the Board and eXegenics’ senior management to consider strategies that would shift the focus of eXegenics from drug discovery into clinical drug development for the purpose of building stockholder value. To that end, the Board concluded that it would be in the best interests ofeXegenics’ stockholders if eXegenics entered into a business combination with a company having products in clinical development and/or pursued a strategy of in-licensing compounds already engaged in human clinical trials and completed that process for such compounds.
Thus, eXegenics’ strategy is to deploy its assets to become a commercially oriented, specialty markets drug company focused on developing and marketing products to physicians practicing in specialist areas. This entails obtaining niche products or product candidates from outside eXegenics. eXegenicsbelieves that there are substantial numbers of such niche opportunities for which our resources, internal experience and expertise make eXegenics an excellent partner candidate. We are currently in discussions with potential partners.
Weiss Litigation
On May 15, 2003, The M&B Weiss Family Limited Partnership of 1996 filed a lawsuit in the Delaware Court of Chancery, purportedly as a class action on behalf of all other similarly situated stockholders of eXegenics, againsteXegenics and its current directors, and purportedly as a derivative action on behalf of eXegenics against the directors (the “Weiss Litigation”). The complaint alleges, among other things, that the defendants have mismanagedeXegenics, have made unwarranted and wasteful loans and payments to certain directors and third parties, have disseminated a materially false and misleading proxy statement in connection with the 2003 annual meeting ofeXegenics’ stockholders, and have breached their fiduciary duties to act in the best interests of eXegenics and its stockholders. The complaint seeks, among other
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things, court orders mandating that the defendants cooperate with parties proposing bona fide transactions to maximize stockholder value, make corrective disclosures with respect to the proxy statement for the 2003 annual meeting, and account to eXegenics and the plaintiffs for damages suffered as a result of the actions alleged in the complaint. The plaintiffs are, in addition, seeking an award of costs and attorneys’ fees and expenses. On June 9, 2003, the defendants filed a joint motion with the Delaware Court of Chancery to dismiss the complaint for failure to state a claim and for failure to make the statutorily required demand on eXegenics to assert the subject claims.
On September 9, 2003, a First Amended Shareholder’s Class and Derivative Complaint was filed by The M&B Weiss Family Limited Partnership of 1996 (an entity controlled by Melvyn Weiss) in the Delaware Court of Chancery againsteXegenics and its directors, purportedly as a class action on behalf of the plaintiff and on behalf of all other similarly situated stockholders ofeXegenics, and purportedly as a derivative action on behalf of eXegenicsagainst the directors of eXegenics. The amended complaint, which was filed in substitution for the complaint previously filed by the same plaintiff on May 15, 2003, seeks, among other things, court orders mandating: (i) that the amended complaint be declared a proper class action and certifying the plaintiff as the class representative; (ii) that the defendants restore toeXegenics all monies alleged to have been wasted in connection with the aborted merger transactions with IDDS and AVI; (iii) that the defendants cooperate with parties proposing bona fide transactions to maximize stockholder value; (iv) that the defendants act independently so that the interests of eXegenics’ public shareholders will be protected; (v) that the individual defendants ensure that no conflicts of interest exist between themselves and eXegenics and its stockholders; and (vi) that the individual defendants account to eXegenics, the plaintiff and the proposed class for damages suffered as a result of the actions alleged in the amended complaint. The plaintiff is in addition seeking an award of costs and attorneys’ fees and expenses. On September 22, 2003, the defendants filed a subsequent joint motion with the Delaware Court of Chancery to dismiss the complaint for failure to state a claim and for failure to make the statutorily required demand on eXegenics to assert the subject claims. On that same day, the defendants also filed a joint motion with the Delaware Court of Chancery to disqualify Melvyn Weiss and his law firm from serving as both class counsel and as class representative.
eXegenics and the individual defendant directors believe the suit to be without merit. eXegenics cannot predict at this point the length of time that the Weiss Litigation will be ongoing or the liability, if any, which may arise therefrom.
