SCHEDULE
14A
(Rule
14a-101)
INFORMATION
REQUIRED IN PROXY STATEMENT
SCHEDULE
14A INFORMATION
Proxy
Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
Filed
by
the Registrant x
Filed
by
a Party other than the Registrant o
Check
the
appropriate box:
| x |
Preliminary
Proxy Statement
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| o |
Confidential,
for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
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| o |
Definitive
Proxy Statement
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| o |
Definitive
Additional Materials
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| o |
Soliciting
Material Pursuant to §240.14a-12
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eXegenics,
Inc.
(Name
of
Registrant as Specified in its Charter)
(Name
of
Person(s) Filing Proxy Statement, if other than the Registrant)
Payment
of Filing Fee (Check the appropriate box):
| x |
No
fee required
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| o |
Fee
computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
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| 1) |
Title
of each class of securities to which transaction applies:
_________
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| 2) |
Aggregate
number of securities to which transaction applies:
_________
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3)
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Per
unit price or other underlying value of transaction computed pursuant
to
Exchange Act
Rule O-11 (set forth the amount on which the filing fee is calculated
and
state how it was determined):
_____________________________________________
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| 4) |
Proposed
maximum aggregate value of transaction:
________________
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| 5) |
Total
fee paid:
______________________________________________
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| o |
Fee
paid previously with preliminary
materials
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| o |
Check
box if any part of the fee is offset as provided by Exchange Act
Rule
0-11(a)(2) and identify the filing for which the offsetting fee was
paid
previously. Identify the previous filing by Registration Statement
number,
or the Form or Schedule and the date of its
filing.
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| 1) |
Amount
Previously Paid:
______________________________________
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| 2) |
Form,
Schedule or Registration Statement No.:
____________________
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| 3) |
Filing
Party:
________________________________________________
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| 4) |
Date
Filed:
__________________________________________________
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eXegenics
Inc.
1250
Pittsford-Victor Road
Building
200, Suite 280
Pittsford,
New York 14534
(585)
218-4368
NOTICE
OF SPECIAL MEETING OF STOCKHOLDERS
To
the
Stockholders of eXegenics Inc.:
The
board
of directors has determined that a special meeting of stockholders of eXegenics
Inc. will be held on [___________], [______], 2006 at the corporate offices
of
eXegenics, 1250 Pittsford-Victor Road, Building 200, Suite 280, Pittsford,
New
York 14534 at 9:00 a.m., local time, for the following
purposes:
1. To
approve the sale of 19,440,491 shares of eXegenics common stock pursuant
to the
stock purchase agreement dated August 14, 2006, in consideration of an
initial
aggregate purchase price of $8,613,000, which purchase price is subject
to
adjustment based on eXegenics stockholders' equity on the closing, as described
in the attached Proxy Statement;
2. To
approve an amendment to the certificate of incorporation of eXegenics to
increase the number of authorized shares of common stock from 30,000,000
shares
to 75,000,000 shares, as described in the attached Proxy Statement;
3. To
approve the issuance of 50,000 shares of eXegenics common stock to each of
John
A. Paganelli, our interim chief executive officer, secretary and chairman
of the
eXegenics board of directors, and Robert Baron, an eXegenics
director;
4. To
consider and vote
upon an adjournment of the special meeting, if necessary, to solicit
additional proxies; and
5. To
transact other business that may properly come before the special meeting,
or
any adjournments thereof.
The
board
of directors of eXegenics has fixed the close of business on ___________,
2006
as the record date for the determination of the stockholders entitled to
notice
of and to vote at the special meeting or any adjournments thereof.
Your
vote is important.
You are urged to attend the special meeting in person, but if you are unable
to
do so, the board of directors would appreciate the prompt return of the
enclosed
proxy card, dated and signed. If you sign, date and mail your proxy card
without
indicating how you wish to vote, your proxy will be counted as a vote FOR:
the
stock sale, the amendment to the certificate of incorporation of eXegenics,
the
issuance of 50,000 shares each to Messrs. Paganelli and Baron and the
adjournment of the special meeting, if necessary, to solicit additional
proxies.
If you fail to return your proxy card, the effect will be a vote “against” the
amendment to the certificate of incorporation of eXegenics and your shares
will
not be counted for purposes of determining whether a quorum is present
at the
special meeting. If you do attend the special meeting and wish to vote
in
person, you may withdraw your proxy and vote in
person.
By
Order
of the Board of Directors
November
[__], 2006
John
A.
Paganelli, Interim
Chief Executive Officer,
Secretary
and Chairman of the Board
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| SUMMARY | |
| QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING | |
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| OTHER INFORMATION ABOUT EXEGENICS | |
| ADDITIONAL INFORMATION FOR STOCKHOLDERS | |
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PROXY
STATEMENT
eXegenics
Inc.
1250
Pittsford-Victor Road
Building
200, Suite 280
Pittsford,
New York 14534
(585)
218-4368
The
board
of directors of eXegenics is using this Proxy Statement to solicit proxies
from
the holders of eXegenics common stock and Series A preferred stock for
use at
the eXegenics special meeting, and at any adjourned meeting for the purposes
set
forth in the “Notice of Special Meeting of Stockholders” and this Proxy
Statement. We are first mailing this Proxy Statement and accompanying form
of
proxy to eXegenics stockholders on or about November ___,
2006.
Matters
Relating to the Special Meeting
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eXegenics
Special Meeting
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Date,
Time and Place:
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_____________,
2006, 9:00 a.m., local time, at the corporate offices of eXegenics
Inc.,
1250 Pittsford-Victor Road, Building 200, Suite 280, Pittsford,
New York
14534.
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Purpose
of the Special Meeting is to Vote on the Following
Items:
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1.
the sale of 19,440,491 shares of eXegenics common stock pursuant
to the
stock purchase agreement, dated August 14, 2006, by and among
eXegenics
and the investors identified therein, as described under “Summary” on page
___; "The Stock Sale” on page ___ and “Special Meeting Proposals-Item
1-Stock Sale” on page___;
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2.
the amendment to the certificate of incorporation of eXegenics
to increase
the number of authorized shares of common stock from 30,000,000
shares to
75,000,000 shares, as described under "Special Meeting Proposals—Item
2—Amendment to the Certificate of Incorporation of eXegenics" beginning
on
page ___;
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3.
the grant of 50,000 shares of eXegenics common stock to each
of John A.
Paganelli, interim chief executive officer, secretary and chairman
of the
board of directors, and Robert Baron, an eXegenics director,
as described
under “Special Meeting Proposals-Item 3-Grant of Shares of Common Stock
to
Insiders” beginning on page ____;
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4.
the adjournment of the special meeting, if necessary, to solicit
additional proxies; and
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5.
such other matters as may properly come before the special meeting,
including the approval of any adjournment of the special
meeting.
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Record
Date:
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The
record date for shares entitled to vote at the special meeting
is
__________, 2006.
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Shares
Entitled to Vote:
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Shares
entitled to vote are eXegenics common stock and Series A preferred
stock
held at the close of business on the record date, _____________
,
2006.
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Outstanding
Shares Held on Record Date:
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As
of ________, 2006 (the record date), there were _________ shares
of
eXegenics common stock and ______ shares of eXegenics Series
A preferred
stock outstanding.
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Quorum
Requirement:
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A
quorum of stockholders is necessary to hold a valid special
meeting.
The
presence in person or by proxy of shares representing a majority
in
interest of all eXegenics capital stock issued and outstanding
and
entitled to vote - eXegenics commons stock and Series A preferred
stock --
at the special meeting is a quorum. Abstentions and broker non-votes
count
as present for purposes of establishing a quorum.
A
broker non-vote occurs on an item when a broker is not permitted
to vote
on that item without instruction from the beneficial owner of
the shares
and no instruction is given.
Brokers
may not vote on the proposal to approve the grant of shares of
eXegenics
common stock to John A. Paganelli and Robert Baron in the absence
of
instructions from the beneficial owners of the shares of eXegenics
common
stock and/or Series A preferred stock with respect to this
proposal.
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Outstanding
shares of eXegenics capital stock entitled to vote and beneficially
owned
by eXegenics directors as of ________, 2006 (the record
date):
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__________
shares of eXegenics common stock and ________ shares of eXegenics
Series A
preferred stock outstanding and entitled to vote at the special
meeting
were beneficially owned by the directors of eXegenics as of the
record
date. These shares represent in total approximately ____% of
the voting
power of eXegenics capital stock outstanding and entitled to
vote at the
special meeting. The holders of these shares have entered into
voting
agreements in which they have agreed to vote their shares of
common stock
in favor of the stock sale and the amendment to the certificate
of
incorporation.
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Each
share of eXegenics common stock that you own entitles you to
one vote
on
each proposal.
Each
share of eXegenics Series A preferred stock that you own entitles
you to
one vote on each proposal.
Shares
held by eXegenics in its treasury are not voted.
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Vote
Necessary to Approve the Proposals:
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Item
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Vote
Necessary
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I.
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Stock
Sale
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Approval
of the sale of shares of eXegenics common stock pursuant to the
stock
purchase agreement, as described in "The Stock Sale - The Stock
Purchase
Agreement” and “Special Meeting Proposal-Item 1-Stock Sale", requires an
affirmative vote of the majority of shares present in person
or by proxy
at the special meeting and entitled to vote. Abstentions will
be counted
towards the vote total, and will have the same effect as "Against"
votes.
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II.
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Amendment
to the certificate of incorporation to increase the authorized
shares of
common stock
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The
amendment to the certificate of incorporation of eXegenics as
described in
"Special Meeting Proposals—Item 2—Amendment to the Certificate of
Incorporation of eXegenics" requires the affirmative vote of
a majority of
the outstanding shares of eXegenics common stock and Series A
preferred
stock entitled to vote, voting as a single class, and the affirmative
vote
of a majority of the outstanding shares of eXegenics common stock
entitled
to vote, voting as a separate class. Abstentions will have the
effect of a
vote “Against” approval of the amendment to the certificate of
incorporation of eXegenics.
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III.
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Grant
of 50,000 shares of eXegenics common stock to John A. Paganelli,
eXegenics
interim chief executive officer, secretary and chairman of the
board of
directors, and Robert Baron, an eXegenics director
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Approval
of the stock grants described in “Special Meeting Proposals-Item 3-Grant
of Shares of Common Stock to Insiders” requires an affirmative vote of a
majority of the shares present in person or by proxy at the special
meeting and entitled to vote. Abstentions will be counted towards
the vote
total, and will have the same effect as “Against” votes. Broker non-votes
have no effect and will not be counted towards the vote
total.
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| IV. | Adjournment of the meeting, if necessary | Approval of the adjournment of the special meeting, if necessary, to solicit additional proxies requires the affirmative vote of the majority of shares present in person or represented by proxy at the special meeting and entitled to vote. Abstentions will be counted towards the vote total, and will have the same effect as “Against” votes. |
Voting
Voting.
You may
vote in person at the special meeting or by proxy. We recommend you vote
by
proxy even if you plan to attend the special meeting. You can always change
your
vote at the special meeting.
If
your
shares are held in “street name” by a broker, bank or other nominee, you will
receive instructions from the holder of record that you must follow in order
for
your shares to be voted.
If
you
properly give your proxy and submit your proxy card in time to vote, one
of the
individuals named as your proxy will vote your shares as you have directed.
You
may vote “for”
or
“against”,
or
“abstain”
from
voting with respect to each of the proposals. If you mark your proxy
"abstain"
with
respect to any proposal, you will be in effect voting against the proposal.
In
addition, if you fail to send in your proxy and do not vote in person at
the
special meeting, this, too, will have the same negative effect with respect
to
the proposal to amend the certificate of incorporation of eXegenics. If your
shares are held in "street name" by a broker, bank or other nominee, the
broker
cannot vote your shares on the proposal to grant shares of stock to Messrs.
Paganelli and Baron without your instructions. This is a "broker non-vote."
How
to Vote by Proxy
You
may
vote by mail by completing, signing and dating your proxy card and
returning it
in the enclosed, postage-paid and addressed envelope. If you mark
your voting
instructions on the proxy card, your shares will be
voted:
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as
you instruct, and
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according
to the best judgment of the proxy holders if a proposal comes
up for a
vote at the special meeting that is not on the proxy card or
for the
adjournment of the special
meeting.
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If
you
submit your proxy but do not make specific choices, your proxy will follow
the
board of directors' recommendations and vote your shares:
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FOR:
the sale of 19,440,491 shares of eXegenics’ common stock in the stock
sale;
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FOR:
the amendment to the certificate of incorporation of eXegenics
to increase
the number of authorized shares of common stock from 30,000,000
shares to
75,000,000 shares;
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FOR:
the grant of 50,000 shares of eXegenics common stock to each
of John
Paganelli and Robert Baron;
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FOR:
adjournment of the special meeting, if necessary, to solicit
additional
proxies; and
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In his
or their discretion as to any other business that may properly come
before the special meeting or adjourned special
meeting.
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Revoking
Your Proxy. You
may
change your vote at any time before your proxy is exercised, that is before
your
shares are voted, by:
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executing
and delivering a timely and valid later-dated proxy to John A.
Paganelli,
secretary of eXegenics;
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giving
written notice of revocation to eXegenics's secretary that you
have
revoked your proxy, or
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voting
in person at the special meeting.
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Voting
in person.
If you
plan to attend the special meeting and wish to vote in person, we will give
you
a ballot at the special meeting. However, if your shares are held in the
name of
your broker, bank or other nominee, you must bring an account statement or
letter from the nominee indicating that you are the beneficial owner of the
shares on _____________, 2006, the record date for shares entitled to vote
at
the special meeting.
| If your shares of eXegenics stock are held in "street name" by your broker, bank or other nominee and you do not provide your broker, bank or nominee with instructions on how to vote your "street name" shares, your broker, bank or nominee: |
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will
be
permitted to vote on the adoption of the stock sale, the amendment
to the
certificate of incorporation of eXegenics and the proposal
to adjourn the
special meeting to solicit additional
proxies, and
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will
not
be
permitted to vote on the issuance of shares of eXegenics common
stock to
Messrs. Paganelli and Baron.
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You
should therefore be sure to provide your broker with instructions on
how to vote
your shares.
Proxy
solicitation.
The
accompanying proxy is solicited by the board of directors of eXegenics. The
cost
of preparing, assembling, printing and mailing the notice of special meeting
of
stockholders, this Proxy Statement, the enclosed form of proxy and any
additional materials, as well as the cost of soliciting the proxies will
be
borne by us, including reimbursement paid to brokers and other nominees for
their reasonable expenses in delivering the proxy materials to you and getting
your voting instructions.
In
addition to this mailing, eXegenics employees may solicit proxies personally,
electronically or by telephone. We will not pay additional compensation to
our
employees for their solicitation efforts, but we will reimburse them for
any
out-of-pocket expenses they may incur in their solicitation efforts. eXegenics
may also retain firms or individuals to assist it in the solicitation of
proxies
and estimates that it may incur expenses of up to $_______ in connection
with
such engagements.
The
extent to which these proxy soliciting efforts will be necessary depends
entirely upon how promptly proxies are submitted. You should send in your
proxy
without delay.
Other
Business; Adjournments
We
are
not currently aware of any other business to be acted upon at the special
meeting. Under the laws of Delaware, where eXegenics is incorporated, no
business other than procedural matters may be raised at the special meeting
unless proper notice to the stockholders has been given. If, however, other
matters are properly brought before the special meeting, or any adjourned
meeting, your proxies will have discretion to vote or act on those matters
according to their best judgment, including to adjourn the special
meeting.
Adjournments
may be made for the purpose of, among other things, soliciting additional
proxies. If a quorum is present, the special meeting may be adjourned by
approval of the holders of shares representing a majority of the shares
present in person or by proxy at the special meeting and entitled to
vote. In the absence of a quorum, the chairman of the board of directors of
eXegenics may adjourn the special meeting. In either case, the special
meeting
may be adjourned, without further notice other than by an announcement
made at
the special meeting, unless the adjourned meeting is to another time more
than
30 days from the special meeting, or if after the adjournment a new record
date
is fixed for the adjourned meeting. At the adjourned meeting eXegenics
may
transact the business which was to be transacted at the special meeting.
eXegenics does not currently intend to seek an adjournment of the special
meeting.
This
summary highlights selected information from this Proxy Statement. It may
not
contain all of the information that is important to you. We urge you to
read
carefully this Proxy Statement and the documents attached to this Proxy
Statement for a complete understanding of the matters to be considered
by the
stockholders at the special meeting. Certain items in this Summary include
a page reference directing you to a more complete description of that item
in
this Proxy Statement.
Recommendation
of the eXegenics board of directors (see page
_____):
The
eXegenics board of directors unanimously recommends that the eXegenics
stockholders vote FOR:
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the
sale of 19,440491 shares of eXegenics common stock to the
Investors;
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the
amendment to the certificate of incorporation of eXegenics
to increase the
number of authorized share of common stock from 30,000,000
shares to
75,000,000 shares;
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the
issuance of 50,000 shares of eXegenics common stock to each
of Messrs.
Paganelli and Baron pursuant to the Stock grants;
and
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| · | the adjournment of the special meeting, if necessary, to solicit additional proxies. |
The
Stock Purchase Agreement (see
page______)
The
stock
purchase agreement is attached as Annex
A
to this
Proxy Statement. You are encouraged to read the stock purchase agreement
as it
is the legal document that governs the stock sale.
Purchase
price per share of eXegenics common stock (see
page ________)
Under
the
terms of the stock purchase agreement, in consideration of an initial
aggregate
purchase price of $8,613,000 (or $.44 per share of eXegenics common stock)
eXegenics will sell and issue 19,440,491 shares of eXegenics common stock
to the
Investors. The aggregate purchase price to be paid by the Investors is
subject
to adjustment based on eXegenics’s stockholders’ equity at the closing date of
the stock sale and the outcome of the disputes eXegenics currently has
with
Ronald L. Goode and Abdel Hakim Labidi. The final aggregate purchase
price to be
paid by the Investors on the closing date of the stock sale is equal
to
eXegenics’s stockholders’ equity at that date. At June 30, 2006, stockholders'
equity was $8.6 million.