Meyers Group Consent Solicitation
On August 27, 2003, a group of shareholders consisting of Bruce Meyers, Melvyn I. Weiss, and Michael Stone (the “Meyers Group”) filed with the SEC preliminary consent materials relating to its commencement of a solicitation of eXegenics’stockholders to consent to the removal of all the members of the Board and the election of five new directors nominated by the Meyers Group to serve as the sole members of the Board. On September 15, 2003, the Meyers Group filed with the SEC amended preliminary consent solicitation materials, and on September 30, 2003, the Meyers Group filed definitive consent solicitation materials.
At a meeting held on September 2, the Board of Directors of eXegenics set a record date in response to the Meyers group’s request in connection with the consent solicitation. In accordance with eXegenics’ bylaws and applicable law, the Board set September 5, 2003 as the record date.
eXegenics Inc. Consent Solicitation
On October 2, 2003, eXegenics filed with the SEC preliminary proxy materials relating to its opposition to the Meyers Group’s consent solicitation.eXegenics’ materials stated that eXegenics’ Board of Directors unanimously opposes the Meyers Group’s consent solicitation and recommends that its stockholders not provide their consent to the Meyers Group’s proposals, and should revoke any such consents that might have been given.
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On October 3, 2003, eXegenics filed with the SEC soliciting materials under Rule 14a-12. On October 8, 2003, eXegenics filed with the SEC definitive consent solicitation materials. On October 10, 2003, eXegenics filed with the SEC definitive additional materials relating to its opposition to the Meyers Group’s consent solicitation.
EI Acquisition and Foundation Growth Investments LLC Tender Offer
On May 29, 2003, EI Acquisition Inc. (“EI Acquisition”), a wholly-owned subsidiary of Foundation Growth Investments LLC (together with EI Acquisition, the “Foundation Group”), commenced an unsolicited cash tender offer (the “Foundation Offer”) for all of the outstanding shares of common stock and Series A preferred stock at a price of $0.40 per share, which offer price was later increased to $0.60 per share. For the reasons described in eXegenics’Solicitation/Recommendation Statement on Schedule 14D-9 in response to the Foundation Offer, filed with the Securities and Exchange Commission on June 12, 2003, as amended (the “Foundation Schedule 14D-9”), the Board unanimously recommended that eXegenics stockholders reject the Foundation Offer and not tender their shares of eXegenics Stock to the Foundation Group.
On June 18, 2003, the Foundation Group filed with the SEC preliminary proxy materials relating to its commencement of a solicitation of eXegenics’stockholders to consent to the removal of all the members of eXegenics’ board of directors and the election of three new directors nominated by the Foundation Group to serve as the sole members of eXegenics’ board of directors. The Foundation Group’s consent solicitation materials stated the belief of the Foundation Group that, if elected, the Foundation Group’s nominees would consider taking the following actions: (i) exempting the Foundation Group from the application of the poison pill adopted by eXegenics’ board of directors; (ii) exempting the Foundation Group from the application of the Delaware anti-takeover statute; (iii) repealing all of the recent amendments toeXegenics’ bylaws, which provide, among other things, for certain procedures for stockholder proposals and nominations to be presented at stockholder meetings and for stockholders taking action by written consent; and (iv) approving a merger between eXegenics and EI Acquisition Inc. following the completion of the Foundation Offer. On June 25, 2003, eXegenics filed with the Commission preliminary proxy materials relating to its opposition to the Foundation Group’s consent solicitation. eXegenics’ materials stated the belief of eXegenics that its stockholders should not provide their consent to the Foundation Group’s proposals and should revoke any such consents that might have been given.
On September 9, 2003, with less than 1% of eXegenics’ shares having been tendered, the Foundation Group terminated its tender offer to acquire all of the outstanding shares of common stock and Series A Convertible Preferred Stock of eXegenics, as well as its consent solicitation of eXegenics’ shareholders.
Stockholder Rights Plan
On June 9, 2003, in an effort to preserve the ability of the Board andeXegenics’ senior management to resist inadequate takeover proposals and thus protect stockholder value, eXegenics adopted a stockholder rights plan (the “Rights Plan”). The Rights Plan requires any party seeking to acquire 15% or more of the outstanding eXegenics common stock to obtain the approval of the Board or else the rights granted to eXegenics’ stockholders under the Rights Plan that are not held by the acquirer will become exercisable for eXegenicscommon stock, or common stock of the acquirer, at a discounted price.