Purchasers
of eXegenics common stock (see page ___)
On
the
closing date of the stock sale, an aggregate of 19,440,491 shares of eXegenics
common stock will be sold to the following purchasers (collectively, the
“Investors”):
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Number
/
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Percentage
of shares of eXegenics
common
stock owned
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Purchaser
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percentage
of
shares
to be sold
(approximately)
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immediately
after the stock sale on a fully-diluted
basis(1)
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Frost
Gamma Investments Trust, a Florida trust
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15,490,546/80.0
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%
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40.7
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%
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New
Valley, LLC, a Delaware limited liability company
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2,257,110/11.6
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%
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5.9
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%
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RFJM,
LLC, a ___________________ limited liability company
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225,711/1.16
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%
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*
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MZ
Trading LLC, a ________________ limited liability company
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112,856/*
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*
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Harter
Financial Inc., a New York corporation
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112,856/*
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*
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Encore
Atlantic Fund, LLC., a ____________ limited liability
company
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451,422/2.3
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%
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1.2
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%
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Joseph
E. and Diane DeLuca
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282,139/1.5
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%
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*
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Robert
Sudack
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112,856/*
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*
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Roni
Rosenstock
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112,856/*
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*
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Marie
V. Wolf
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282,139/1.5
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%
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*
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Less
than 1%
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Assumes
the issuance of 1,667,017 shares of common stock upon conversion
of
outstanding Series A preferred stock, the issuance of stock bonuses
and
the exercise of outstanding options and
warrants.
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None
of
the Investors is currently an affiliate of eXegenics. The 19,440,491 shares
of
eXegenics common stock issued to the Investors will equal 51% of the outstanding
capital stock of eXegenics on the closing date of the stock sale, on a
fully-diluted basis.
The
concentration of eXegenics capital stock
ownership with the Investors, in particular Frost Gamma Investments Trust
and
New Valley, LLC will limit our current stockholders ability to influence
corporate matters
After
the closing of the stock sale, Frost Gamma
Investments Trust and New Valley, LLC, together with the other Investors
will
own 51% of eXegenics common stock on a fully diluted basis, representing
approximately 51% of the voting power of our outstanding capital stock. Frost
Gamma Investments Trust and New Valley, LLC, together with the other Investors
therefore will have significant influence over the management and affairs
of
eXegenics and over all matters requiring stockholder approval, including
the
election of directors and significant corporate transactions, such as a merger
or other sale of eXegenics or its assets, for the foreseeable future. This
concentrated control limits the ability of current eXegenics stockholders
to
influence corporate matters and, as a result, Frost Gamma Investments Trust
and
New Valley, LLC, together with the other Investors may take actions that
eXegenics current stockholders do not view as beneficial.
Reasons
for the stock sale (see page ____)
eXegenics
is proposing the stock sale because, among other things, it believes the funds
invested in eXegenics will provide eXegenics with working capital that can
be
used to create future operational and business opportunities.
Recommendation
of, and factors considered by, the eXegenics board of directors as to the
stock sale (see page ___)
After
careful consideration, eXegenics’s board of directors, by unanimous vote, has
determined the stock sale to be fair to the eXegenics stockholders and
in their
best interests and declared the stock sale advisable. The eXegenics’s board of
directors approved the stock purchase agreement and recommends that the
eXegenics stockholders approve the sale of shares of eXegenics common stock
to
the Investors pursuant to the stock purchase agreement.
The
eXegenics board of directors approved the stock sale based on a number of
factors, including, among other factors, the following:
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the
infusion of additional capital will provide eXegenics with the
ability to
participate in business opportunities that might not otherwise be
available to eXegenics because of its current limited capital resources
and limited business, which is currently that of a holding
company;
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the
Management and investment experience of Phillip Frost, M.D., which
is
described in greater detail on page ____ of this Proxy Statement,
and who
is the sole trustee of Frost Gamma Investment Trusts, an Investor
who will
purchase 15,490,546, or approximately 80%, of the shares of eXegenics
common stock being sold;
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•
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the
likelihood that eXegenics will, as a result of its receipt of the
proceeds
from the sale, have better opportunities for future growth;
and
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the
ability of eXegenics stockholders to continue to participate in potential
business opportunities identified by
eXegenics.
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In
considering the recommendation of the eXegenics board of directors with
respect
to the stock sale, eXegenics stockholders should be aware that certain
directors
of eXegenics have certain interests in the stock sale that are different
from,
or are in addition to, the interests of eXegenics stockholders generally.
We
encourage you to read the section titled "Interests of eXegenics Directors
in
the Stock Sale " at page [____] for a discussion of these
interests.
In
addition to the interests that certain directors
of eXegenics might have in the stock sale, the board of directors also
considered the fact that the stock sale will result in a change-in-control
of
eXegenics and does not represent any premium over book value for the shares
of
eXegenics common stock being purchased. However, the eXegenics board determined
that the anticipated benefits highlighted above and discussed in greater
detail
under "The Stock Sale - General - Recommendations of the Board of Directors
and Reasons for the Stock Sale" of the stock sale necessitated a vote for
and recommendation of the sale of eXegenics common stock to the
Investors.
Ownership
of eXegenics after the stock sale (see page _______)
At
the
closing of the stock sale eXegenics will issue 19,440,491 shares of eXegenics
common stock to the Investors. Immediately following the completion of the
stock
sale, the Investors will own 51% of the outstanding capital stock of eXegenics
on a fully-diluted basis. This number assumes the conversion of all outstanding
eXegenics Series A preferred stock, which are convertible on a share-for-share
basis into shares of eXegenics common stock, the exercise of all outstanding
options or warrants to purchase shares of eXegenics common stock and the
issuance of 50,000 shares of eXegenics common stock to each of Mr. Paganelli
and
Mr. Baron immediately prior to the closing of the stock sale.
Current
stockholders to experience immediate dilution as a result of the stock
sale
As
a result of the stock sale, the current stockholders'
percentage ownership of eXegenics common stock will be diluted by more than
51%.
Currrently, there are a total of 18,558,118 shares of eXegenics common stock
issued and outstanding on a fully diluted basis. If the stock sale is
consummated, 19,440,491 shares of eXegenics common stock will be issued to
the
Investors and 50,000 shares of eXegenics common stock will be issued to each
of
Messrs. Paganelli and Baron and, as a result, the current 18,558,118 shares
of
eXegenics common stock will represent approximately 49% of the issued and
outstanding common stock of eXegenics on a fully diluted basis after the
stock
sale.
Registration
of the eXegenics common stock to be issued in the stock sale and to the
directors (see page-_________)
Neither
the shares of eXegenics common stock to be issued in the stock sale, or the
shares to be issued to Messrs. Paganelli and Baron will be registered under
the
Securities Act of 1933, as amended (the “Securities Act”). As a result these
shares will be “restricted securities” within the meaning of the Securities Act
and may not be resold in the public market
place in the absence of a registration statement covering the shares, or an
exemption from the registration requirements under the Securities Act and any
applicable state securities laws.
Voting
agreements (see page _______)
Voting
agreements of directors and greater than 5% stockholders of
eXegenics
The
directors of eXegenics own as a group approximately 6.85% of the shares of
eXegenics common stock and approximately 6.54% of the shares of Series A
preferred stock entitled to vote at the special meeting.
Each
of
our directors and Bruce Meyers and J. Morton Davis, each a beneficial owner
of
more than 5% of eXegenics capital stock entitled to vote at the special meeting,
have entered into voting agreements with the Investors. Under the voting
agreements, each of these directors and stockholders has agreed to vote his
shares of eXegenics common stock:
| • |
in
favor of the sale of shares of eXegenics common stock pursuant to
the
stock purchase agreement, and
|
| • |
in
favor of the amendment to the certificate of incorporation of eXegenics
to
increase the number of authorized shares of eXegenics common stock
to
75,000,000.
|
The
total number of shares subject to the voting
agreements represent approximately ___% of the total voting power of shares
of
eXegenics capital stock entitled to vote at the special meeting, a total
of ___
shares of common stock and ___ shares of Series A preferred
stock.
Voting
agreements of Investors post stock sale
Each
of
the Investors have agreed to enter into a voting agreement pursuant to which
the
Investors will agree to vote his, her or its shares of eXegenics common stock
for the election of John Paganelli and Robert Baron as directors of eXegenics.
The
total
number of shares of common stock subject to the post-stock sale voting agreement
represents approximately 51% of the total voting power of shares of eXegenics
capital stock entitled to vote on matters requiring stockholder approval,
including election of directors. This post-stock sale voting agreement will
continue for a period of three years from consummation of the stock
sale.
Resignation
of current directors and new directors following the stock sale (see page
________)
Upon
completion of the stock sale, Robert Benou and David Lee Spencer, M.D. will
resign as directors of eXegenics, the size of the board of directors will be
increased by one, and three designees of Dr. Frost will be appointed to fill
the
vacancies created. The directors will serve until eXegenics next annual meeting
of stockholders. John Paganelli, who is currently chairman and interim chief
executive officer and secretary of eXegenics, and Robert Baron, who is currently
a director of eXegenics, will continue as directors of eXegenics until the
next
annual stockholders meeting.
The
change in the size and composition of the eXegenics
board of directors will result in currrent eXegenics directors representing
a
minority of the reconstituted eXegenics board of directors. As of the date
of
this Proxy Statement, the Frost designees had not been identified. Accordingly,
stockholders of eXegenics considering the stock sale proposal are being asked
to
vote on this matter without knowledge of the names or experience or potential
conflicts of three board members. Under the bylaws of eXegenics and pursuant
to
the Delaware General Corporation Law, the vote of the majority of the directors
present at a meeting at which a quorum is present constitutes the act of
the
board of directors. The Frost designees will constitute a majority of the
eXegenics board of directors.
Interest
of certain persons in the stock sale (see page ________)
When
you
consider the recommendations of the eXegenics board of directors that the
eXegenics stockholders approve the stock sale, you should be aware that the
members of the management and board of directors identified in "The Stock Sale
-- Interests of eXegenics Executive Officers and Directors in the Stock Sale"
may have interests in the stock sale that
may
be different from, or in addition to, the interests of the eXegenics
stockholders. As noted above, two current directors of eXegenics will continue
as directors of eXegenics upon the closing of the stock sale pursuant to the
stock purchase agreement and the post-stock sale voting agreement. In addition,
they are also entitled to receive shares of eXegenics common stock upon closing
of the stock sale.
Conditions
to the completion of the stock sale (see page ________)
The
completion of the stock sale depends upon the satisfaction or waiver of a number
of conditions, including the following:
| • |
approval
of the stock sale by the eXegenics stockholders;
|
| • |
approval
of the amendment to the certificate of incorporation of eXegenics
to
increase the number of shares of common stock eXegenics is authorized
to
issue from 30,000,000 to
75,000,000;
|
| • |
absence
of all legal prohibition on completion of the stock sale;
and
|
| • |
obtaining
all necessary consents and
approvals.
|
The
material obligations of each of the Investors is to enter into voting
agreements.
In
addition, the obligation of eXegenics to complete the stock sale is subject
to,
among other things, the satisfaction of the following conditions:
| • |
performance
by the Investors of their obligations required to be performed by
them at
or prior to closing to the extent specified in the stock purchase
agreement; and
|
| • |
accuracy
as of closing of the representations and warranties made by the Investors
to the extent specified in the stock purchase agreement.
|
In
addition, the Investors' obligation to complete the stock sale is subject to,
among other things, the satisfaction of the following conditions:
| • |
performance
by eXegenics of the obligations required to be performed by it at
or prior
to closing to the extent specified in the stock purchase agreement;
and
|
| • |
accuracy
as of closing of the representations and warranties made by eXegenics
to
the extent specified in the stock purchase agreement.
|
The
material obligations of eXegenics to a completion of the stock sale, are
to: (i)
recommend the approval and adoption by its stockholders of the stock sale
and
the amendment to its charter; (ii) operate its business in the ordinary
course
consistent with past practice and (iii) deliver executed voting agreements
from
each of its directors and beneficial owners of more than 5% of its capital
stock.
Regulatory
approvals (see page_________)
Neither
eXegenics nor the Investors is aware of any government regulatory approval
required to be obtained with respect to the consummation of the stock sale,
except for the filing with the Securities and Exchange Commission ("SEC")
of
this Proxy Statement and compliance with all applicable federal and state
securities laws regarding the offering and sale of eXegenics common stock
to the
Investors and the filing of an amendment to the certificate of incorporation
of
eXegenics evidencing the increase in the number of authorized shares of
eXegenics common stock with the Delaware Secretary of State.
Termination
of the stock purchase agreement (see page______)
The
stock
purchase agreement may be terminated by mutual written consent of eXegenics
and
the Investors. In addition, the stock purchase agreement may be terminated
by
either eXegenics or the Investors if:
| (1) |
subject
to certain exceptions set forth in the stock purchase agreement,
the stock
sale has not been completed by January 31,
2007;
|
| (2) |
there
is a permanent legal prohibition to closing the stock sale;
or
|
| (3) |
eXegenics
stockholders fail to approve the stock sale and the amendment to
the
certificate of incorporation of eXegenics at a duly held meeting.
|
The
stock
purchase agreement may be terminated by eXegenics if:
| • |
the
Investors shall have breached their representations and warranties
in the
stock purchase agreement, or there has been a breach by the Investors
of
their covenants or agreements contained in the stock purchase agreement,
which breach or failure to perform would cause failure of a condition
to
the closing of the stock sale and which is not cured or curable within
ten
days of notice to the Investors of such breach or failure to
perform.
|
The
stock
purchase agreement may be terminated by the Investors if:
| • |
eXegenics
shall have breached its representations and warranties in the stock
purchase agreement, or there has been a breach by eXegenics of its
covenants or agreements contained in the stock purchase agreement,
which
breach or failure to perform would cause failure of a condition to
the
closing of the stock sale and which is not cured or curable within
ten
days of notice to eXegenics of such breach or failure to
perform.
|
Termination
fees (see page________)
eXegenics
must pay the Investors a termination fee of $300,000 in cash if the stock
purchase agreement is terminated due to the failure to obtain the approval
of
the eXegenics stockholders, and the board of directors of eXegenics shall have
exercised its right under the stock purchase agreement, and in compliance with
its fiduciary duties, to (i) not recommend to the stockholders of eXegenics
that
they give their approval of the stock sale and the amendment to the certificate
of incorporation of eXegenics, or (ii) withdraw or modify in a manner materially
adverse to the Investors its recommendation that the stockholders of eXegenics
vote in favor of the stock sale and the amendment to the eXegenics
charter.
Opinion
of eXegenics Financial Advisor (see page ____)
In
deciding to approve the stock sale, the eXegenics board of directors considered
the opinion of its financial advisor, Empire Valuation Consultants, LLC, that,
as of July 26, 2006, the consideration to be paid by the Investors to eXegenics
in connection with the stock sale is fair to eXegenics and the holders of its
common stock and Series A preferred stock from a financial point of view. This
opinion is attached to this Proxy Statement as Annex
B.
The
approval of the amendment to the
certificate of incorporation of eXegenics is required to consummate the
stock
sale (see page ____)
The
amendment to the certificate of incorporation of eXegenics to increase
the
number of authorized shares of common stock from 30,000,000 to 75,000,000
is
required to consummate the stock sale. Under the stock purchase agreement,
eXegenics is required to sell and issue to the Investors that number
of shares
of eXegenics common stock equal to 51% of the outstanding capital stock
of
eXegenics on the closing date of the stock sale on a fully diluted
basis.
eXegenics currently has 30,000,000 shares of common stock authorized.
As of June
30, 2006, 16,991,101 shares of common stock and 1,002,017 shares of
Series A
preferred stock were issued and outstanding and 1,567,017 shares of
common stock
were reserved for issuance upon conversion of outstanding Series A
preferred
stock and the exercise of outstanding options and warrants. This means
that in
order for eXegenics to satisfy its obligations under the stock purchase
agreement, eXegenics must be authorized to issue, at least, approximately
38,000,000 shares of common stock, because in determining the number
of shares
of eXegenics common stock to be issued to the Investors so that the
Investors
will own 51% of the outstanding capital stock of eXegenics on the closing
date
on a fully diluted basis, eXegenics must assume that the 1,002,017
shares of
Series A preferred stock have been converted into 1,002,017 shares
of common
stock, the options and warrants have been exercised and an aggregate
of 100,000
shares of eXegenics common stock have been issued to Messrs. Paganelli
and Baron
in consideration of their respective stock grants.
In
addition to increasing the number of authorized shares of eXegenics
common stock
to accommodate the stock sale, the board of directors has determined
that
it
is in
the best interests of eXegenics and its stockholders to have additional
shares
of common stock available for future issuance in connection with possible
acquisitions, equity financing requirements and opportunities and other
general
corporate purposes. However, except for the issuance of shares of eXegenics
common stock in connection with the stock sale, issuances in connection
with the
conversion of shares of eXegenics Series A preferred stock, issuances
in
connection with the exercise or conversion of outstanding warrants
or options,
and the issuance of eXegenics common stock to Messrs. Paganelli and
Baron
pursuant to the stock grants, eXegenics has no present commitments
or agreements
that will require or involve the future issuance of any additional
shares of
common stock.
If
the
charter amendment is not approved, eXegenics will not have a sufficient
number
of shares of eXegenics common stock authorized to consummate the stock
sale and
the stock sale will not close. If the stock sale does not close, there
will not
be a change-in-control transaction and Messrs. Paganelli and Baron will
not be
entitled to the shares of eXegenics common stock granted to each of them.
Stockholders
must vote FOR
both the
amendment to the certificate of incorporation and the stock sale in order
for
the stock sale to close.
The
approval of the stock sale does not constitute an approval of the stock
grants.
Stockholders may vote FOR
the
stock sale and AGAINSTthe
stock
grants.
| Q: |
What
will happen in the stock
sale?
|
| A: |
In
the stock sale, eXegenics will sell and issue an aggregate of 19,440,491
shares of eXegenics common stock to the Investors. As required
by the
stock purchase agreement, immediately following the completion
of the
stock sale, the Investors will own 51% of eXegenics outstanding
capital
stock on a fully-diluted basis. This number is based upon the outstanding
shares of eXegenics common stock on June 30, 2006 and assumes the
conversion of all outstanding eXegenics Series A preferred stock,
which
are convertible on a share-for-share basis into shares of eXegenics
common
stock, the exercise of all outstanding options or warrants to purchase
shares of eXegenics common stock and the issuance of 50,000 shares
of
eXegenics common stock to each of Messrs. Paganelli and Baron immediately
prior to the closing of the stock
sale.
|
| Q: |
As
a current stockholder of eXegenics will I receive any consideration
in
connection with the stock
sale?
|
| A: |
No.
The stock sale transaction involves the sale of shares of eXegenics
common
stock to the Investors. The current stockholders of eXegenics are
not
entitled to any compensation or other consideration in connection
with the
stock sale. In fact, if the stock sale is consummated, the issuance
of
19,440,491 additional shares of eXegenics common stock to the Investors
will have a dilutive effect on the current eXegenics stockholders,
because
as the number of shares of eXegenics common stock issued and outstanding
increases, the percentage ownership interests of the current stockholders
of eXegenics decreases.
|
| Q: |
Why
are shares of eXegenics common stock being issued to John Paganelli
and
Robert Baron?
|
| A: |
In
early 2004, the board of directors of eXegenics appointed Messrs.
Paganelli and Baron to serve as the members of the Business Opportunities
Search Committee to identify and negotiate strategic opportunities
for
eXegenics. In March of 2005, and in connection with the services
rendered
to the Business Opportunities Search Committee, the board awarded
each a
stock bonus of 50,000 shares, the issuance to be contingent upon
a change
of control transaction and stockholder approval of the grants. You
should
read the section titled "Interests of eXegenics Executive Officers
and
Directors in the Stock Sale " at page [____] for a discussion of
these interests and the interests of others in the stock
sale.
|
| Q: |
What
appraisal rights do stockholders have in connection with the matters
before the special
meeting?
|
| A: |
The
holders of eXegenics common stock and Series A preferred stock do
not have
any right to an appraisal of the value of their shares in connection
with
any of the matters before the special meeting.
|
| Q: |
What
happens if I do not return a proxy card or otherwise provide proxy
instructions?
|
| A: |
The
failure to return your proxy card could be a factor in establishing
a
quorum for the special meeting. If your shares of eXegenics common
stock
and/or Series A preferred stock are held in “street name”, the failure to
provide your broker with instructions on how to vote your shares
on the
stock grant proposal will be the equivalent of a vote against the
stock
grants.
|
| Q: |
When
do you expect the stock sale to be
completed?
|
| A: |
Assuming
approval of the amendment to the certificate of incorporation of
eXegenics
to increase the number of authorized shares of eXegenics common stock,
we
expect to complete the stock sale as soon as possible following the
special meeting and the filing of the amendment to the certificate
of
incorporation of eXegenics with the Delaware Secretary of State.
However,
the exact timing of completion of the stock sale cannot be determined
yet
because completion of the stock sale is subject to a number of
conditions.
|
| Q: |
How
many authorized but unissued shares of eXegenics
common stock will exist after the closing of the stock
sale?
|
| A: |
Following
the closing of the stock sale and, assuming the charter amendment
is
approved to increase in the authorized shares of eXegenics common
stock
from 30,000,000 to 75,000,000, there will be approximately 38,468,408
shares of eXegenics common stock authorized but unissued, 1,567,017
of
which will be reserved for issuance upon conversion of Series A
preferred
stock or upon exercise of outstanding options and
warrants.
|
| Q: |
Who
do I call if I have questions about the special
meeting?
|
| A: |
If
you have any questions about the matters to be considered at the
special
meeting or about procedures for voting, or if you need additional
copies
of this Proxy Statement or the enclosed proxy card, you should contact:
|
eXegenics,
Inc.
1250
Pittsford-Victor Road
Building
200, Suite 280
Pittsford,
New York 14534
(585)
218-4368
Attention:
John A. Paganelli,
Interim
Chief Executive Officer, Secretary and Chairman of the Board
This
section of the Proxy Statement describes material aspects of the stock sale,
including the stock purchase agreement and the voting agreements. While we
believe that the description covers the material terms of the stock sale, this
summary may not contain all of the information that is important to you. You
should read this entire Proxy Statement and the other documents we refer to
carefully for a more complete understanding of the stock sale.
General
Under
the
stock purchase agreement, at the closing of the transaction, eXegenics will
issue 19,440,491 shares of common stock to the Investors identified in the
stock
purchase agreement in consideration of an initial aggregate purchase price
of
$8,613,000. Immediately following the closing, the Investors will own, as
a
group, 51% of the issued and outstanding capital stock of eXegenics on a
fully
diluted basis, which means, for purposes of determining 51% of the capital
stock
of eXegenics on a fully diluted bases, the denominator includes all currently
issued and outstanding shares of common stock, all Series A preferred stock
as
if converted on a share-for-share basis into shares of eXegencis common stock,
shares of eXegenics common stock that may be issued upon the exercise or
conversion of all outstanding warrants and options and the 100,000 shares
of
eXegenics common stock to be issued to Messrs. Paganelli and
Baron.
The
shares of common stock to be issued to the Investors
pursuant to the stock purchase agreement are being offered and sold in reliance
upon an exemption from registration under Section 4(2) of the Securities
Act for
“transactions
by an issuer not involving a public offering” and
Rule 506 of
Regulation D of the Securities Act. Each of the Investors has represented
to
eXegenics that it is an “accredited
investor” as
defined in Rule 501(a) of Regulation D and has further represented, warranted
and agreed that the shares of common stock may not be sold, transferred or
otherwise disposed of in the absence of a registration statement covering
the
shares or the availability of an exemption from registration under the federal
securities laws and applicable state securities laws.
Recommendations
of the Board of Directors and Reasons for the Stock
Sale
The
board
of directors of eXegenics has unanimously determined that the stock purchase
agreement and the stock sale are fair and in the best interests of eXegenics
and
its stockholders. Accordingly, the board of directors has unanimously adopted
and approved the stock purchase agreement and unanimously recommends that
the
holders of eXegenics common stock and Series A preferred stock vote “FOR”
the sale
of shares of eXegenics common stock pursuant to the stock purchase agreement.
In
evaluating and approving the stock sale, the board of directors considered
the
analysis provided by its financial advisor - Empire Valuation Consultants,
LLC -
, consulted with eXegenics’s legal counsel and considered a number of factors,
including the following:
|
Ÿ
|
the
purchase price to be received by eXegenics for its shares of common
stock
in the context of a change-in-control transaction, which was determined
by
the board of directors to be fair;
|
|
Ÿ
|
the
fact that the purchase price constituted a premium over the last
sale
price per share of eXegenics common stock ($.39) quoted on the
Over-the-Counter Bulletin Board (“OTCBB”)
on July
25, 2006, the last transaction prior to the July 26, 2006 board
of
directors meeting;
|
|
Ÿ
|
the
oral opinion of Empire Valuation Consultants, LLC, followed by its
written
opinion, with respect to its determination as to the fairness of
the
purchase price consideration, from a financial point of view, to
eXegenics
and its stockholders, and the analyses, methodologies and conclusions
of
Empire Valuation underlying its
opinion;
|
|
Ÿ
|
the
likelihood that the stock sale could be consummated, noting the timing
of
and conditions to the stock sale;
|
|
Ÿ
|
the
terms and conditions set forth in the stock purchase
agreement;
|
|
Ÿ
|
the
fact that eXegenics had been in contact with several other potential
strategic partners or acquirers and that such persons had been afforded
ample opportunity to submit proposals for consideration by the board
of
directors; and
|
|
Ÿ
|
the
business reputation and investment experience of Phillip Frost, M.D.,
the
sole trustee of Frost Gamma Investments Trust, one of the Investors,
and
the board of director’s belief that Dr. Frost will assist in identifying
business opportunities for eXegenics. Brief biographical information
as to
Dr. Frost follows.
|
Phillip
Frost, M.D.
Phillip
Frost, age 68, served as chairman of the board of directors and chief executive
officer of IVAX Corporation from 1987 to 2006, when it was acquired by Teva
Pharmaceutical Industries Limited. He served as president of IVAX Corporation
from July 1991 until January 1995. He was the chairman of the
Department of Dermatology at Mt. Sinai Medical Center of Greater Miami, Miami
Beach, Florida from 1972 to 1990. Dr. Frost was chairman of the board of
directors of Key Pharmaceuticals, Inc. from 1972 to 1986. He also served as
chairman of the board of directors of IVAX Diagnostics, Inc. (diagnostic reagent
kits), a subsidiary of IVAX Corporation from ____ to 2006. He is a director
of
Northrop Grumman Corporation (aerospace), Continucare Corporation
(healthcare) and Ladenburg Thalmann Financial Services Inc. (securities
brokerage). He is Chairman of the Board of Trustees of the University of Miami
and a member of the Board of Governors of the American Stock Exchange.
Background
as to the deliberations and considerations of the Board of
Directors
Messrs.
Paganelli and Baron, as the members of the Business Opportunities Search
Committee, evaluated numerous potential acquisition or merger candidates
for
eXegenics. Based on those evaluations, they narrowed the field down to
approximately twenty companies that warranted discussion with representatives
of
those target companies. With respect to those final candidates, which included
companies in a diverse group of industries, including medical devices,
entertainment, banking and software development, eXegenics engaged in
preliminary discussions with representatives of the target companies. In
each
instance, prior to the discussions with Dr. Frost, the opportunities were
abandoned, either because representatives of eXegenics concluded that the
business prospects of the target companies were inadequate, or because
the
preliminary discussions made clear that agreement on valuation was not
likely to
be reached.
A
shareholder of eXegenics suggested to the Business Opportunities Search
Committee that they might consider discussions with Dr. Frost, who had
a track
record of pursuing successful ventures. Messrs. Paganelli and Baron had
an
initial meeting with Dr. Frost and some of his associates on April 20,
2006.
That meeting led to a proposal for Dr. Frost and other investors to make
an
investment in eXegenics, the principal terms of the proposal are set out
in the
stock purchase agreement. Messrs. Paganelli and Baron had frequent telephone
contact with Dr. Frost and his representatives during the period from April
20,
2006 through August 14, 2006, the date of execution of the stock purchase
agreement. In addition, they met with Dr. Frost on four occasions during
that
period to answer questions related to the investors’ due diligence examinations
of eXegenics and to confirm understandings with respect to various elements
of
the proposed transaction.
Messrs.
Paganelli and Baron kept the other two members of the eXegenics board of
directors informed by telephone with respect to the progress of their
evaluations and negotiations.
When
it
became clear that a definitive agreement was likely in the transaction,
Mr.
Paganelli contacted Empire Valuation Consultants, LLC in late June of 2006
concerning the possible engagement of Empire Valuation to deliver a fairness
opinion. On June 27, 2006, eXegenics retained the services of Empire Valuation
for these purposes.
The
board
of directors met on July 26, 2006 and unanimously approved the
transaction.
The
materials considered by the eXegenics board of directors, in addition to
the
proposed agreements and the information furnished by Empire Valuation,
consisted
of background information concerning Dr. Frost and various companies with
which
Dr. Frost is or has been associated.
The
amount of capital to be invested in eXegenics and the purchase price to
be paid
by the Investors were considered to be the most significant elements of
the
transaction by the eXegenics board.
The
eXegenics board considered only two factors that weighed against completing
the
stock sale. First, the transaction would confer control to the investors,
so
that the existing eXegenics stockholders would become minority owners.
They also
considered the fact that the purchase price proposed by the investors did
not
include any premium above book value for any other assets of eXegenics,
such as
its ability to provide liquidity to investors in future capital raises
or the
possible continuing availability of net operating loss carryforwards for
tax
purposes. The eXegenics board concluded that the factors in favor of the
transaction outweighed any negatives.
The
description of the information and factors considered by the eXegenics board
of
directors above is not meant to be exhaustive. The board of directors did
not
quantify or attach any particular weight to the various factors that it
considered in reaching its determination that the stock sale is fair to,
and in
the best interests of, eXegenics and the eXegenics stockholders. Rather,
the
eXegenics board of directors made its determination based on the total mix
of
information available to it, and the judgments of individual directors may
have
been influenced to a greater or lesser degree by different factors. In
considering the recommendation of the eXegenics board of directors with respect
to the stock sale, stockholders of eXegenics should be aware that the interests
of certain directors and executive officers with respect to the stock sale
may
be different from or in addition to the interests of the eXegenics stockholders
generally. Specifically, each of John A. Paganelli, interim chief executive
officer, secretary and chairman of the board of directors, and Robert A.
Baron,
a director, is entitled to the issuance of 50,000 shares of eXegenics common
stock, assuming approval by the eXegenics stockholders at the special meeting,
in the event the stock sale is consummated, and each of Messrs. Paganelli
and
Baron are the subject of a voting agreement that the Investors have agreed
to
enter into pursuant to which the Investors will agree to vote their respective
shares of eXegenics common stock for the election of Mr. Paganelli and Mr.
Baron
as directors of eXegenics for a period of three years from the closing of
the
stock sale. The board of directors was aware of these interests and took
them
into account in making its recommendation.
Although
it is the expectation of the current board of
directors of eXegenics that after completion of the closing of the stock
sale
that eXegenics will identify, investigate and possibly pursue one or business
opportunities, the business opportunities, if any, actually identified, and
the
specific criteria and other factors that will be considered for purposes
of
identifying possible business opportunities will be determined by the board
of
directors of eXegenics after completion of the stock sale.
The
board of directors unanimously recommends that the eXegenics stockholders vote
“FOR” the sale of shares of eXegenics common stock pursuant to the stock
purchase agreement.
Opinion
of Financial Advisor
The
eXegenics board of directors retained Empire Valuation Consultants, LLC to
deliver an opinion to the board of directors as to the fairness of the purchase
price to eXegenics and the eXegenics stockholders from a financial point
of
view. Empire Valuation was selected by eXegenics because of its knowledge,
expertise and reputation. Empire Valuation was paid a fee of $35,000, no
portion
of which was contingent upon the closing of the stock sale transaction. No
limitations were imposed by the eXegenics board of directors on Empire Valuation
with respect to the investigation made or the procedures followed by it in
arriving at its opinion.
At
the
July 26, 2006 meeting of the eXegenics board of directors, during which the
board of directors reviewed and considered the terms of the stock sale and
stock
purchase agreement, Empire Valuation provided orally to the board its opinion,
which was subsequently reduced to writing, that the purchase price for the
shares of eXegenics common stock offered by the Investors to eXegenics was
fair
from a financial point of view to eXegenics and the holders of its common stock
and Series A preferred stock.
The
full
text of Empire Valuation’s opinion is attached as Annex B and is
incorporated into this Proxy Statement by reference. That opinion describes
the
procedures followed by Empire Valuation in arriving at its opinion, as well
as
certain assumptions made by Empire Valuation.
In
arriving at its opinion, Empire Valuation performed a variety of financial
analyses, including those summarized in this Proxy Statement. The preparation
of
a fairness opinion is a complex process that involves various determinations
as
to the most appropriate and relevant methods of financial analysis and the
application of these methods to the particular circumstance. Therefore, such
an
opinion is not necessarily susceptible to partial analysis or summary
description. Empire Valuation believes that its analyses must be considered
as a
whole and selecting portions thereof or portions of the factors considered
by
it, without considering all analyses and factors, could create an incomplete
view of the evaluation process underlying its opinion. Empire Valuation made
numerous assumptions with respect to general business, economic, market and
financial conditions and other matters, many of which are beyond the control
of
eXegenics. Further, Empire Valuation considered the cessation of eXegenics'
operations and that its net assets consisted primarily of cash and cash
equivalent securities, and determined, for purposes of its analysis that
eXegenics was both a “shell”
corporation
and an
investment holding company. Consistent with this characterization, Empire
Valuation reviewed the then current business, economic and market conditions
relative to investment holding companies and reviewed the market for other
similarly situated publicly traded shell corporations, that is, shell
corporation without net assets. Any estimates contained in Empire
Valuation’s analyses are not necessarily indicative of actual values or future
results, which may be significantly more or less favorable than suggested
by
such analyses.
Empire
Valuation arrived at valuation ranges for the sale of stock to the Investors
by
considering three principal valuation methodologies: the investment value,
market value and net asset value. Ultimately, due to eXegenics' lack of
operations, investment opportunities and future income potential and Empire
Valuation's determination that eXegenics was both a shell corporation and an
investment holding company, Empire Valuation was not able to apply the
investment value methodology in arriving at its opinion. The following is a
brief summary of these analyses and the other factors considered by Empire
Valuation and reviewed with our board in Empire Valuation’s oral presentation on
July 26, 2006 and subsequently confirmed in writing.
Investment
Value.
The
investment value, which is sometimes referred to as the income value or earnings
value, establishes a range of values of a business based on various methods.
One
investment value method frequently used estimates the present value of an
enterprise’s future earnings or cash flow. Another recognized investment value
method is to determine the level of current annual benefits (i.e., earnings,
cash flow, dividends, etc.), and then capitalize one or more of the benefit
types using an appropriate capitalization rate. Yet another method of
calculating investment value is a cash flow analysis of the ability of an
enterprise to service acquisition debt obligations (at a certain price level)
while providing sufficient earnings for reasonable dividends and capital
adequacy requirements. In connection with the cash flow analysis, the return
on
investment that would accrue to a prospective buyer at the transaction value
is
calculated.
eXegenics
is currently a holding company with a portfolio of marketable securities.
eXegenics, formerly known as Cytoclonal Pharmaceutics Inc., was previously
involved in the research, creation, and development of drugs for the treatment
and/or prevention of cancer and infectious diseases. Prior to 2004, eXegenics
had operated as a drug discovery company, exploiting new enabling technologies
to advance and shorten the new drug development cycle. By the end of 2003,
it
had completed the termination of all research activities. All scientific
staff
and administrative positions were eliminated and all of its research and
development activities were terminated. In 2006 year-to-date, eXegenics’ scaled
down general and administrative costs have exceeded the net investment income
earned from its investment portfolio. eXegenics’ future investment value was
dependent on management’s ability to find a profitable investment opportunity.
The capital infusion from the sale of stock to the Investors is expected
to
enhance eXegenics’ ability to find a suitable investment. However, given the
lack of a specific future investment for eXegenics, Empire Valution was unable
to directly apply a future income valuation analysis.
Market
Value.
Market
value is generally defined as the price, established on an "arms-length" basis,
at which knowledgeable, unrelated buyers and sellers would agree. The
"hypothetical" market value for the stock of a corporation is normally
determined by comparison of certain financial data of similarly situated
publicly traded corporations, adjusting for significant differences in financial
performance criteria and for any lack of marketability or liquidity. The market
value in connection with the evaluation of control is determined by the sales
of
comparable companies.
Under
the
market approach, Empire Valuation, using publicly available information,
compared eXegenics' price-to-net asset value ("NAV") with similar data of
selected publicly-traded companies engaged in businesses considered by Empire
Valuation to be reasonably related to eXegenics, which included, closed-end
investment companies investing in small capitalization securities and U.S.
government obligations. Empire Valuation compared eXegenics’ pre-announcement
current trading price per share (latest close $0.39) and the transaction
price
of $0.44 per share to eXegenics’ estimated NAV per share relative to
price-to-NAV of publicly traded closed end investment holding companies.
Price-to-NAV for closed end funds, is the closing stock price on a given
day
divided by the NAV as reported by the fund. The funds report their NAV on
a
weekly basis in various financial publications. Next, Empire Valuation
considered the fact that the Investors with a total 51% interest would be
considered a control group under SEC regulations. As such, the Investors'
eXegencis common stock would be restricted from sale in the public market
under
SEC Rule 144. Further, Empire Valuation considered the implied premium of
the
cash transaction purchase price per share of $0.44 to the pre-announcement
trading range of $0.38 to $0.43 per share before and after a discount for
Rule
144 restrictions.
Net
Asset Value.
NAV is
the value of the net equity of an entity, after adjusting the company’s assets
and liabilities from its stated cost basis to its estimated market value.