AVI BioPharma, Inc. Tender Offer
On July 16, 2003, eXegenics and AVI entered into an Agreement and Plan of Merger, pursuant to which AVI would first commence an exchange offer in which AVI, through its wholly-owned subsidiary, Elk Acquisition, Inc., would offer 0.103 of a share of AVI common stock for each outstanding share of eXegenicsCommon Stock and 0.155 of a share of AVI common stock for each outstanding share of eXegenics Preferred Stock. The exchange offer was to be followed by a merger in which each share of eXegenics Common Stock not tendered in the exchange offer would be converted into the right to receive
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0.103 of a share of AVI common stock and each share of eXegenics Preferred Stock not tendered in the exchange offer would be converted into the right to receive 0.155 of a share of AVI common stock. On July 25, 2003, AVI commenced the exchange offer. On August 11, 2003, AVI announced that it had amended the terms of the exchange offer by increasing the exchange ratio to 0.123 of a share of AVI’s common stock for each share of eXegenics’ Common Stock, and 0.185 of a share of AVI’s common stock for each share of eXegenics’ Preferred Stock.
On September 2, 2003, eXegenics received notice that AVI had elected to terminate the Agreement and Plan of Merger, which termination also served to terminate the exchange offer.
Change of Independent Auditor
On September 17, 2003, eXegenics was advised by Ernst & Young LLP (“E&Y”) that E&Y was resigning as eXegenics’ independent auditor. The decision to change independent auditors was not recommended or approved by the Audit Committee (the “Audit Committee”) of the Board of Directors of eXegenics. The reports of E&Y on the financial statements of eXegenics as of and for the fiscal years ended December 31, 2001 and 2002 contained no adverse opinion or disclaimer of opinion, nor were the reports qualified or modified as to uncertainty, audit scope or accounting principles. In connection with its audits for the fiscal years ended December 31, 2001 and December 31, 2002, and during the subsequent interim period that began on January 1, 2003 and ended September 17, 2003, there were no disagreements with E&Y on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if they had occurred and not been resolved to the satisfaction of E&Y, would have caused E&Y to make reference to such disagreements in their reports on the financial statements for such years.
On November 12, 2003, eXegenics announced that it had selected BDO Seidman, LLP as its new independent auditor to replace its previous auditor, Ernst & Young. The Audit Committee of the Board of Directors made the selection following an evaluation of requested proposals from auditors with proven abilities to serve the requirements of publicly-traded companies.
Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to investments, intangible assets, income taxes, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements. Revenue from research support agreements is recognized ratably over the length of the agreements. Revenue resulting from contracts or agreements with milestones is recognized when the milestone is achieved. Amounts received in advance of services to be performed, or the achievement of milestones, are recorded as deferred revenue. Payments to third parties in connection with nonrefundable license fees are being recognized over the period of performance of related research and development activities. We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. While we have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event we were to determine that we would be able to realize deferred tax assets in the future in excess of its net recorded amount, an adjustment to the net deferred tax asset would increase income in the period such determination was made. Likewise, should we determine that we would not be
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able to realize all or part of our net deferred tax asset in the future, an adjustment to the net deferred tax asset would be charged to income in the period such determination was made.
RESULTS OF OPERATIONS
For the Three Months Ended September 30, 2003 and 2002
Revenue
There were no revenues for the three months ended September 30, 2003 and 2002.
Research and Development Expenses
We incurred no research and development expenses for the three months ended September 30, 2003. For the three months ended September 30, 2002, we incurred research and development expenses of $824,000. These expenses consisted of $328,000 for research salaries and benefits, $161,000 for research services, supplies and consultants, $190,000 for contract research, license and royalty agreements, and $145,000 for building, equipment, depreciation and other research and development expenses. The decrease in research and development expenses for the three months ended September 30, 2003, as compared to the same period in 2002, was attributable to the termination of all research programs during the first six months of the current year.