Empire
Valuation gave consideration to eXegenics’ stock portfolio, prepaid expense,
stock subscription receivable, net operating loss (“NOL”)
carryforward,
accounts payable, accrued expenses and its continued lawsuit with a former
employee. In its analysis: eXegenics’ stock portfolio was marked-to-market, so
book value for purposes of the analysis was determined to be equal to net
asset
value; its prepaid expense and stock subscription receivable, were considered
to
be a reduction of the net asset value; eXegenics’ NOL was given little-to-no
value; and, its current liabilities were treated as a net against (redution)
in
net asset value. Further, Empire Valuation considered, that to the extent
eXegenics’ reserve for the former employee lawsuit was not sufficient,
eXegenics’ net asset value would be further reduced. Empire Valuation also gave
consideration to the prospective market value of eXegenics as a shell
corporation exclusive of its other assets and liabilities. The prospective
market value of the “shell”
is not captured
and capitalized under GAAP accounting, so this would add to eXegenics’ net asset
value. The realization of the “shell
value” would
take place
at some future date if eXegenics were to merge with an operating private
company
and would depend on the facts and circumstances at that time. Accordingly,
the
present value of the “shell
value”, for
purposes of
Empire Valuation’s analysis, was determined to equal its prospective future
value discounted back to current time. Further, in the event eXegenics were
to
liquidate and terminate, the shell would actually be a net liability, that
is,
it would cost money to close down. Empire Valuation concluded that $0.49
to
$0.50 per share, plus or minus $0.02 was a reasonable estimate of the net
asset
value per share of eXegenics common stock.
Conclusion.
It is
Empire Valuation’s opinion that the aggregate cash purchase price of $8,613,000
or $0.44 per share for a 51% interest in eXegenics is fair from a financial
perspective to the public shareholders. Empire Valuation arrived at its opinion,
based on its experience and judgment as an independent appraiser, subjectively
weighed the values arrived at using the market value, investment value and
net
asset value appraisal methods previously summarized, and
concluded that each analysis independently supports Empire Valuation’s ultimate
opinion regarding the fairness of the transaction.
High
and Low Sales Prices of eXegenics Common Stock
The
following table sets forth the high and low sales prices of eXegenics common
stock for each fiscal quarter of the previous two years and the first two
quarters of this year, as quoted on the OTCBB:
|
High
|
Low
|
||||||
|
2006:
|
|||||||
|
First
Quarter
|
$
|
0.46
|
$
|
0.39
|
|||
|
Second
Quarter
|
0.45
|
0.38
|
|||||
|
2005:
|
|||||||
|
First
Quarter
|
$
|
0.45
|
$
|
0.32
|
|||
|
Second
Quarter
|
0.47
|
0.35
|
|||||
|
Third
Quarter
|
0.44
|
0.36
|
|||||
|
Fourth
Quarter
|
0.46
|
0.39
|
|||||
|
2004:
|
|||||||
|
First
Quarter
|
$
|
1.09
|
$
|
0.68
|
|||
|
Second
Quarter
|
1.32
|
0.68
|
|||||
|
Third
Quarter
|
0.85
|
0.35
|
|||||
|
Fourth
Quarter
|
0.70
|
0.21
|
|||||
Interests
of eXegenics Executive Officers and Directors in the Stock
Sale
In
considering the recommendation of the eXegenics board of directors that the
eXegenics stockholders vote FOR
the sale
of shares of eXegenics common stock pursuant to the stock purchase agreement,
stockholders of eXegenics should be aware that certain members of the eXegenics
board of directors and members of its management team have interests in the
stock sale that differ from, or are in addition to, those of the eXegenics
stockholders generally. The eXegenics board of directors was aware of these
potential conflicts during its deliberations on the merits of the stock sale
and
in making its decision to approve the stock sale, the stock purchase agreement
and the related transactions and, in determining to recommend to the
stockholders of eXegenics that they vote FOR
the sale
of shares of eXegenics common stock pursuant to the stock purchase
agreement.
eXegenics
Board Membership
Pursuant
to a voting agreement to be executed by the Investors, each of the Investors
will agree, for a period of three years after the closing of the stock sale,
to
vote their shares of eXegenics common stock and any successor in favor of
the
election as directors of John A. Paganelli, interim chief executive officer,
secretary and chairman of the board of directors, and Robert Baron, a director
of eXegenics, to the board of directors of eXegenics.
Stock
Bonus
Each
of
Mr. Paganelli and Mr. Baron were awarded in 2005 contingent stock bonuses of
50,000 shares of eXegenics common stock in connection with their services to
the
Business Opportunities Search Committee of the board of directors. These awards
are contingent upon the consummation of a change-in-control transaction - the
stock sale constitutes a change in control transaction - and approval by the
eXegenics stockholders of the stock grants. One of the proposals for
consideration by the eXegenics stockholders at the special meeting is approval
of the stock grants.
The
benefits and amounts of the stock grants to Messrs.
Paganelli and Baron are set forth in the below table.
|
Dollar
Value ($)(1)
|
Number
of Shares
|
||||||
|
John
A. Paganelli
|
$
|
40,000
|
50,000
shares of common stock
|
||||
|
Robert
Baron
|
$
|
40,000
|
50,000
shares of common stock
|
||||
| (1) |
Based on the closing price of
eXegenics
common stock on the OTCBB on September 22,
2006.
|
The
approval of the stock sale does not constitute an approval of the stock grants,
and stockholders may vote FOR
the
stock sale and AGAINST
the
stock
grants.
Purchase
Price Adjustment
Not
more
than 60 days following the closing of the stock sale, eXegenics will prepare,
and deliver to the Investors, a balance sheet, as of the closing date, which
shall include a computation of stockholders’ equity as of the closing date. If
eXegenics’s disputes with Ronald L. Goode and/or Abdel Hakim Labidi have not
been resolved as of the closing of the stock sale, the closing balance sheet
will include reserves reflecting the maximum potential liability of eXegenics
in
connection any such unresolved matter. A detailed description of eXegenics’s disputes
with
Ronald L. Goode and Abdel Hakim Labidi is included in the Notes to Financial
Statements to the audited financial statements of eXegenics for the fiscal
year
ended December 31, 2005 included with this Proxy Statement; specifically,
Note G
- Stockholders' Equity - Subscription receivable, and Note I - Commitments
and
Other Matters - Legal Proceedings - Labidi Proceeding.
Following
the receipt by the Investors of eXegenics closing date balance sheet, the
Investors will have 30 days to review and to reject the eXegenics closing date
balance sheet. If the Investors reject the eXegenics closing date balance sheet,
eXegenics and the Investors will have 10 days during which to resolve the
dispute. If the Investors and eXegenics are unable to resolve the dispute within
such 10 day period, the dispute will be referred to an independent certified
public accounting firm reasonably acceptable to eXegenics and the Investors
for
resolution. The determination of the independent accounting firm will be binding
on the parties. The fees and expenses of the independent accounting firm will
be
paid by the party found to be incorrect with regard to the objections. If both
parties are found to be partially incorrect with regard to the objections,
the
fees and expenses of the independent accounting firm will be shared
proportionately by the parties based upon the amount of the objections
successfully contested by the Investors bears to the total of the objected
amounts submitted to the independent accounting firm.
If
the
final determination of the stockholders’ equity at the closing date is greater
than the initial purchase price paid by the Investors at the closing, the
Investors will pay the difference to eXegenics, and if the final stockholders’
equity at the closing date is less than the initial purchase price, eXegenics
will pay the difference to the Investors.
Further,
under the terms of the stock purchase agreement, in the event the eXegenics
closing balance sheet includes additional reserves for eXegenics’s unresolved
disputes with Goode and/or Labidi, and if, prior to December 31, 2006, eXegenics
subsequently resolves these matters for an amount or amounts less than the
amounts reserved on the eXegenics closing date balance sheet, then the Investors
will pay eXegenics, in the form of additional purchase price, an amount equal
to
the difference between the actual amount paid or incurred by eXegenics and
the
amount of the reserve in the eXegenics closing date balance sheet.
The
Stock Purchase Agreement
The
following summary of the stock purchase agreement is qualified by reference
to
the complete text of the stock purchase agreement, which is incorporated by
reference into this Proxy Statement and attached hereto as Annex A. The stock
purchase agreement has been included to provide you with information regarding
its terms. You are encouraged to read the entire stock purchase agreement.
Structure
of the Stock Sale; Stock Sale Consideration
Under
the
stock purchase agreement, eXegenics will sell and issue 19,440,490 shares of
its
common stock to the Investors in consideration for an initial aggregate purchase
price of $8,613,000, reflecting eXegenics’s stockholders’ equity as at June 30,
2006. The aggregate purchase price is subject to adjustment based on eXegenics’s
stockholders’ equity at the closing date and in the event of resolution of
eXegenics unresolved disputes with Ronald L. Goode and/or Abdel Hakim Labidi,
as
more fully described above.
Immediately
following the completion of the stock sale, the new Investors will own 51%
of
the outstanding capital stock of eXegenics on a fully-diluted basis. This number
assumes the conversion of all outstanding eXegenics Series A preferred stock,
which are convertible on a share-for-share basis into shares of eXegenics common
stock, the exercise of all outstanding options or warrants to purchase shares
of
eXegenics common stock and the issuance of 50,000 shares of eXegenics common
stock to each of Mr. Paganelli and Mr. Baron immediately prior to the closing
of
the stock sale.
Timing
of Closing
Unless
eXegenics and the Investors agree otherwise, the closing will occur on the
next
business day following the later of the special meeting or the day on which
the
last of the conditions set forth in the stock purchase agreement has been satisfied
or waived, unless the stock purchase agreement has been terminated prior to
such
date. eXegenics expects that, immediately following the special meeting,
assuming the eXegenics stockholders approve both the amendment to the
certificate of incorporation of eXegenics and the stock sale, eXegenics will
file the amendment with the Secretary of State of Delaware and, immediately
following the filing of such amendment, close the stock
sale.
eXegenics
Board of Directors and Related Matters
eXegenics
has agreed to take the necessary corporate actions so that, as of the closing
of
the stock sale:
| • |
the
size of the eXegenics board of directors is increased from four to
five
members;
|
|
•
|
two
of eXegenics current directors - Robert Benou and David Lee Spencer,
M.D.
- will resign from the board of directors;
and
|
|
•
|
three
designees of Phillip Frost, M.D., to be identified prior to the closing,
will become directors of eXegenics, to serve until their terms expire
at
eXegenics's next annual stockholder
meeting.
|
Certain
Covenants
Each
of
eXegenics and the Investors has undertaken certain covenants in the stock
purchase agreement. The following summarizes the most significant of these
covenants.
eXegenics
Board of Directors' Covenant to Recommend. The
eXegenics board of directors has agreed to recommend the approval and adoption
by the stockholders of eXegenics of the stock sale and the amendment to the
certificate of incorporation. However, the eXegenics board of directors is
permitted to (i) not recommend approval and adoption of the stock sale and
the
charter amendment or (ii) withdraw or modify its recommendation in a manner
materially adverse to the Investors, if the eXegenics board of directors
determines in good faith, after consultation with outside legal counsel, that
it
is necessary to withdraw or modify its recommendation to comply with its
fiduciary duties.
Interim
Operations of eXegenics. eXegenics
has undertaken a covenant that places restrictions on it until either the
closing of the stock sale or until the stock purchase agreement is terminated.
In general, eXegenics is required to conduct its business in the ordinary course
consistent with past practice.
eXegenics
has also agreed to some specific restrictions which are subject to exceptions
described in the stock purchase agreement. The following table summarizes the
most significant of these restrictions, subject to certain exceptions,
undertaken by eXegenics:
|
Restrictions.
eXegenics shall not, without the prior consent of a majority of the
Investors:
|
|
Amend
its organizational documents;
|
|
Issue,
sell or authorize the issuance or sale of shares of any class of
its
securities, or enter into agreements or commitments obligating it
to issue
such securities, other than in connection with the conversion of
shares of
its preferred stock or the exercise of outstanding warrants or stock
options or bonuses granted to directors, officers or employees prior
to
the date of the stock purchase agreement;
|
|
Redeem,
purchase or otherwise acquire its capital stock;
|
|
Enter
into material contracts or transactions, or make any material capital
expenditure other than those relating to the transactions contemplated
by
the stock purchase agreement;
|
|
Declare,
set aside or pay dividends or make other distributions (whether in
cash,
stock or property) with respect to its common stock;
|
|
Create,
incur, assume, maintain or permit to exist any indebtedness except
as
otherwise incurred in the ordinary course of business, consistent
with
past practice;
|
|
Pay,
discharge or satisfy claims or liabilities other than in the ordinary
course of business, consistent with past practice;
|
|
Cancel
any material debts or waive any material claims or
rights;
|
| Make any loans, advances or capital contributions to, or investments in financial instruments of any person; |
| Assume, guarantee, endorse or otherwise become responsible for the liabilities or commitments of any person; |
| Increase compensation payable to its employees, officers or directors or increase any bonus, insurance, pension or other employee benefit plan, payment or arrangement made to, for or with any of its employees, officers or directors; |
|
Enter
into any employment contract or grant any severance or termination
pay or
make any such payment with or to any of its employees, officers or
directors;
|
| Materially change its accounting practices, the manner of keeping its books, accounts or records, other than alterations required by GAAP or applicable law; |
| Enter into any indemnification, contribution or similar contract pursuant to which it is required to indemnify any person or make contributions to any other person; |
| Amend or terminate any of its existing contracts in a manner that would result in any material liability to it or as a result of such amendment or termination; or |
|
Change
its tax accounting principles, methods or election.
|
Reasonable
Efforts Covenant.
eXegenics and the Investors have agreed to cooperate with each other and use
commercially reasonable efforts to take, or cause to be taken, all actions
and
do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to complete the stock sale and the other
transactions contemplated by the stock purchase agreement.
Representations
and Warranties
The
stock
purchase agreement contains representations and warranties made by eXegenics
to
the Investors with respect to eXegenics's:
| • |
organization,
good standing and qualifications to do business in foreign
jurisdictions;
|
| • |
no
subsidiaries;
|
| • |
capitalization;
|
|
•
|
corporate
power, authority and capacity to enter into and perform the transactions
contemplated by the stock purchase
agreement;
|
|
•
|
authorization
to issue shares of its common stock to the Investors under and pursuant
to
applicable law free and clear of liens and with the rights and preferences
set forth in its certificate of
incorporation;
|
|
•
|
no
conflicts or defaults;
|
|
•
|
SEC
filings and certain compliance
matters;
|
|
•
|
absence
of certain material changes since December 31, 2005, the date of
its
latest audited financial
statements;
|
|
•
|
absence
of undisclosed litigation matters;
|
|
•
|
absence
or non-applicability of statutory, charter or bylaw takeover provisions;
|
|
•
|
no
brokers’, finders' or agents' fees;
and
|
|
•
|
truthfulness
and correctness, in all material respects, of disclosure materials
provided.
|
The
stock
purchase agreement contains representations and warranties made by each of
the
Investors to eXegenics with respect to each Investor’s:
|
•
|
investment
intent;
|
|
•
|
power,
authority and capacity to enter into and perform the transactions
contemplated by stock purchase
agreement;
|
|
•
|
qualification
as an “accredited investor” under the Securities Act of
1933;
|
|
•
|
sophistication
and suitability;
|
|
•
|
nationality
and residence;
|
|
•
|
knowledge
of restrictions as to transferability of the shares of common stock
to be
issued and awareness of the provisions of Rule 144 of the Securities
Act
of 1933; and
|
|
•
|
no
brokers’, finders’ or agents’ fees.
|
The
representations and warranties in the stock purchase agreement do not survive
the closing of the stock sale.
Conditions
to the Completion of the Stock Sale
Mutual
Closing Conditions.
The
obligations of eXegenics and the Investors to complete the stock sale are
subject to the satisfaction or, to the extent legally permissible, waiver of
the
following conditions:
| • |
approval
of the stock sale by the eXegenics stockholders;
|
|
•
|
approval
of the amendment to the certificate of incorporation of eXegenics
to
increase the number of shares of common stock eXegenics is authorized
to
issue from 30,000,000 to
75,000,000;
|
| • |
absence
of all legal prohibition on completion of the stock sale;
and
|
| • |
obtaining
all necessary consents and approvals. However, except for the approval
of
the eXegenics stockholders of the stock sale and the amendment
to the
charter of eXegenics, neither eXegenics nor the Investors are aware
of any
other required consents or approvals to the proposed stock
sale.
|
Additional
Closing Conditions for eXegenics’s Benefit.
eXegenics’s obligations to complete the stock sale are subject to the
satisfaction of the following additional conditions:
| • |
performance
by the Investors of their obligations required to be performed by
them at
or prior to closing to the extent specified in the stock purchase
agreement; and
|
| • |
accuracy
when made and as of the closing of the representations and warranties
made
by the Investors to the extent specified in the stock purchase
agreement.
|
The
material obligations of each of the Investors is to enter into voting
agreements.
Additional
Closing Conditions for the Investors’ Benefit. The
Investors' obligations to complete the stock sale are subject to the
satisfaction of the following additional conditions:
|
•
|
performance
by eXegenics of the obligations required to be performed by it at
or prior
to closing to the extent specified in the stock purchase agreement;
and
|
|
accuracy
when made and as of the closing of the representations and warranties
made
by eXegenics to the extent specified in the stock purchase
agreement.
|
The
material obligations of eXegenics to a completion of the stock sale, are
to: (i)
recommend the approval and adoption by its stockholders of the stock sale
and
the amendment to its charter; (ii) operate its business in the ordinary
course
consistent with past practice and (iii) deliver executed voting agreements
from
each of its directors and beneficial owners of more than 5% of its capital
stock.
Termination
of the Stock Purchase Agreement
Right
to Terminate.
The
stock purchase agreement may be terminated at any time prior to the closing
of
the stock sale, whether before or after stockholder approval, in any of the
following ways:
(a) By
mutual
written agreement of eXegenics and the Investors;
(b) By
either
eXegenics or the Investors if:
(i) the
stock
sale has not been completed by January 31, 2007, provided
that the right to terminate the stock purchase agreement is not available
to any
party whose breach of any provision of or whose failure to perform any
obligation under the stock purchase agreement was the cause of, or resulted
in
the failure of the stock sale to occur on or before January 31, 2007;
(ii) a
final
and nonappealable judgment, injunction, order or decree enjoining eXegenics
or
the Investors from consummating the stock sale is entered; provided that
the
right to terminate the stock purchase agreement is not available to any party
whose breach of any provision of or whose failure to perform any obligation
under the stock purchase agreement was the cause of the permanent
legal prohibition; or
(iii) the
eXegenics stockholders fail to approve the stock sale and the amendment to
the
certificate of incorporation of eXegenics at a duly held meeting.