General and Administrative Expenses
We incurred general and administrative expenses as of $1,441,000 for the three months ended September 30, 2003 and $2,025,000 for the three months ended September 30, 2002, a decrease of $584,000 or 29 percent. The decrease in general and administrative expenses for the three months ended September 30, 2003 as compared to the same period in 2002 was attributable to a $260,000 decrease in consulting fees and expenses, a $180,000 decrease in fees and expenses relating to intellectual property, and a $144,000 decrease in corporate travel, governance, and other operating expenses. The declines in expenses relating to consulting and intellectual property are the result of the aforementioned termination of all research operations in 2003.
Expenses Related to Strategic Redirection
Expenses related to strategic redirection, net of reimbursements, were $114,000 for the three months ended September 30, 2003. We incurred $133,000 in expenses from operations terminated during the three months ended September 30, 2003, which included $108,000 for research and legal fees related to intellectual property, $20,000 for terminated employees, and $5,000 for other expenses related to terminated scientific programs. This amount was offset by the reimbursement of $19,000 of research and development costs from BMS. Approximately $249,000 in accrued expenses remains to be paid at September 30, 2003.
Other Income and Expense
Other income, net of other expenses, was $30,000 and $167,000 for the three months ended September 30, 2003 and 2002, respectively, a decrease of $137,000 or 82 percent. This decrease was due primarily to a decline in interest income of $142,000, from $171,000 for the three months ended September 30, 2002 to $29,000 for the same period in 2003. The decrease in interest income was due to lower interest rates in 2003 and also to lower invested balances.
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Net Loss
We incurred a net loss attributable to common shareholders of $1,525,000 and $2,682,000 for the three months ended September 30, 2003 and 2002. The decrease in net loss of $1,157,000 was primarily the result of the aforementioned changes in our operations. Net loss per common share was $0.10 and $0.17 for the three months ended September 30, 2003 and 2002, respectively.
For the Nine Months Ended September 30, 2003 and 2002
Revenues were $13,000 and $556,000 for the nine months ended September 30, 2003 and 2002, respectively, a decrease of $543,000 or 98 percent. Revenues in both periods were attributable to license and research and development payments from our agreements, with Aventis in 2003 and Bristol-Myers Squibb in 2002.
We incurred research and development expenses of $154,000 for the nine months ended September 30, 2003 and $3,301,000 for the nine months ended September 30, 2002, a decrease of $3,147,000 or 95 percent. This decrease was attributable to the termination of all research programs during the first six months of 2003. Research salaries and benefits decreased $1,111,000, expenses for contract research, licenses and royalties decreased $620,000, and research services, supplies, and consultants expenses decreased $891,000 for the nine months ended months ended September 30, 2003 as compared to the same period in 2002. The remaining decrease of $525,000 was due to decreased building, equipment, depreciation and lab supplies expenses.
We incurred general and administrative expenses of $3,759,000 for the nine months ended September 30, 2003 and $4,123,000 for the nine months ended September 30, 2002, a decrease of $364,000 or 9 percent. The decrease in general and administrative expenses for the nine months ended September 30, 2003 as compared to the same period in 2002 was primarily attributable to a $513,000 decrease in legal and research fees relating to intellectual property and a decrease in professional consulting fees and expenses of $214,000, partially offset by an increase in corporate legal expenses of $389,000. An overall decline in other operating expenses of $26,000 accounted for the remaining decrease. The decrease in expenses relating to intellectual property and consulting services for the nine months ended September 30, 2003 as compared to the same period in 2002 was the result of the aforementioned termination of research activities in 2003. Increased legal expenses for the same period were due to litigation and merger and acquisitions activities.
We incurred expenses related to strategic redirection, net of reimbursements, of $561,000 for the nine months ended September 30, 2003. The charge was primarily due to $419,000 in severance benefits for terminated employees, $208,000 for research and legal fees related to intellectual property, and $170,000 for the write down of laboratory equipment to its estimated resale value. In addition, there were charges of $48,000 for other expenses of terminated scientific programs. These expenses were partially offset by the $284,000 reimbursement from BMS.
Other income, net of other expenses, was $154,000 and $532,000 for the nine months ended September 30, 2003 and 2002, respectively, a decrease of $378,000 or 71 percent. This change was due primarily to a decrease in interest income of $399,000 for the nine months ended September 30, 2003 as compared to the
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same period in 2002. The decrease in interest income was due to lower interest rates in 2003 and also to lower invested balances. The decline in interest income was partially offset by the net increase in other income and expense of $21,000.
In the nine months ended September 30, 2003, we incurred a net loss attributable to common shareholders of $4,338,000, a 33 percent decline from the $6,505,000 loss for the nine months ended September 30, 2002. The decrease in net loss of $2,167,000 was primarily the result of the aforementioned changes in our operations. Net loss per common share was $0.28 for the nine months ended September 30, 2003 and $0.42 for the nine months ended September 30, 2002.
Liquidity and Capital Resources
At September 30, 2003, we had cash and cash equivalents of approximately $11,648,000. Since our inception, we have financed our operations from debt and equity financings as well as fees received from licensing and research and development agreements. During the nine months ended September 30, 2003, net cash used in operating activities was $5,039,000, the largest elements of which were payments, net of reimbursements, of approximately $963,000 related to the termination of scientific programs, and payments of $1,077,000 for legal fees. Our liquidity was affected by the costs of the Weiss Litigation, the unsolicited tender offer, and the failed merger proposal with AVI. The Company made payments of approximately $1,000,000, including business and legal fees, related to the aforementioned litigation and transactions during the nine months ended September 30, 2003. In addition, during the nine months ended September 30, 2003, we received $10,000,000 from a maturing investment instrument. The latter funds were reinvested in short-term money market instruments.
We believe that we have sufficient cash and cash equivalents on hand at September 30, 2003 to finance our plan of operation through at least September 30, 2004. We currently have no new material commitments to purchase capital assets or intellectual property. Should additional funding be required, there can be no assurance that any required financings will be available, through bank borrowings, debt or equity offerings on acceptable terms or at all.
Trading in the Company’s Common Stock
On October 25, 2002, we transferred from the Nasdaq National Market to the Nasdaq SmallCap Market as a result of our failure to comply with the Nasdaq National Market’s minimum bid price requirement of $1.00 per share. On January 21, 2003, we were provided an additional 180 calendar days, or until July 21, 2003, to regain compliance with such requirement. Although on July 21, 2003 we failed to regain compliance with such requirement, given that we met the initial listing requirements for the Nasdaq SmallCap Market, Nasdaq provided us with an additional 90 calendar days, or until October 20, 2003 to regain compliance with the minimum bid price requirement.
On October 20, 2003, eXegenics received official notification from The Nasdaq Stock Market that it is not in compliance with the minimum $1.00 closing bid price per share requirement as set forth in NASD Marketplace Rule 4310(c)(4), and the requirement for a minimum of 3 independent members of the audit committee as set forth in NASD Marketplace Rule 4350(d)(2). eXegenics common stock is, therefore, subject to delisting from The Nasdaq SmallCap Market.eXegenics requested a hearing before the Nasdaq Listing Qualifications Panel to review the Nasdaq staff determination. This hearing has been scheduled for December 4, 2003. As set forth in NASD Marketplace Rule 4820, this request stays any delisting action pending issuance of a written determination by the Nasdaq Listing Qualifications Panel. There can be no assurance that the Panel will grant our request for continued listing on The Nasdaq SmallCap Market. In the event that the Panel does not grant eXegenics’ request for continued listing, we anticipate that our common stock will be eligible for quotation on the Over-the-Counter Bulletin Board of the National Association of Securities Dealers (OTCBB).
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On November 10, eXegenics announced that Gordon F. Martin, a former Chief Financial Officer of the NASDAQ Stock Market, Inc. had been appointed to the Board of Directors of eXegenics, Inc. and as a member of the Audit Committee (thus fulfilling the requirement for a minimum of 3 independent members of the audit committee as set forth in NASD Marketplace Rule 4350(d)(2)).