(c) By
eXegenics if: the Investors shall have breached their representations and
warranties in the stock purchase agreement, or there has been a breach by
the
Investors of their covenants or agreements contained in the stock purchase
agreement, which breach or failure to perform would cause failure of a condition
to the closing of the stock sale not to be satisfied, and either such
condition is incapable of being satisfied by January 31, 2007 or such breach
or
failure to perform is not cured within 10 days after notice of such breach
or
failure to perform has been given by eXegenics to the Investors.
(d) By
the
Investors if: eXegenics shall have breached its representations and warranties
in the stock purchase agreement, or there has been a breach by eXegenics
of its
covenants or agreements contained in the stock purchase agreement, which
breach
or failure to perform would cause failure of a condition to the closing of
the
stock sale not to be satisfied, and either such
condition is incapable of being satisfied by January 31, 2007 or such breach
or
failure to perform is not cured within 10 days after notice of such breach
or
failure to perform has been given by the Investors to
eXegenics.
Effect
of Termination
If
the
stock purchase agreement is validly terminated, except as described in this
paragraph and below under “Termination Fees and Expenses”, eXegenics and the
Investors will have no continuing liabilities or obligations to one another,
except that neither eXegenics nor the Investors will be relieved of or released
from any liabilities or damages arising out of its or their material breach
of
or material failure to perform under the stock purchase agreement.
Termination
Fee and Expenses
Whether
or not the stock sale is consummated, except as described below, each of
eXegenics and the Investors are responsible for the payment of their respective
fees and expenses incurred in connection with the stock purchase agreement
and
the stock sale.
eXegenics
must pay the Investors a termination fee of $300,000 in cash if the stock
purchase agreement is terminated due to the failure to obtain the approval
of
the eXegenic’s stockholders of the stock sale and the amendment to eXegenics’s
charter and the board of directors of eXegenics shall have exercised its
right
under the stock purchase agreement and in compliance with its fiduciary duties
to: (i) not recommend to the stockholders of eXegenics that they give their
approval of the stock sale and the amendment to the certificate of
incorporation, or (ii) withdraw or modify in a manner materially adverse
to the
Investors its recommendation that the stockholders of eXegenics vote in favor
of
the stock sale and the amendment to the certificate of incorporation of
eXegenics.
Voting
Agreements
The
directors of eXegenics and holders of more than 5% of eXegenics common stock
own, as a group, own approximately 23.7% of the shares of eXegenics common
stock
and 4.1% of the Series A preferred stock entitled to vote at the special
meeting, or approximately 22.7% of the total voting power of eXegenics
stockholders as of the record date. The affirmative vote of the majority
of the
shares present in person or by proxy at the special meeting and entitled
to vote
is required to approve the stock sale.
The
directors of eXegenics and the greater than 5% stockholders of eXegenics
have
entered into voting agreements with the Investors. Under the voting agreements,
each of these executive officers, directors and stockholders has agreed to
vote
his, her or its shares of eXegenics common stock:
|
•
|
in
favor of the stock sale; and
|
|
•
|
in
favor of the amendment to the certificate of incorporation of eXegenics
to
increase the number of authorized shares of common stock to
75,000,000.
|
Waivers
and Amendments
Any
provision of the stock purchase agreement may be amended or waived prior
to
closing if the amendment or waiver is in writing and signed, in the case
of an
amendment, by eXegenics and the Investors or, in the case of a waiver, by
the
party against whom the waiver is to be effective. Notwithstanding the ability
of
either eXegenics or the Investors to waive a condition to the closing of
the
stock sale, the approval by the stockholders of eXegenics of the amendment
to
the certificate of incorporation to increase the number of shares of eXegenics
common stock to 75,000,000 is required under the Delaware General Corporation
Law and cannot be waived.
Appraisal
Rights
The
holders of eXegenics common stock and Series A preferred stock are not entitled
to exercise appraisal rights in connection with the stock sale under
Section 262 of the Delaware General Corporation Law.
For
summary and detailed information regarding the stock sale, see "The Stock Sale"
beginning on page ___.
Votes
Required to Approve the Stock Sale
The
affirmative vote of the majority of shares present in person or by proxy at
the
special meeting and entitled to vote will be required to approve the stock
sale.
The
eXegenics Board of Directors unanimously recommends a vote in favor of the
sale
of shares of eXegenics common stock to the Investors pursuant to the stock
purchase agreement.
At
the
special meeting, holders of eXegenics common stock and Series A preferred stock
will be asked to approve an amendment to the certificate of incorporation of
eXegenics. The amendment will increase the number of authorized shares of
eXegenics common stock to 75,000,000.
To
consummate the stock sale, the eXegenics board of directors unanimously adopted
a resolution recommending that the certificate of incorporation of eXegenics
be
amended to increase the number of authorized shares of common stock from
30,000,000 shares to 75,000,000 shares. The board of directors further directed
that the amendment be submitted for consideration and approval by stockholders
at the special meeting. In the event the amendment is approved by the
stockholders, eXegenics will thereafter submit a certificate of amendment to
the
Delaware Secretary of State for filing and the amendment to the certificate
of
incorporation will become effective on the date of such filing.
eXegenics's
certificate of incorporation currently authorizes 30,000,000 shares of common
stock and 10,000,000 shares of preferred stock. On June 30, 2006,
16,991,101 shares of eXegenics common stock and 1,002,017 shares of eXegenics
Series A preferred stock were outstanding and another 1,567,017 shares of
common
stock reserved for issuance upon conversion of the outstanding Series A
preferred stock and the exercise of outstanding options or warrants for shares
of common stock.
Under
the
terms of the stock purchase agreement, upon consummation of the stock sale,
the
Investors are to own 51% of the capital stock of eXegenics on a fully diluted
basis. Our shares of Series A preferred stock are convertible on a one-for-one
basis into shares of eXegenics common stock. This means that, assuming
conversion of all our outstanding shares of Series A preferred stock into shares
of common stock, the exercise or conversion of all outstanding options and
warrants and the issuance of 50,000 shares of commons stock to each of John
Paganelli and Robert Baron, the Investors must own 19,440,491 shares of common
stock at the closing of the stock sale to own 51% of our capital stock, on
a
fully diluted basis.
For
purposes of determining the number of shares of
eXegenics common stock that must be issued to the Investors to insure that
they
receive, in the aggregate, 51% of the capital stock of eXegenics capital
stock
as at the closing (assuming the closing occurred on June 30, 2006), on a
fully-diluted basis, the sum of columns (a), (b) and (c) below represents
the
fully-diluted stock and must be added to the 16,991,101 shares of eXegenics
common stock issued and outstanding.
|
(a)
|
(b)
|
(c)
|
||
|
conversion
of 1,002,017 shares of Series A preferred stock into the same
number of
shares of eXegenics common stock, immediately prior to the closing
of the
stock sale
|
+
|
issuance
of 565,000 shares of eXegenics common stock upon the exercise of all
eXegenics options and warrants, immediately prior to the closing
of the
stock.
|
+
|
issuance
of 100,000 shares of eXegenics common stock to Messrs. Paganelli
and
Baron, assuming approval of the stock grant proposal, immediately
prior to
the closing of the stock
sale.
|
19,440,491
shares is equal to 51% of 38,098,609 ((a),
(b), (c)) + 16,991,101 + 19,440,491 shares of common stock).
Following
the closing of the stock sale, there will be
approximately 38,468,408 shares of common stock authorized but unissued,
1,567,017 of which will be reserved for issuance upon conversion of Series
A
preferred stock or upon exercise of outstanding options and
warrants.
There
are
not sufficient authorized yet unissued shares of eXegenics common stock to
complete the stock sale and the amendment to eXegenics’s charter to increase the
authorized eXegenics common stock is a condition to the completion of the stock
sale.
eXegenics
common stock is quoted on the Over-the-Counter Bulletin Board, under the
trading
symbol EXEG. eXegenics has never paid cash dividends to its holders of common
stock and has no current plans to pay cash dividends in the foreseeable future.
eXegenics intends to retain its earnings, if any.
eXegenics
does not intend to register the shares of common stock to be issued to the
Investors or the shares of common stock to be issued to Messrs. Paganelli and
Baron. These shares will be “restricted securities” within the meaning of the
Securities Act, which means, generally, that the shares cannot be sold or
otherwise transferred in the public market in the absence of a registration
statement filed with the Securities and Exchange Commission covering the shares,
or the availability of an exemption from registration under the Securities
Act
and applicable state securities laws.
At
present, eXegenics has no commitment to issue shares of its common stock for
any
purpose other than in connection with the stock sale. However, Dr. Frost has
indicated to eXegenics that if the stock sale is approved, he will investigate
and possibly pursue one or more business combination opportunities he has
identified. In addition, and whether or not any such business combinations
are,
in fact, consummated, the eXegenics board of directors believes it is also
desirable to have additional shares available for other corporate purposes
that
might arise in the future, other than in the stock sale. For example, shares
of
eXegenics common stock could be issued from time to time for acquisitions or
to
raise capital. Under some circumstances, it is also possible for a company
to
use unissued shares for anti-takeover purposes, but eXegenics has no present
intention to take any such action. Future
issuances of shares of our capital stock would likely dilute the percentage
ownership of the stockholders in eXegenics.
Whether
or not any future issuance of shares unrelated to the stock sale would be
submitted for stockholder vote depends upon the nature of the issuance, legal
and stock exchange, if any, requirements, and the judgment of the board of
directors of eXegenics at the time.
In
the
event stockholders approve the amendment, the introductory paragraph of the
“FOURTH” Article of the certificate of incorporation of eXegenics and paragraphs
A. and B. of Article Fourth will be amended to read as follows:
FOURTH:
The total number of shares of stock which the Corporation shall have authority
to issue is Eighty-Five Million (85,000,000) shares. The classes and the
aggregate number of shares of stock of each class which the Corporation shall
have the authority to issue are as follows:
|
A.
|
Seventy
Five Million (75,000,000) shares of Common Stock, having a par value
of
$.01 per share.
|
|
B.
|
Ten
Million (10,000,000) shares of Preferred Stock, having a par value
of $.01
per share. Of the Ten Million (10,000,000) authorized shares of Preferred
Stock, par value $.01 per share, Four Million (4,000,000) shares
are
designated “Series A Convertible Preferred Stock” (“Series A Preferred”)
with the rights, preferences, privileges and restrictions specified
herein. The remaining Six Million (6,000,000) authorized shares of
Preferred Stock, having a par value of $.01 per share, shall have
such
voting powers, full or limited, or no voting powers, and such
designations, preferences, optional or other special rights and
qualifications, limitations or restrictions as shall be stated or
expressed in the resolution or resolutions providing for the issuance
of
such stock adopted by the Board of Directors of the
Corporation.
|
The
affirmative vote of the holders of a majority of the outstanding shares of
eXegenics common stock and Series A preferred stock entitled to vote, voting
as
a single class, and the affirmative vote of a majority of the outstanding shares
of eXegenics common stock entitled to vote, voting as a separate class, is
required for approval of the amendment to the certificate of incorporation
of
eXegenics.
The
eXegenics Board of Directors unanimously recommends a vote in favor of the
amendment to the certificate of incorporation
At
the
special meeting, holders of eXegenics common stock and Series A preferred stock
will be asked to approve the grant of 50,000 shares each to John A. Paganelli,
eXegenics’s interim chief executive officer, secretary and chairman of the
board, and to Robert Baron, an eXegenics director.
In
March
2005, and in connection with the services rendered by them as the members of
the
Business Opportunities Search Committee of the board of directors of eXegenics,
the board approved the grant of 50,000 shares of eXegenics common stock to
each
of John P. Paganelli and Robert Baron contingent upon the closing of a
change-in-control transaction, subject to approval by the stockholders of the
stock grants and provided that each recipient of the stock grant remain a member
of the eXegenics board of directors at the time of the
change-in-control.
In
June
2005 the eXegenics board of directors approved the grant of an additional
25,000
shares of eXegenics common stock to Robert Baron, in consideration of his
assumption of the additional responsibilities required as the chairman of
the
board’s Business Opportunities Search Committee, and John P. Paganelli, in
consideration of his additional service as our interim chief executive officer.
These additional stock grants were also contingent upon the closing of a
change-in-control transaction and subject to stockholder approval. Messrs.
Paganelli and Baron have agreed, in connection with and so as to facilitate
the
proposed stock sale to forfeit the shares of eXegenics common stock granted
to
them in June 2005.
The
benefits and amounts of the stock grants to Messrs. Paganelli and Baron are
set
forth in the below table.
|
Dollar
Value ($)(1)
|
Number
of Shares
|
||||||
|
John
P. Paganelli
|
$
|
40,000
|
50,000
shares of common stock
|
||||
|
Robert
Baron
|
$
|
40,000
|
50,000
shares of common stock
|
||||
| (1) |
Based
on the closing price of eXegenics common stock on the OTC Bulletin
Board
on September 22, 2006.
|
The
affirmative vote of the majority of shares present in person or by proxy at
the
special meeting will be required to approve the stock grants.
The
eXegenics Board of Directors unanimously recommends a vote in favor of the
stock
grants to John A. Paganelli and Robert Baron.
Business
Overview
eXegenics
was
formerly
known as Cytoclonal Pharmaceuticals Inc. and was involved in the research,
creation, and development of drugs for the treatment and/or prevention of cancer
and infectious diseases. Historically, eXegenics has operated as a drug
discovery company, exploiting new enabling technologies to advance and shorten
the new drug development cycle. Commencing in 2003, eXegenics began terminating
its research and related activities. Since then, all of our scientific staff
and
administrative positions have been eliminated and all of our research and
development activities have been terminated. As such, we are a holding company
with a portfolio of marketable securities.
Since
the
termination of operations, the board of directors of eXegenics and management
has been focused on redeploying the remaining residual assets of eXegenics.
The
board established a committee - the Business Opportunities Search Committee
--
to study strategic direction and identify potential business opportunities.
The
objective of eXegenics is to redeploy its assets and actively pursue new
business opportunities.
On
June
29, 2005, eXegenics and David E. Riggs mutually agreed that Mr. Riggs would
relinquish his duties as our president, chief executive officer and chief
financial officer, and on June 29, 2005, then chairman of the board of
directors, John A. Paganelli, assumed the role of interim chief executive
officer. On July 1, 2005, David Hostelley was named chief financial officer.
eXegenics’ recent activities have been confined to the evaluation of possible
new business opportunities.
Management's
Discussion and Analysis of Financial Condition and Results of Operations
The
following discussion should be read in conjunction with, and is qualified in
its
entirety by, the financial statements and the notes thereto included with this
Proxy Statement. This “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” section of this Proxy Statement 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 herein, 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.
The
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.
Critical
Accounting Policies
We
believe the following critical accounting policies affect management’s more
significant judgments and estimates used in the preparation of our financial
statements.
eXegenics
considers all non-restrictive, highly liquid short-term investments purchased
with an original maturity of three months or less to be cash equivalents.
Investments consist of equity securities and are classified as available for
sale and reported at their fair values. The realized gains and losses from
these
investments are reported in current earnings. Unrealized gains and losses from
these securities are reported as a separate component of stockholders’ equity
and excluded from current earnings.
eXegenics
elected to continue to account for its stock-based compensation plans using
the
intrinsic value method prescribed by Accounting Principles Board Opinion No.
25,
“Accounting for Stock Issued to Employees” (“APB No. 25”) and provide pro forma
net income and pro forma earnings per share disclosures for employee stock
option grants as if the fair-value based method defined in Statement of
Financial Accounting Standards, No. 123, “Accounting for Stock Based
Compensation” had been applied. Under the provisions of APB No. 25, compensation
cost for stock options is measured as the excess, if any, of the quoted market
price of eXegenics common stock at the date of the grant over the amount an
employee must pay to acquire the stock.
eXegenics
periodically evaluates the collectability of the subscription receivable and
adjusts an allowance sufficient to ensure that the net balance is equal to
the
value of the underlying collateral.
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 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 and Financial Condition of eXegenics for the three-and-six month
periods ended June 30, 2006 and 2005
The
unaudited financial statements of eXegenics included with this Proxy Statement
have been prepared in accordance with the rules and regulations promulgated
by
the Securities and Exchange Commission and, in the opinion of management,
reflect all adjustments necessary to present fairly the results of operations
for the interim periods presented. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. However, management believes that the disclosures are
adequate to make the information presented not misleading. These financial
statements and the notes thereto should be read in conjunction with the
financial statements and the notes thereto included in eXegenics’ Annual Report
on Form 10-K for the fiscal year ended December 31, 2005. The results for the
interim periods are not necessarily indicative of the results for the full
fiscal year
Results
of Operations -- For the three-months ended June 30, 2006 and 2005
Revenue
There
were no revenues for the three months ended June 30, 2006 and June 30, 2005.
General
and Administrative Expenses
We
incurred general and administrative expenses of $170,000 and $484,000 for
the
three months ended June 30, 2006 and 2005, respectively, a decrease of $314,000
or 65%. The decrease is attributable to the following: a $176,000 decrease
in
officer salaries, which is primarily as a result of the resignation of
eXegenics' former president and chief executive officer, David E. Riggs,
on June
30, 2005; a $30,000 decrease in director and officer insurance premium expense;
a $9,000 increase in investor relations expenses; a $14,000 increase in
professional consulting fees; a $39,000 increase in legal and accounting
expense; a $208,000 decrease in miscellaneous expense for the allowance recorded
for Dr. Goode subscription receivable because eXegenics became uncertain
as to
the collectability of that receivable; a $8,000 increase in board of director
compensation; and a $ 30,000 increase in taxes paid from a overpayment in
2005.
Interest
Income
Interest
income was $102,000 and $50,000 for the three months ended June 30, 2006 and
2005, respectively. The increase was due to increased interest rates.
Net
Loss
We
incurred a net loss attributable to common stockholders of $68,000 and $434,000
for the three months ended June 30, 2006 and 2005, respectively. Net loss per
common share was $0.00 and $0.03 for the three months ending June 30, 2006
and
2005, respectively.
Results
of Operations -- For six months ended June 30, 2006 and 2005
Revenue
There
were no revenues for the six months ended June 30, 2006 and June 30, 2005.
General
and Administrative Expenses
We
incurred general and administrative expenses of $359,000 and $815,000 for the
six months ended June 30, 2006 and 2005, respectively, a decrease of $456,000
or
56%. The decrease is attributable to the following: a $44,000 decrease in leased
equipment, a $61,000 decrease in director and officer insurance premium expense,
a $43,000 increase in professional consulting fees, a $23,000 decrease in
business travel related expenses, a $55,000 decrease in legal and accounting
expenses, a $266,000 decrease in compensation and overhead expenses, a $6,000
decrease in taxes paid, a $72,000 decrease in miscellaneous expense, a $23,000
increase in board of director compensation and $5,000 increase in board of
directors travel expenses.
Interest
Income
Interest
income was $247,000 and $90,000 for the six months ended June 30, 2006 and
2005,
respectively. The increase was due to increased interest rates.