If we are delisted from the Nasdaq SmallCap Market, the liquidity of our common stock could be further materially impaired, not only with respect to the number of shares that may be bought and sold at a given price, but also through delays in the timing of transactions and reduction in media coverage of our company.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our exposure to financial market risk, including changes in interest rates, relates primarily to our cash and cash equivalents portfolio. Our cash and cash equivalents portfolio is invested in money market funds that maintain large portfolios consisting of short-term securities with investment grade ratings to minimize interest rate and credit risk as well as to provide for an immediate source of funds. Due to the nature of our investments we have concluded that there is no material market risk exposure. We do not believe that a 100 basis point increase or decrease in interest rates would significantly impact our business. We do not have any derivative instruments. We operate only in the United States and all sales have been made in U.S. dollars. We do not have any material exposure to changes in foreign currency exchange rates.
Item 4. Controls and Procedures
Our management, including President and Chief Executive Officer Ronald L. Goode and Chief Business Officer and Chief Financial Officer David E. Riggs, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q, have concluded that, based on such evaluation, our disclosure controls and procedures were adequate and effective, particularly during the period in which this Quarterly Report on Form 10-Q was being prepared.
Further, there were no significant changes in the internal control over financial reporting, identified in connection with the evaluation of such internal control that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Weiss Litigation. On May 15, 2003, The M&B Weiss Family Limited Partnership of 1996 filed a lawsuit in the Delaware Court of Chancery, purportedly as a class action on behalf of all other similarly situated stockholders of eXegenics, against eXegenics and its current directors, and purportedly as a derivative action on behalf of eXegenics against the directors (the “Weiss Litigation”). The complaint alleges, among other things, that the defendants have mismanagedeXegenics, have made unwarranted and wasteful loans and payments to certain directors and third parties, have disseminated a materially false and misleading proxy statement in connection with the 2003 annual meeting of eXegenics’ stockholders, and have breached their fiduciary duties to act in the best interests of eXegenics and its stockholders. The complaint seeks, among other things, court orders mandating that the defendants cooperate with parties proposing bona fide transactions to maximize stockholder value, make corrective disclosures with respect to the proxy statement for the 2003 annual meeting, and account to eXegenics and the plaintiffs for damages suffered as a result of the actions alleged in the complaint. The plaintiffs are, in addition, seeking an award of costs and attorneys’ fees and expenses. On June 9, 2003, the defendants filed a joint motion with the Delaware Court of
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Chancery to dismiss the complaint for failure to state a claim and for failure to make the statutorily required demand on eXegenics to assert the subject claims.
On September 9, 2003, a First Amended Shareholder’s Class and Derivative Complaint was filed by The M&B Weiss Family Limited Partnership of 1996 (an entity controlled by Melvyn Weiss) in the Delaware Court of Chancery againsteXegenics and its directors, purportedly as a class action on behalf of the plaintiff and on behalf of all other similarly situated stockholders ofeXegenics, and purportedly as a derivative action on behalf of eXegenicsagainst the directors of eXegenics. The amended complaint, which was filed in substitution for the complaint previously filed by the same plaintiff on May 15, 2003, seeks, among other things, court orders mandating: (i) that the amended complaint be declared a proper class action and certifying the plaintiff as the class representative; (ii) that the defendants restore toeXegenics all monies alleged to have been wasted in connection with the aborted merger transactions with IDDS and AVI; (iii) that the defendants cooperate with parties proposing bona fide transactions to maximize stockholder value; (iv) that the defendants act independently so that the interests of eXegenics’public shareholders will be protected; (v) that the individual defendants ensure that no conflicts of interest exist between themselves and eXegenics and its stockholders; and (vi) that the individual defendants account to eXegenics, the plaintiff and the proposed class for damages suffered as a result of the actions alleged in the amended complaint. The plaintiff is in addition seeking an award of costs and attorneys’ fees and expenses. On September 22, 2003, the defendants filed a subsequent joint motion with the Delaware Court of Chancery to dismiss the complaint for failure to state a claim and for failure to make the statutorily required demand on eXegenics to assert the subject claims. On that same day, the defendants also filed a joint motion with the Delaware Court of Chancery to disqualify Melvyn Weiss and his law firm from serving as both class counsel and as class representative.