Net
Loss
We
incurred a net loss attributable to common shareholders of $350,000 and $959,000
for the six months ended June 30, 2006 and 2005, respectively. Net loss per
common share was $0.02 and $0.06 for the six months ending June 30, 2006 and
2005, respectively.
Liquidity
and Capital Resources
At
June
30, 2006, we had cash and cash equivalents of approximately $8,805,000. During
the three months ended June 30, 2006, net cash used in operating activities
was
$46,000.
Results
of Operations and Financial Condition of eXegenics for the fiscal years ended
December 31, 2005, 2004 and 2003
Results
of Operations -- Fiscal
Year Ended December 31, 2005 Compared to Fiscal Year Ended December 31, 2004
Revenues
We
recognized $0 from license, research and development revenues during fiscal
2005
and 2004. There was no license, research and development revenue as a result
of
eXegenics exit from the drug discovery business and termination of related
research and development activities. There were no operations in 2005.
Research
and Development Expenses
We
incurred research and development expenses of $0 during fiscal 2005 and fiscal
2004. This was a result of eXegenics exit from the drug discovery business
and
termination of related research and development activities.
General
and Administrative Expenses
General
and administrative expenses for fiscal 2005 were $1,438,000 compared to
$2,051,000 for fiscal 2004, a decrease of $613,000 or 42%. General and
administrative expenses decreased primarily as a result of the termination
of
drug discovery operations. Significant variances in fiscal 2005, compared
to
fiscal 2004, were as follows: professional consulting fees declined by $60,000;
headcount related expenses, primarily salaries, travel and entertainment,
health
insurance, employee relations and office expenses declined by $210,000; investor
and public relations expense declined by $44,000; insurance, primarily directors
and officers liability insurance, expense declined by $435,000, primarily
as a
result of a change in insurance carries; tax expense, mainly franchise tax,
declined by $49,000; legal fees declined by $61,000; leased equipment declined
by $60,000; board of directors fees and travel expenses declined by $110,000;
audit fees declined by $35,000; an increase of $250,000 for the reserve
established in connection with the lawsuit with Dr. Labidi, which reserve
reflects a reasonable estimate of eXegenics' obligation to pay under the
judgment; and an increase of $201,000 for the allowance recorded against
the
subscriptions receivable reflecting eXegenics uncertainty as to its
collectability.
Merger,
Tender Offers and Consent Solicitation Expenses
In
2005
and 2004, we recognized an aggregate of $0 in expenses related to merger, tender
offers and consent solicitation activities.
Expenses
Related to Strategic Redirection
As
a
result of our decision to redirect our business strategy, we incurred $0 and
$5,000 in costs associated with expenses from operations terminated in fiscal
2005 and 2004, respectively. Cash disbursements made during fiscal 2004 against
a previously established restructuring reserve included $90,000 for severance
payments, $87,000 for terminated operating lease obligations, and $16,000 for
equipment and facilities relocation. No expenses were recognized in 2005 or
2004
for eXegenics’ strategic redirection.
Interest
Income
Interest
income for fiscal 2005 was $190,000 as compared to $127,000 for fiscal 2004,
an
increase of $63,000 or 50%. The increase in interest income was due to higher
interest rates and increased investable balances resulting from the appreciation
in value and ultimate sale of Javelin Pharmaceuticals, Inc. common stock.
Other
Income and Expenses
Other
Income and expenses was a profit of $1,062,000 during fiscal year 2005 and
$2,000 during fiscal year 2004. The increase was due to the appreciation and
sale by eXegenics of Javelin Pharmaceuticals, Inc. common stock.
Net
Loss
We
incurred net losses of $186,000 during fiscal 2005 and $1,926,000 during fiscal
2004. The decrease in net loss of $1,740,000 or 90% is a result of the
aforementioned sale of investments. Net loss per common share for fiscal 2005
was $0.03 and for fiscal 2004 was $0.13.
Results
of Operations -- Fiscal Year Ended December 31, 2004 Compared to Fiscal Year
Ended December 31, 2003
Revenues
We
recognized $0 from license, research and development revenues during fiscal
2004, compared to $13,000 for fiscal 2003, a decrease of $13,000 or 100%. The
decrease was a result of eXegenics exit from the drug discovery business and
termination of related research and development activities.
Research
and Development Expenses
We
incurred research and development expenses of $0 during fiscal 2004 and $154,000
during fiscal 2003, a year-to-year decrease of $154,000 or 100%. The decrease
was a result of eXegenics exit from the drug discovery business and termination
of related research and development activities. Significant contributions to
the
overall decrease were as follows: $92,000 decrease in research salaries and
payroll, $3,000 decrease in expenses for research consultants, $29,000 decline
in lease expenses, maintenance and depreciation, $382,000 decrease in research
services and materials, $16,000 decrease in travel and entertainment, health
insurance and other headcount related expenses and $14,000 decline in laboratory
supplies.
General
and Administrative Expenses
General
and administrative expenses for fiscal 2004 were $2,051,000 compared to
$2,938,000 for fiscal 2003, a decrease of $887,000 or 30%. General and
administrative expenses decreased primarily as a result of the termination
of
drug discovery operations. Significant variances in fiscal 2004, compared to
fiscal 2003, were as follows: professional consulting fees declined by $410,000,
headcount related expenses, primarily salaries, travel and entertainment, health
insurance, employee relations and office expenses declined by $85,000, investor
and public relations expense declined by $517,000 and insurance, primarily
directors and officers liability insurance expense increased by $125,000.
Merger,
Tender Offers and Consent Solicitation Expenses
In
2004,
we recognized an aggregate of $0 in expenses related to merger, tender offers
and consent solicitation activities. This compares to $2,233,000 in expenses
related to merger activities during 2003.
Expenses
Related to Strategic Redirection
As
a
result of our decision to redirect our business strategy, we incurred costs
of
$5,000 in expenses from operations terminated in fiscal 2004, Cash disbursements
made during fiscal 2004 against a previously established restructuring reserve
included $90,000 for severance payments, $87,000 for terminated operating lease
obligations, and $16,000 for equipment and facilities relocation. We recognized
$0 in expenses related to strategic redirection in 2004.
Interest
Income
Interest
income for fiscal 2004 was $127,000 as compared to $174,000 for fiscal 2003,
a
decrease of $47,000 or 27%. The decrease in interest income was due to lower
interest rates and declining investable balances as disbursements were made.
Net
Loss
We
incurred net losses of $1,926,000 during fiscal 2004 and $5,793,000 during
fiscal 2003. The decrease in net loss of $3,867,000 or 67% is a result of the
aforementioned changes in our operations. Net loss per common share for fiscal
2004 was $0.13 and for fiscal 2003 was $0.38.
Liquidity
and Capital Resources
At
December 31, 2005 we had cash, cash equivalents and investments of approximately
$8,901,000. During 2005, we used approximately $1,000,000 to fund our operating
activities. Restricted cash was pledged as collateral in support of leases
of
laboratory equipment. In connection with the termination of our drug discovery
research programs, we repurchased equipment subject to a capital lease
agreement. However, in 2003, when eXegenics was in the process of exiting
from
the drug discovery business, it was not able to terminate its contractual
obligations; it was not able to terminate its lease obligations until August
2005. In August 2005, in conjunction with the return of remaining lease
obligations, the lessor of this equipment released $175,000 of the held
collateral. In addition, in 2005 eXegenics received proceeds of approximately
$1,064,000 from the sale of shares of Javelin Pharmaceuticals, Inc common
stock.
The impact of maintaining its lease obligations through August 2005, was
$46,000
in 2005 and $106,000 in 2004.
eXegenics
faces potential liability of $600,000 (exclusive of interest and legal fees,
which have been requested by Dr. Labidi, but not yet determined by the Court)
in
2006 in connection with the judgment rendered against eXegenics in the lawsuit
filed by Dr. Labidi in 2002. In connection with this potential liability
eXegenics has recorded a reserve for $250,000.
After
taking into account the interest earned on our investments ($25,000 to $30,000
per month) it has been our expectation that we would use between $40,000 and
$55,000 per month in 2006 in furtherance of these objectives. This calculation
includes $250,000 in the potential liability faced by us in the judgment
rendered against us in the suit filed by Dr. Labidi. Our future capital needs
are uncertain. We may or may not need additional financing in the future to
fund
operations. Such a determination would be made when eXegenics adopts a business
strategy. As discussed in the Proxy Statement, our current business strategy
is
to obtain capital from the sale of shares of our common stock, and use the
proceeds from such sale to, among other things, explore business and associated
growth opportunities. We do not know whether additional financing will be
available when needed, or that, if available, we will obtain financing on terms
favorable to our stockholders.
Recent
Accounting Pronouncement
We
believe that the adoption of the following accounting standard will not have
a
material impact on our financial statements.
In
December 2004, the FASB issued SFAS No. 123R, “Share-based Payment.” SFAS No.
123R is a revision of SFAS No. 123, “Accounting for Stock Based Compensation”,
and supersedes APB 25. Among other items, SFAS 123R eliminates the use of APB
25
and the intrinsic value method of accounting, and requires companies to
recognize the cost of employee services received in exchange for awards of
equity instruments, based on the grant date fair value of those awards, in
the
financial statements. The effective date of SFAS 123R was January 1, 2006,
for
calendar year companies.
SFAS
123R
permits companies to adopt its requirements using either a “modified
prospective” method, or a “modified retrospective” method. Under the “modified
prospective” method, compensation cost recognized in the financial statements
beginning with the effective date, based on the requirements of SFAS 123R for
all share-based payments granted after that date, and based on the requirements
of SFAS 123 for all unvested awards granted prior to the effective date of
SFAS
123R. Under the “modified retrospective” method, the requirements are the same
as under the “modified prospective” method, but also permits entities to restate
financial statements of previous periods based on proforma disclosures made
in
accordance with SFAS 123.
Off
Balance Sheet Arrangements
There
are
no off balance sheet arrangements.
Supplementary
Financial Information
Selected
Quarterly Results (Unaudited)
|
|
Quarter
Ended
|
|||||||||||||||
|
|
March
31
|
June
30
|
September
30
|
December
31
|
Total
Year
|
|||||||||||
|
2005
|
|
|
|
|
|
|||||||||||
|
Revenues
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
||||||
|
Net
(loss) income
|
(290,000
|
)
|
(434,000
|
)
|
870,000
|
(332,000
|
)
|
(186,000
|
)
|
|||||||
|
Loss
per share — basic and diluted(a)
|
(0.03
|
)
|
(0.03
|
)
|
0.05
|
(0.01
|
)
|
0.03
|
||||||||
|
2004
|
||||||||||||||||
|
Revenues
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
||||||
|
Net
loss
|
(739,000
|
)
|
(531,000
|
)
|
(368,000
|
)
|
(288,000
|
)
|
(1,926,000
|
)
|
||||||
|
Loss
per share — basic and diluted(a)
|
(0.06
|
)
|
(0.03
|
)
|
(0.02
|
)
|
(0.02
|
)
|
(0.13
|
)
|
||||||
|
(a)
|
Per
common share amounts for the quarters and full year have been calculated
separately. Accordingly, quarterly amounts may not add to the annual
amount because of differences in the weighted average common shares
outstanding during each period due to the effect of the Company’s issuing
shares of its common stock during the year.
|
Quantitative
and Qualitative Disclosures About Market Risk
Our
exposure to financial market risk, including changes in interest rates, relates
primarily to our marketable security investments. 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. We do not have any material exposure to changes in foreign
currency exchange rates.
Security
Ownership of Certain Beneficial Owners and Management
The
table
below shows the number of shares of eXegenics common stock and series A
preferred stock beneficially owned as of September 1, 2006 by (i) each person
who is known by us to be the beneficial owner of more than 5% of the outstanding
shares of either eXegenics common stock or series A preferred stock, (ii) each
director of eXegenics, (iii) each of our named executive officers identified
in
the Summary Compensation Table above; and (iv) all of eXegenics directors
and executive officers as a group, as of September 1.
To
our
knowledge and unless otherwise indicated, each person in the table has sole
voting power and investment power, or shares such power with his or her spouse,
with respect to all shares of capital stock listed as owned by such person.
The
number of shares beneficially owned by each stockholder is determined under
the
rules promulgated by the Securities and Exchange Commission. The information
is
not necessarily indicative of beneficial ownership for any other purpose. Under
these rules, beneficial ownership includes any shares as to which the individual
has sole or shared voting power or investment power and any shares as to which
the individual has the right to acquire beneficial ownership within 60 days
after September 1, 2006 through the exercise of any option, warrant or other
right. The inclusion in the following table of those shares, however, does
not
constitute an admission that the named stockholder is a direct or indirect
beneficial owner of those shares.
|
|
Common
Stock
|
Series
A Preferred Stock
|
|
|||||||||||||
|
Name
and Address of Beneficial Owner(1)
|
Number
|
Percent
of
Class(2)
|
Number
|
Percent
of
Class(3)
|
Percent
of all
Voting
Securities(4)
|
|||||||||||
|
Bruce
Meyers (5)
|
1,224,277
|
7.35
|
%
|
39,051
|
3.85
|
%
|
7.20
|
%
|
||||||||
|
J
Morton Davis and Rosalind Davidowitz (6).
|
1,553,900
|
9.49
|
%
|
—
|
—
|
8.99
|
%
|
|||||||||
|
John
A. Paganelli (7).
|
105,000
|
*
|
—
|
—
|
*
|
|||||||||||
|
Robert
A. Baron (8)
|
126,800
|
*
|
—
|
—
|
*
|
|||||||||||
|
Robert
Benou (9)
|
80,000
|
*
|
—
|
—
|
*
|
|||||||||||
|
David
Lee Spencer, M.D (10).
|
854,100
|
5.14
|
%
|
—
|
—
|
4.88
|
%
|
|||||||||
|
David
E. Riggs (11)
|
82,200
|
*
|
—
|
—
|
*
|
|||||||||||
|
David
Hostelley
|
—
|
—
|
—
|
—
|
—
|
|||||||||||
|
Directors
and executive officers as a
group
(5 persons)
|
1,238,100
|
6.84
|
%
|
—
|
—
|
6.54
|
%
|
|||||||||
| * | Less than One Percent. |
|
(1)
|
Except
as otherwise indicated, the address of each beneficial owner is c/o
eXegenics
Inc.,
1250 Pittsford-Victor Road, Building 200, Suite 280, Pittsford, New
York 14534.
|
|
(2)
|
Calculated
on the basis of ____________ shares of common stock issued and outstanding
as of September 1, 2006 except that shares of common stock underlying
options and warrants exercisable within 60 days of the date hereof
are
deemed to be outstanding for purposes of calculating the beneficial
ownership percentage of securities of the holder of such options
or
warrants. This calculation excludes shares of common stock issuable
upon
the conversion of series A preferred stock.
|
| (3) | Calculated on the basis of___________ shares of Series A preferred stock outstanding as of September 1, 2006 |
|
(4)
|
Calculated
on the basis of an aggregate of _____________ shares of common stock
and
___________ shares of Series A preferred stock issued and outstanding
as
of September 1, 2006, except that shares of common stock underlying
options and warrants exercisable within 60 days of the date hereof
are
deemed to be outstanding for purposes of calculating beneficial ownership
of securities of the holder of such options or warrants. This calculation
excludes shares of common stock issuable upon the conversion of Series
A
preferred stock.
|
|
(5)
|
Mr.
Meyers’ address is c/o Meyers Associates, L.P., 45 Broadway, New York,
New
York 10006. The amount shown for Mr. Meyers includes: 859,645 shares
owned
by Mr. Meyers; 4,740 shares owned by the Bruce Meyers Keogh (Mr.
Meyers
owns the Bruce Meyers Keogh); 33,800 shares of the Company’s common stock
owned by the Joseph Rita and Bruce Meyers Foundation for Life Inc.
(Mr.
Meyers is the Chairman of the Board of the Joseph Rita and Bruce
Meyers
Foundation for Life), 39,051 shares of the Company’s common stock issuable
upon the conversion of 39,051 shares of preferred stock owned by
Bruce
Meyers; and the following securities owned by Meyers Associates,
L.P. of
which Mr. Meyers, is an executive officer, the sole shareholder
and
director of the general partner of Meyers Associates, L.P.; 76,092
shares
of common stock, and 250,000 shares of common stock issuable upon
the
exercise of currently exercisable five-year warrants issued in
2002 to
Meyers Associates, L.P. A portion of the shares beneficially owned
by Mr.
Meyers were obtained for services provided by Meyers Associates,
L.P. a
registered broker dealer. The services provided by Meyers Associates,
L.P.
included acting as financial advisor, placement agent and/or underwriter
to the Company. Beneficial ownership information is taken from
a Schedule
14A filed on September 15,
2003.
|
|
(6)
|
Beneficial
ownership information and the information in this footnote were
taken from
Schedule 13G filed February 7, 2006. Mr. Davis and Rosalind Davidowitz
,
are husband and wife. As of December 31, 2005, Mr. Davis may be
deemed to
beneficially own: (i) 248,000 shares of common stock owned by D.H.
Blair
Investment Banking Corp. (“Blair Investment”, which is owned by Mr.
Davis), and (ii) 1,305,900 shares owned by Rosalind Davidowitz
Mr. Davis’
business address is 44 Wall Street, New York, New York 10005. Ms.
Davidowitz’ address is 7 Sutton Place South, Lawrence, New York 11559. As
of December 31, 2005, Rosalind Davidowitz may be deemed to beneficially
own 1,305,900 shares of common stock owned directly by Rosalind
Davidowitz, and 248,000 shares of common stock owned by Blair Investment.
Ms. Davidowitz has sole power to vote or to direct the disposition
of
those shares owned by her. Each of Ms. Davidowitz and Mr. Davis
do not
deem the filing of the aforementioned Schedule 13G as an admission
by each
of beneficial ownership of the securities owned by the
other.
|
| (7) | Ownership consists of 50,000 shares of common stock and options to purchase 55,000 shares of common stock currently exercisable or exercisable within 60 days of September 1, 2006. |
|
(8)
|
Ownership
consists of 71,800 shares of common stock and options to purchase
55,000
shares of common stock currently exercisable or exercisable within
60 days
of September 1, 2006.
|
|
(9)
|
Ownership
consists of 25,000 shares of common stock and options to purchase
55,000
shares of common stock currently exercisable or exercisable within
60 days
of September 1, 2006.
|
|
(10)
|
Ownership
consists of 799,100 shares of common stock and options to purchase
55,000
shares of common stock currently exercisable or exercisable within
60 days
of September 1, 2006.
|
|
(11)
|
Ownership
consists of 7,200 shares of common stock and options to purchase
75,000
shares of common stock currently exercisable or exercisable within
60 days
of September 1, 2006. Does not include options to purchase 25,000
shares
of common stock not exercisable within 60 days of September 1, 2006.
|
Summary
Compensation Table
The
following tables set forth the annual compensation paid to or earned by each
person who served as the chief executive officer of eXegenics during the fiscal
year ended December 31, 2005 and each
of
the other executive officers, other than its chief executive officer, who were
serving as executive officers of eXegenics at the end of the fiscal year ended
December 31, 2005 (our “Named Executive Officers”).
|
|
SUMMARY
COMPENSATION TABLE
|
||||||||||||||||||||||||
|
|
|
Annual
compensation
|
Long-term
compensation
|
||||||||||||||||||||||
|
|
|
|
Awards
|
Payouts
|
|
||||||||||||||||||||
|
Name
and principal position
|
Year
|
Salary
|
Bonus
(1)
|
Other
annual compensation
|
Restricted
stock
award(s)
|
Securities
underlying
options/
SARs
|
LTIP
payouts
|
All
other
compensation
|
|||||||||||||||||
|
John
A. Paganelli, Interim CEO (2)
|
2005
|
$
|
12,500
|
—
|
$
|
75,000
|
—
|
20,000
|
—
|
—
|
|||||||||||||||
|
|
2004
|
$
|
---
|
—
|
$
|
75,000
|
—
|
20,000
|
—
|
—
|
|||||||||||||||
|
|
2003
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||||
|
Dr.