Labidi Proceeding. In October of 2003, Dr. Abdel Labidi, one of our former employees, filed suit against eXegenics in a Dallas Federal District Court alleging claims of discrimination and conversion. eXegenics intends to vigorously defend its interests in the lawsuit.
2110 Research Row, Ltd. Proceeding. In connection with our termination of discovery research activities, we are vacating 19,300 square feet of office and laboratory space that we currently occupy at 2110 Research Row, Dallas, Texas, by December 31, 2003, the termination date of our lease agreement. We have occupied this facility since October 1991. 2110 Research Row, Ltd. (the “Landlord”) acquired this property in April 2002. The Landlord contends he is owed payments that we believe to be outside the terms of the lease agreement or waived by the previous landlord. Among the Landlord’s claims for which he seeks monetary payments from eXegenics are late fees on monthly lease payments due to and waived by the previous landlord, incremental property taxes incurred by the Landlord as a result of the change in the tax status of the property from not-for-profit to for profit, and additional lease payments resulting from the purported miss-measurement of the square footage of space we occupy from that contained in the lease agreement. The aggregation of these and other claims made by the landlord is approximately $135,000.
In October 2003, the Landlord filed a lien on our personal property located at 2110 Research Row.
In October 2003, eXegenics filed suit against 2110 Research Row, Ltd., and 9000 Harry Hines, Inc., in a Dallas County District Court. eXegenics, as Tenant, and Landlord are parties to a lease agreement (“Lease Agreement”) dated October 1, 1991, as amended (currently completing the seventh and final amendment). The petition filed by eXegenics contends that the monetary payments sought by the Landlord are excluded under the Lease Agreement and requests a declaration from the Court that it is not in either monetary, or non-monetary, default.eXegenics cannot predict at this point the length of time that this litigation will be ongoing or the liability, if any, which may arise therefrom.
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Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
Foundation Group Consent Solicitation
On June 18, 2003, EI Acquisition Inc. (“EI Acquisition”), a wholly-owned subsidiary of Foundation Growth Investments LLC (together with EI Acquisition, the “Foundation Group”), filed with the SEC preliminary proxy materials relating to its commencement of a solicitation of eXegenics’ stockholders to consent to the removal of all the members of eXegenics’ board of directors and the election of three new directors nominated by the Foundation Group to serve as the sole members of eXegenics’ board of directors. The Foundation Group’s consent solicitation materials stated the belief of the Foundation Group that, if elected, the Foundation Group’s nominees would consider taking the following actions: (i) exempting the Foundation Group from the application of the poison pill adopted by eXegenics’ board of directors; (ii) exempting the Foundation Group from the application of the Delaware anti-takeover statute; (iii) repealing all of the recent amendments to eXegenics’ bylaws, which provide, among other things, for certain procedures for stockholder proposals and nominations to be presented at stockholder meetings and for stockholders taking action by written consent; and (iv) approving a merger between eXegenics and EI Acquisition Inc. following the completion of the Foundation Offer.
On June 25, 2003, eXegenics filed with the Commission preliminary proxy materials relating to its opposition to the Foundation Group’s consent solicitation. eXegenics’ materials stated the belief of eXegenics that its stockholders should not provide their consent to the Foundation Group’s proposals and should revoke any such consents that might have been given.
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Item 5. Other Information
eXegenics and Ronald L. Goode, Ph.D., its President and Chief Executive Officer, amended the notice of non-renewal period of his original employment agreement. Thus, his current contract, which originally provided for notice of non-renewal to occur “not less than one hundred fifty (150) days prior to the end of the term thereof” now provides for such notice to occur “not less than ninety (90) days prior to the end of the term thereof”. Thus, Dr. Goode’s employment will be automatically renewed on a year-to-year basis on the same terms and conditions as the preceding year, unless either party, not less than ninety (90) days prior to the end of the term thereof, serves notice on the other party of the intention not to renew the agreement.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
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(b) The following reports were filed on Form 8-K during the quarter ended September 30, 2003:
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
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EXHIBIT INDEX
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