David Hostelley, CFO (3)
|
2005
|
$
|
15,000
|
—
|
—
|
—
|
—
|
—
|
—
|
||||||||||||||||
|
|
2004
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||||
|
|
2003
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||||
|
David
E. Riggs Former President,
|
2005
|
$
|
244,000
|
—
|
—
|
—
|
—
|
—
|
—
|
||||||||||||||||
|
CEO,
CFO and Secretary (4)
|
2004
|
$
|
235,000
|
—
|
—
|
—
|
75,000
|
—
|
—
|
||||||||||||||||
|
|
2003
|
$
|
190,561
|
—
|
—
|
—
|
225,000
|
—
|
—
|
||||||||||||||||
|
Ronald
L. Goode, Ph.D.
|
2005
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||||
|
Former
President, CEO (5)
|
2004
|
$
|
95,751
|
—
|
—
|
—
|
—
|
—
|
—
|
||||||||||||||||
|
|
2003
|
$
|
405,000
|
$
|
105,000
|
$
|
12,000
(6
|
)
|
—
|
—
|
—
|
—
|
|||||||||||||
|
(1)
|
Bonuses
paid in the year reported were earned and accrued in the previous
year.
|
|
(2)
|
Mr.
Paganelli is chairman of the board of directors of eXegenics. Mr.
Paganelli became interim chief executive officer of eXegenics on
June 29,
2005. The compensation reported under “Other annual compensation” reflects
compensation earned by Mr. Paganelli as the chairman of the board
of
directors.
|
|
(3)
|
Mr.
Hostelley became chief financial officer of eXegenics on July 1,
2005.
|
|
(4)
|
Mr.
Riggs served as our president and chief executive officer until June
29,
2005.
|
|
(5)
|
Dr.
Goode served as our president and chief executive officer until February
23, 2004.
|
|
(6)
|
“Other
annual compensation” paid to Dr. Goode during fiscal 2003 consisted of a
$12,000 car allowance.
|
Option
Grants in Our Last Completed Fiscal Year
The
following table shows grants of stock options that we made during the fiscal
year ended December 31, 2005 to each of our executive officers named in the
Summary Compensation Table, above.
|
|
Individual
Grants(1)
|
|
|
Potential
Realizable
Value
at Assumed
Annual
Rates of Stock
Price
Appreciation for
Option
Term (2)
|
|||||||||||||||
|
Name
|
Number
of
Securities
Underlying
Options
Granted
(#)
|
%
of Total
Options
Granted
to
Employees
in Fiscal Year
|
Exercise
or
Base
Price($/Share)
|
Expiration
Date
|
5%
|
10%
|
|||||||||||||
|
John
A. Paganelli
|
20,000
|
20
|
%
|
$
|
.40
|
Jan.
2015 thru Oct. 2015
|
$
|
13,031
|
$
|
20,750
|
|||||||||
|
(1)
|
The
options are non-qualified stock options, granted pursuant to the
eXegenics
amended and restated 2000 stock option plan. Options to purchase
20,000
shares of common stock, at an average exercise price of $0.40 per
share,
vest immediately on the grant date that ranges from January 1, 2005
through October 1, 2005. These options were granted to Mr. Paganelli
as a
member of the board of directors.
|
|
(2)
|
In
accordance with the rules of the Securities and Exchange Commission,
we
show in these columns the potential realizable value over the term
of the
option (the period from the grant date to the expiration date). We
calculate this assuming that the fair market value of our common
stock on
the date of grant appreciates at the indicated annual rate, 5% and
10%
compounded annually, for the entire term of the option and that the
option
is exercised and sold on the last day of its term for the appreciated
stock price. These amounts are based on assumed rates of appreciation
and
do not represent an estimate of our future stock price. Actual gains,
if
any, on stock option exercises will depend on the future performance
of
our common stock, the option holder’s continued employment with us through
the option exercise period, and the date on which the option is
exercised.
|
Aggregated
Option Exercises in Last Completed Fiscal Year and Fiscal Year-End Option Values
- December 31, 2005
The
following table shows information regarding exercises of options to purchase
our
shares of common stock by each executive officer named in the Summary
Compensation Table during the fiscal year ended December 31, 2005. The table
also shows the aggregate value of options held by each executive officer named
in the Summary Compensation Table as of December 31, 2005. The value of the
unexercised in-the-money options at fiscal year end is based on a value of
$0.41
per share, the closing price of our stock on the OTC Bulletin Board on December
30, 2005 (the last trading day prior to the fiscal year end), less the per
share
exercise price.
|
|
|
|
Number
of Securities
Underlying
Unexercised
Options
at
Fiscal
Year-End
|
Value
of the Unexercised
In-The-Money
Options
at
Fiscal Year-End
|
|||||||||||||||
|
Name
|
Shares
Acquired
on Exercise
|
Value
Realized
|
Exercisable
|
Unexercisable
|
Exercisable
|
Unexercisable
|
|||||||||||||
|
John
A. Paganelli
|
—
|
—
|
40,000
|
—
|
$
|
500
|
N/A
|
||||||||||||
|
David
E. Riggs
|
—
|
—
|
50,000
|
25,000
|
N/A
|
N/A
|
|||||||||||||
Compensation
of Directors
The
chairman of eXegenics board of directors receives a fee of $18,750 per quarter,
due the day after the commencement of each calendar quarter for his service.
As
of July 1, 2005, in consideration for his assumption of additional
responsibilities for serving as the chairman of the business opportunities
search committee, Robert Baron receives an additional $6,250 per quarter. For
additional services provided by Robert Benou and Dr. David Spencer, both
directors receive an additional $1,250 per quarter. John A. Paganelli, chairman
of the board, receives an additional $6,250 per quarter for assuming additional
responsibilities for serving as interim chief executive officer.
Upon
joining the eXegenics board, directors are issued 25,000 shares of common stock.
The chairman of the board receives an additional 25,000 shares at the time
he
assumes this role. Members of the board of directors are granted an option
to
purchase 5,000 shares of eXegenics common stock on the first day of each
calendar quarter, with an exercise price equal to the closing trading price
of
eXegenics common stock on the date of grant. Under the terms of the Stock
Purchase Agreement, automatic option grants have been suspended through the
closing of the transaction.
On
March
22,
2005 the board of directors of eXegenics approved the grant of 50,000 shares
of
eXegenics common stock to each of John P. Paganelli and Robert
Baron contingent upon the closing of a change-in-control transaction,
subject to approval by the stockholders of the stock grants and require that
each recipient of the stock grant is a member of the eXegenics board of
directors at the time of the change-in-control.
For
the
12 months ended December 31, 2005 and December 31, 2004, stock options
totaling 80,000 and 90,000 shares of common stock were granted to directors
pursuant to resolutions of the eXegenics board of directors for services
provided by directors, respectively.
You
should read the section titled “Interests of eXegenics Executive Officers and
Directors in the Stock Sale” at page [___] for a discussion of these interests
and the interests of others in the stock sale.
Employment
Contracts, Termination of Employment and Change-in-Control
Arrangements
David
E.
Riggs, our former president, chief executive officer and chief financial
officer, entered into an employment agreement with eXegenics on March 10, 2003.
Effective June 30, 2005 eXegenics and Mr. Riggs mutually agreed that he would
relinquish his duties as president, chief executive officer and chief financial
officer. In July 2005, eXegenics and Mr. Riggs entered into a Separation
Agreement. In connection with Mr. Riggs's separation from eXegenics, eXegenics
paid Mr. Riggs severance in an amount equal $117,500. Further, Mr. Riggs agreed
that the options he held to purchase 225,000 shares of eXegenics common stock
granted under the eXegenics nonqualified stock option agreement dated March
10,
2003 shall terminate on September 30, 2005, and that the options he held to
purchase 75,000 shares of eXegenics common stock granted under the nonqualified
stock option agreement dated March 29, 2004 shall terminate on June 30, 2007.
In
consideration of the payments made to him under the separation agreement, Mr.
Riggs waived and released certain claims that he may have against eXegenics
and
its officers, directors, agents, attorneys, employees, successors or
assigns.
On
June
30, 2005, John A. Paganelli, our then chairman, assumed the role of interim
chief executive officer.
On
July
1, 2005 David F. Hostelley was named chief financial officer of eXegenics
pursuant to the terms of a letter agreement between eXegenics and Contract
CFO
& Accounting, Inc. dated July 20, 2005. The letter agreement is a
month-to-month agreement, and either party can terminate the agreement upon
3
business days notice. eXegenics pays Contract CFO & Accounting, Inc. $2,500
a month in consideration for Mr. Hostelley's services to eXegenics, billed
and
payable on the first of each month. Further, in the event Mr. Hostelley is
required to travel on behalf of eXegenics for any reason, eXegenics will
be
billed $800 per day, plus out-of-pocket expenses. All travel to be pre-approved
by the chairman of eXegenics board of directors.
Equity
Compensation Plan Information
As
of December 31, 2005
|
Plan
Category
|
Number
of Securities to be Issued Upon Exercise of Outstanding Options,
Warrants
and Rights (a)
|
Weighted-Average
Exercise Price of Outstanding Options, Warrants and
Rights
(b)
|
Number
of Securities Remaining Available for Future Issuance Under Equity
Compensation Plans (Excluding Securities Reflected in Column(a))
(c)
|
|||||||
|
Equity
compensation plans approved by security holders
|
905,000
|
$
|
3.37
|
3,345,000
|
||||||
|
Equity
compensation plans not approved by security holders (1)
|
290,000
|
$
|
0.75
|
N/A
|
||||||
| (1) |
Consists
of the following warrants: Roan-Meyers dated August 13, 2002 to purchase
125,000 shares of our common stock; Roan-Meyers warrants, dated August
13,
2002 to purchase 125,000 shares of our common; and Petkevich &
Partners, LLC warrants, to purchase 40,000 shares of our common
stock.
|
We
have
authorized the issuance of equity securities under the compensation plans
described below without the approval of stockholders. No additional options,
warrants or rights are available for issuance under any of these plans, except
for additional shares which may become purchasable under warrants with
anti-dilution protection as noted below. We have either already registered
or
agreed to register for resale the common stock underlying all of these
plans.
Roan-Meyers
warrants, dated August 13, 2002: provided common stock purchase warrants in
connection with financial advisory services, to purchase 125,000 shares of
our
common stock at a purchase price of $1.00 per share, with an expiration date
of
August 13, 2007.
Roan-Meyers
warrants, dated August 13, 2002: provided common stock purchase warrants in
connection with financial advisory services to purchase 125,000 shares of our
common stock at a purchase price of $0.55 per share, with an expiration date
of
August 13, 2007.
Petkevich
& Partners, LLC warrants, dated March 5, 2003, provided common stock
purchase warrants in connection with financial advisory services to purchase
40,000 shares of our common stock at a purchase price of $0.58 per share, with
an expiration date of March 5, 2008.
Future
Stockholder Proposals
Our
bylaws establish the following procedures on how stockholders can propose
business to be conducted at a stockholder meeting:
Notice
Requirement.
A
stockholder must provide a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business at the
annual meeting and any material interest in such business of the stockholder
and
the beneficial owner, if any, on whose behalf the proposal is made. The notice
must contain the information specified in the bylaws as to the identity of
the
stockholder or beneficial owner on whose behalf the proposal is
made.
Notice
Deadlines.
Written
notice of a proposal of other business must be delivered to the Secretary not
less than 55 nor more than 75 days prior to the first anniversary of the date
on
which we first mailed our proxy materials for the prior year’s annual meeting.
However, if the annual meeting is more than 30 days before or more than 60
days
after the anniversary date, notice must be delivered by the close of business
on
the 10th
day
after the public announcement of the date of such meeting.
Where
to Send.
Stockholder proposals must be addressed to the Secretary and mailed to him
at
eXegenics, Inc., 1250 Pittsford-Victor Road, Building 200, Suite 280, Pittsford,
New York 14534.
At
a
special meeting of stockholders, only such business shall be conducted as shall
have been brought before the meeting pursuant to our notice of
meeting.
The
SEC
has also adopted regulations that govern the inclusion of such proposals in
our
proxy materials. Stockholder proposals for inclusion in our proxy statement
and
form of proxy for the annual meeting to be held in 2007 must have been received
by August 11, 2006. If we are not notified of a stockholder proposal by that
date, then the persons appointed as proxies may have discretion to vote against
such stockholder proposal, even though the proposal is not discussed in the
proxy statement.
Other
Business
Under
eXegenics’s bylaws, no other items of business may be brought before the special
meeting other than those set forth herein.
Representatives
of our independent auditor, Rotenberg & Company, LLP, an independent
registered public accounting firm, are expected to be present at the special
meeting, will have an opportunity to make a statement if they desire to do
so
and will be available to respond to appropriate questions from
stockholders.
You
should rely only on the information contained in this Proxy Statement to vote
on
the proposals. We have not authorized anyone to provide you with information
that is different from what is contained in this Proxy Statement. This Proxy
Statement is dated ________, 2006. You should not assume that the information
contained in the Proxy Statement is accurate as of any date other than such
date.
IT
IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. WHETHER OR NOT YOU EXPECT TO
ATTEND THE SPECIAL MEETING IN PERSON, YOU ARE URGED TO COMPLETE, SIGN, DATE
AND
RETURN THE PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
By
Order
of the Board of Directors
John
A.
Paganelli,
Interim
Chief Executive Officer, Secretary and
Chairman
of the Board of Directors
|
|
|
Page
|
|
|
F-
1
|
|
|
|
F-2
|
|
|
|
F-3
|
|
|
|
F-
4
|
|
|
|
F-5
|
|
|
|
F-6
|
|
|
|
F-7
|
|
|
|
F-18
|
|
|
|
F-19
|
|
|
F-20
|
||
|
|
F-21
|
To
the
Board of Directors
and
Stockholders
eXegenics
Inc.
We
have
audited the accompanying balance sheet of eXegenics Inc. as of December 31,
2005, and the related statements of operations, changes in stockholders' equity,
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an
opinion on these financial statements based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of eXegenics Inc. as of December
31,
2005 and the results of its operations and its cash flows for the year then
ended, in conformity with accounting principles generally accepted in the United
States of America.
/s/
Rotenberg & Co., llp
Rotenberg
& Co., llp
Rochester,
New York
February
27, 2006
Board
of
Directors and Stockholders
eXegenics
Inc.
We
have
audited the accompanying balance sheets of eXegenics
Inc.
(the Company) as of December 31, 2004 and 2003, and the related statements
of
operations, changes in stockholders’ equity and cash flows for the years then
ended. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures
that
are appropriate in the circumstances, but not for the purpose of expressing
an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures
in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of eXegenics
Inc. as
of December 31, 2004 and 2003, and the results of its operations and its cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.
BDO
Seidman, LLP
Dallas,
Texas
February
18, 2005 except for Notes K and
N
which
are as of April 12, 2005
eXegenics
Inc.
|
|
December
31,
|
||||||
|
|
2005
|
2004
|
|||||
|
ASSETS
|
|||||||
|
Current
assets:
|
|||||||
|
Cash
and cash equivalents
|
$
|
8,901,000
|
$
|
8,734,000
|
|||
|
Restricted
cash
|
—
|
175,000
|
|||||
|
Marketable
securities available for sale
|
—
|
1,124,000
|
|||||
|
Prepaid
expenses and other current assets
|
99,000
|
35,000
|
|||||
|
Total
current assets
|
9,000,000
|
10,068,000
|
|||||
|
Equipment,
net
|
—
|
3,000
|
|||||
|
$
|
9,000,000
|
$
|
10,071,000
|
||||
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|||||||
|
Current
liabilities:
|
|||||||
|
Accounts
payable and accrued expenses
|
$
|
277,000
|
$
|
239,000
|
|||
|
Stockholders’
equity:
|
|||||||
|
Preferred
stock — $.01 par value, 10,000,000 shares authorized; 952,839 and 935,332
shares of Series A convertible preferred issued and outstanding
(liquidation value $2,382,000 and $2,338,000)
|
10,000
|
9,000
|
|||||
|
Common
stock — $.01 par value, 30,000,000 shares authorized; 16,945,026 and
16,869,031 shares issued
|
169,000
|
169,000
|
|||||
|
Additional
paid in capital
|
68,384,000
|
68,385,000
|
|||||
|
Accumulated
other comprehensive income
|
—
|
1,124,000
|
|||||
|
Subscriptions
receivable, net of reserve
|
(101,000
|
)
|
(302,000
|
)
|
|||
|
Accumulated
deficit
|
(56,402,000
|
)
|
(56,216,000
|
)
|
|||
|
Treasury
stock, 611,200 and 611,200 shares of common stock, at cost
|
(3,337,000
|
)
|
(3,337,000
|
)
|
|||
|
8,723,000
|
9,832,000
|
||||||
|
$
|
9,000,000
|
$
|
10,071,000
|
||||
See
notes
to financial statements
eXegenics
Inc.
|
|
Year
Ended December 31,
|
|||||||||
|
|
2005
|
2004
|
2003
|
|||||||
|
Revenue:
|
||||||||||
|
License
and research fees
|
$
|
—
|
$
|
—
|
$
|
13,000
|
||||
|
Operating
expenses:
|
||||||||||
|
Research
and development
|
—
|
—
|
154,000
|
|||||||
|
General
and administrative
|
1,438,000
|
2,051,000
|
2,938,000
|
|||||||
|
Expenses
related to strategic redirection
|
—
|
—
|
653,000
|
|||||||
|
Merger,
tender offers and consent solicitation expenses
|
—
|
—
|
2,233,000
|
|||||||
|
1,438,000
|
2,051,000
|
5,978,000
|
||||||||
|
Other
(income) expenses:
|
||||||||||
|
Gain
on sale of investments, net
|
(1,064,000
|
)
|
—
|
—
|
||||||
|
Interest
income
|
(190,000
|
)
|
(127,000
|
)
|
(174,000
|
)
|
||||
|
Interest
expense
|
2,000
|
2,000
|
2,000
|
|||||||
|
(1,252,000
|
)
|
(125,000
|
)
|
(172,000
|
)
|
|||||
|
Loss
before provision (benefit) for taxes
|
(186,000
|
)
|
(1,926,000
|
)
|
(5,793,000
|
)
|
||||
|
Provision
(benefit) for taxes
|
—
|
—
|
—
|
|||||||
|
Net
Loss
|
(186,000
|
)
|
(1,926,000
|
)
|
(5,793,000
|
)
|
||||
|
Preferred
stock dividend
|
(234,000
|
)
|
(223,000
|
)
|
(207,000
|
)
|
||||
|
Net
loss attributable to common stockholders
|
$
|
(420,000
|
)
|
$
|
(2,149,000
|
)
|
$
|
(6,000,000
|
)
|
|
|
Basic
and diluted loss per common share:
|
$
|
(0.03
|
)
|
$
|
(0.13
|
)
|
$
|
(0.38
|
)
|
|
|
Weighted
average number of shares outstanding — basic and
diluted
|
16,271,000
|
16,050,000
|
15,690,000
|
|||||||
See
notes
to financial statements
eXegenics
Inc.
|
Convertible
|
Additional
|
Reserve
on
|
Accumulated
Other
|
Treasury
Stock
|
|||||||||||||||||||||||||||||||||
|
Preferred
Stock
|
Common
Stock
|
Paid
in
|
Subscriptions
|
Subscp.
|
Accumulated
|
Comprehensive
|
|||||||||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Receivable
|
Rec
|
Deficit
|
Income
(Loss)
|
Shares
|
Amount
|
Total
|
||||||||||||||||||||||||||
|
Balance
— January 1, 2003
|
828,023
|
$
|
8,000
|
16,184,486
|
$
|
162,000
|
67,272,000
|
(301,000
|
)
|
—
|
(48,497,000
|
)
|
—
|
511,200
|
($2,570,000
|
)
|
16,074,000
|
||||||||||||||||||||
|
Preferred
stock converted to common stock
|
(20,293
|
)
|
—
|
20,293
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
||||||||||||||||||||||||
|
Preferred
dividend (stock)
|
82,834
|
1,000
|
—
|
—
|
(1,000
|
)
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
||||||||||||||||||||||||
|
Net
interest on Subscription Receivable
|
—
|
—
|
—
|
—
|
—
|
(1,000
|
)
|
—
|
—
|
—
|
—
|
—
|
(1,000
|
)
|
|||||||||||||||||||||||
|
Exercise
of stock options
|
—
|
—
|
10,000
|
—
|
4,000
|
—
|
—
|
—
|
—
|
—
|
—
|
4,000
|
|||||||||||||||||||||||||
|
Issuance
of shares previously recorded as issuance from Treasury
Stock
|
—
|
—
|
100,000
|
1,000
|
766,000
|
—
|
—
|
—
|
—
|
100,000
|
(767,000
|
)
|
—
|
||||||||||||||||||||||||
|
Value
assigned to warrants and options issued for professional
services
|
—
|
—
|
—
|
—
|
20,000
|
—
|
—
|
—
|
—
|
—
|
—
|
20,000
|
|||||||||||||||||||||||||
|
Net
loss for the year
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(5,793,000
|
)
|
—
|
—
|
—
|
(5,793,000
|
)
|
|||||||||||||||||||||||
|
Balance
— December 31, 2003
|
890,564
|
9,000
|
16,314,779
|
163,000
|
68,061,000
|
(302,000
|
)
|
—
|
(54,290,000
|
)
|
—
|
611,200
|
(3,337,000
|
)
|
10,304,000
|
||||||||||||||||||||||
|
Preferred
stock converted to common stock
|
(44,252
|
)
|
(500
|
)
|
44,252
|
500
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||||||||||
|
Preferred
dividend (stock)
|
89,020
|
500
|
—
|
—
|
(500
|
)
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
||||||||||||||||||||||||
|
Exercise
of stock options
|
—
|
—
|
360,000
|
4,000
|
188,000
|
—
|
—
|
—
|
—
|
—
|
—
|
192,000
|
|||||||||||||||||||||||||
|
Compensation
related to grant of stock and options to board members
|
—
|
—
|
150,000
|
1,500
|
132,000
|
—
|
—
|
—
|
—
|
—
|
—
|
133,500
|
|||||||||||||||||||||||||
|
Value
assigned to warrants and options issued for professional
services
|
—
|
—
|
—
|
—
|
4,500
|
—
|
—
|
—
|
—
|
—
|
—
|
4,500
|
|||||||||||||||||||||||||
|
Comprehensive
Income:
|
|||||||||||||||||||||||||||||||||||||
|
Net
Loss for the year
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(1,926,000
|
)
|
—
|
—
|
—
|
(1,926,000
|
)
|
|||||||||||||||||||||||
|
Unrealized
gain on available for sale securities
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
1,124,000
|
—
|
—
|
1,124,000
|
|||||||||||||||||||||||||
|
Total
comprehensive income
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(802,000
|
)
|
||||||||||||||||||||||||
|
Balance
— December 31, 2004
|
935,332
|
$
|
9,000
|
16,869,031
|
$
|
169,000
|
$
|
68,385,000
|
($302,000
|
)
|
—
|
($56,216,000
|
)
|
$
|
1,124,000
|
611,200
|
($3,337,000
|
)
|
$
|
9,832,000
|
|||||||||||||||||
|
Preferred
stock converted to common stock
|
(75,995
|
)
|
—
|
75,995
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
||||||||||||||||||||||||
|
Preferred
dividend (stock)
|
93,502
|
1,000
|
—
|
—
|
(1,000
|
)
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
||||||||||||||||||||||||
|
Accrued
Interest on subscription receivable
|
—
|
—
|
—
|
—
|
—
|
(14,000
|
)
|
—
|
—
|
—
|
—
|
—
|
(14,000
|
)
|
|||||||||||||||||||||||
|
Reserve
on stock subscriptions receivable
|
—
|
—
|
—
|
—
|
—
|
—
|
215,000
|
—
|
—
|
—
|
—
|
215,000
|
|||||||||||||||||||||||||
|
Comprehensive
Income:
|
|||||||||||||||||||||||||||||||||||||
|
Net
Loss for the year
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(186,000
|
)
|
—
|
—
|
—
|
(186,000
|
)
|
|||||||||||||||||||||||
|
Realized
gain on available for sale securities
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(1,124,000
|
)
|
—
|
—
|
(1,124,000
|
)
|
|||||||||||||||||||||||
|
Total
comprehensive income
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||||||||||||
|
Balance
— December 31, 2005
|
952,839
|
$
|
10,000
|
16,945,026
|
$
|
169,000
|
$
|
68,384,000
|
($316,000
|
)
|
$
|
215,000
|
($56,402,000
|
)
|
—
|
611,200
|
($3,337,000
|
)
|
$
|
8,723,000
|
|||||||||||||||||
See
notes
to financial statements
eXegenics
Inc.
|
|
Year
Ended December 31,
|
|||||||||
|
|
2005
|
2004
|
2003
|
|||||||
|
Cash
flows from operating activities:
|
||||||||||
|
Net
loss
|
$
|
(186,000
|
)
|
$
|
(1,926,000
|
)
|
$
|
(5,793,000
|
)
|
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||||
|
Depreciation
and amortization
|
3,000
|
5,000
|
55,000
|
|||||||
|
Non-cash
expenses relating to strategic redirection
|
—
|
—
|
171,000
|
|||||||
|
Value
assigned to warrants, options and compensatory stock
|
—
|
138,000
|
20,000
|
|||||||
|
Interest
accrual on subscriptions receivable
|
(14,000
|
)
|
(2,000
|
)
|
(1,000
|
)
|
||||
|
Reserve
for subscriptions receivable
|
215,000
|
—
|
—
|
|||||||
|
Gain
on Sale of Investments, net
|
(1,064,000
|
)
|
—
|
—
|
||||||
|
Changes
in:
|
||||||||||
|
Release
of cash restricted for operating lease obligations
|
175,000
|
425,000
|
—
|
|||||||
|
Prepaid
expenses and other current assets
|
(64,000
|
)
|
569,000
|
(87,000
|
)
|
|||||
|
Payment
of operating lease obligations
|
—
|
(87,000
|
)
|
—
|
||||||
|
Accounts
payable and accrued expenses
|
38,000
|
(712,000
|
)
|
(201,000
|
)
|
|||||
|
Net
provided by (cash used) in operating activities
|
(897,000
|
)
|
(1,590,000
|
)
|
(5,836,000
|
)
|
||||
|
Cash
flows from investing activities:
|
||||||||||
|
Net
sales of equipment
|
—
|
—
|
28,000
|
|||||||
|
Sales
of investment securities
|
1,064,000
|
—
|
10,000,000
|
|||||||
|
Net
cash provided by investing activities
|
1,064,000
|
—
|
10,028,000
|
|||||||
|
Cash
flows from financing activities:
|
||||||||||
|
Proceeds
from sale of common stock through exercise of options and
warrants
|
—
|
192,000
|
4,000
|
|||||||
|
Payment
of capital lease obligations
|
—
|
—
|
(202,000
|
)
|
||||||
|
Net
cash provided by (used in) financing activities
|
—
|
192,000
|
(198,000
|
)
|
||||||
|
Net
increase (decrease) in cash and cash equivalents
|
167,000
|
(1,398,000
|
)
|
3,994,000
|
||||||
|
Cash
and cash equivalents at beginning of year
|
8,734,000
|
10,132,000
|
6,138,000
|
|||||||
|
Cash
and cash equivalents at end of year
|
$
|
8,901,000
|
$
|
8,734,000
|
$
|
10,132,000
|
||||
|
Supplemental
disclosures of cash flow information:
|
||||||||||
|
Cash
paid for interest
|
$
|
2,000
|
$
|
2,000
|
$
|
9,000
|
||||
|
Cash
paid for Income Taxes
|
$
|
36,000
|
—
|
—
|
||||||
|
Noncash
investing activities:
|
||||||||||
|
Investment
in Intrac, Inc
|
—
|
1,124,000
|
—
|
|||||||
See
notes
to financial statements
eXegenics
Inc.
Note
A —
The Company
eXegenics
Inc., formerly known as Cytoclonal Pharmaceutics Inc. (“eXegenics” or the
“Company”), was previously involved in the research, creation, and development
of drugs for the treatment and/or prevention of cancer and infectious diseases.
During 2004, the Company completed the termination all research activities.
All
scientific staff and administrative positions were eliminated and all of the
Company’s research activities were terminated. Our objective continues to be to
redeploy our assets and actively pursue new business opportunities.
Note
B —
Summary of Significant Accounting Policies
Cash
equivalents, restricted cash
The
Company considers all non-restrictive, highly liquid short-term investments
purchased with an original maturity of three months or less to be cash
equivalents. Cash equivalents, which amount to $8,901,000 and $8,734,000 at
December 31, 2005 and 2004, respectively, consist principally of interest
bearing cash deposits. Restricted cash, amounted to $0 at December 31, 2005,
and
$175,000 at December 31, 2004, consisted of certificates of deposits that are
used as collateral for equipment leases.
The
Company maintains cash and cash equivalents at several financial institutions
which periodically may exceed federally insured amounts. The Company has not
experienced any loss in such accounts and believes it is not exposed to any
significant risk on cash and cash equivalents.
Marketable
Securities
The
Company accounts for marketable securities in accordance with Statement of
Financial Accounting Standards No. 115 “Accounting for Certain Investments in
Debt and Equity Securities” (“SFAS 115”). SFAS 115 establishes the accounting
and reporting requirements for all debt securities and for investments in equity
securities that have readily determinable fair values. All marketable securities
must be classified as one of the following: held-to-maturity,
available-for-sale, or trading. The Company classifies its marketable securities
as available-for sale and, as such, carries the investments at fair value,
with
unrealized holding gains and losses reported in stockholders’ equity as a
separate component of accumulated other comprehensive income. The cost of
securities sold is determined based on the specific identification method.
Realized gains and losses, and declines in value judged to be other than
temporary, are included in investment income.
In
2001,
the Company entered into a planned merger agreement that was subsequently
terminated as a part of a negotiated settlement, it received a convertible
subordinated promissory note in the amount of $500,000. In September 2003,
this
note was converted to 339,736 shares of Innovative Drug Delivery System (“IDDS”)
series C preferred stock and as of December 31, 2003, the Company had placed
a
full valuation allowance on the value of these securities. In late December
2004, the Company was informed that Intrac, Inc. acquired IDDS and all of the
Company’s shares in IDDS were to be converted to 345,991
shares
of
Intrac, Inc. common stock. As of December 31, 2004 the fair value of the
Company’s investment in these securities was equal to approximately $1,124,000
and a corresponding unrealized gain is included as a component of other
comprehensive income.
During
2005, the Company sold all of its marketable securities, realizing a gain on
sale of approximately $1,064,000. These securities consisted of equity
securities (common stock) in Javelin Pharmaceuticals, Inc. (formally known
as
Intrac, Inc.) and were classified as available for sale and reported at their
fair values. Realized gains and losses from the sale of investments are reported
in current earnings. Unrealized gains and losses from these securities are
reported as a separate component of stockholders equity and excluded from
current earnings. As of December 31, 2005 and December 31, 2004, the fair value
of the Company’s investments was equal to approximately $0 and $1,124,000 with
corresponding unrealized gains in 2004 included as a component of other
comprehensive income.
Equipment
Equipment
is stated at cost. Depreciation is provided using the straight-line method
over
the estimated useful lives of the assets, which range from 3 to 5 years. Repairs
and maintenance that do not increase the economic useful life of the asset
are
charged to expense as incurred.
The
Company reviews its capital assets for impairment whenever events or changes
in
circumstances indicate that the carrying amount may not be recoverable. In
performing the review, the Company uses the undiscounted cash flow method.
Revenue
recognition
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.
Research
and development
Research
and development costs are charged to expense as incurred.
Loss
per
common share
Basic
and
diluted loss per common share is based on the net loss increased by dividends
on
preferred stock divided by the weighted average number of common shares
outstanding during the year. No effect has been given to outstanding options,
warrants or convertible preferred stock in the diluted computation, as their
effects would be anti-dilutive. The number of potentially dilutive securities
excluded from the computation of diluted loss per share was approximately
2,148,000, 2,325,000 and 3,739,000 for the years ended December 31, 2005, 2004
and 2003, respectively.
Stock-based
compensation
The
Company accounts for stock- based compensation according to Accounting
Principles Board Opinion No. 25 and the related interpretations under Financial
Accounting Standards Board ("FASB") Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation."
F-8
The
Company adopted the required disclosure provisions under Statement of Financial
Accounting Standards No. 148 and continues to use the intrinsic value method
of
accounting for stock-based compensation.
Comprehensive
Income
SFAS
No.
130, "Reporting Comprehensive Income," establishes standards for the reporting
and display of comprehensive income and its components within the financial
statements. Other comprehensive income is comprised of charges to stockholders'
equity, other than contributions from or distributions to stockholders, excluded
from the determination of net income. The Company's other comprehensive income
is comprised of unrealized gains on available for sale marketable
securities.
Income
Taxes
The
Company has applied the provisions of SFAS No. 109, "Accounting for Income
Taxes," which requires the recognition of deferred income tax assets and
liabilities for the consequences of temporary differences between amounts
reported for financial reporting and income tax purposes, including net
operating loss carryforwards. SFAS No. 109 requires recognition of a future
tax
benefit of net operating loss carryforwards and certain other temporary
differences to the extent that realization of such benefit is more likely than
not; otherwise, a valuation allowance is applied.
Fair
value of financial instruments
The
carrying value of cash equivalents, accounts payable and accrued expenses
approximates their fair value due to the short period to maturity of these
instruments.
Use
of
estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Recent
Accounting Pronouncement
In
May
2005, the FASB issued Statement of Financial Statement Accounting Standards
No.
154, “Accounting Changes and Error Corrections-a replacement of APB Opinion No.
20 and FASB Statement No. 3” (“SFAS 154”). This Statement replaces APB Opinion
No. 20, “Accounting Changes,” and FASB Statement No. 3, “Reporting Accounting
Changes in Interim Financial Statements.” SFAS 154 requires retrospective
application to prior periods’ financial statements for changes in accounting
principle, unless it is impractical to determine either the period-specific
effects or the cumulative effect of the change. SFAS 154 also requires that
a
change in depreciation, amortization, or depletion method for long,
non-financial assets be accounted for as a change in accounting estimate
effected by a change in accounting principle. SFAS 154 is effective for
accounting changes and corrections of errors made in fiscal years beginning
after December 15, 2005. The Company believes that adoption of the provisions
of
SFAS 154 will not have a material effect on the Company’s consolidated financial
statements.
In
December 2004, the FASB issued SFAS No. 123R, “Share-based Payment.” SFAS No.
123R is a revision of SFAS No. 123, “Accounting for Stock Based Compensation”,
and supersedes APB 25. Among other items, SFAS 123R eliminates the use of APB
25
and the intrinsic value method of accounting, and requires companies to
recognize the cost of employee services received in exchange for awards of
equity instruments, based on the grant date fair value of those awards, in
the
financial statements. The effective date of SFAS 123R is January 1, 2006, for
calendar year companies.
SFAS
123R
permits companies to adopt its requirements using either a “modified
prospective” method, or a “modified retrospective” method. Under the “modified
prospective” method, compensation cost recognized in the financial statements
beginning with the effective date, based on the requirements of SFAS 123R for
all share-based payments granted after that date, and based on the requirements
of SFAS 123 for all unvested awards granted prior to the effective date of
SFAS
123R. Under the “modified retrospective” method, the requirements are the same
as under the “modified prospective” method, but also permits entities to restate
financial statements of previous periods based on proforma disclosures made
in
accordance with SFAS 123.
The
Company currently utilizes a standard option pricing model (i.e., Black
-Scholes) to measure the fair value of stock options granted to employees.
While
SFAS 123R permits entities to continue to use such a model, the standard also
permits the use of a “lattice” model. The Company has not yet determined which
model it will use to measure the fair value of employee stock options upon
the
adoption of SFAS 123R.
SFAS
123R
also requires that the benefits associated with the tax deductions in excess
of
recognized compensation cost be reported as a financing cash flow, rather than
as an operating cash flow as required under current literature. This requirement
will reduce net operating cash flows and increase net financing cash flows
in
periods after the effective date. These future amounts cannot be estimated
because they depend on, among other things, when employees exercise stock
options.
Note
C —
License Agreements
On
September 8, 2004 the Company entered into an Intellectual Property
Assignment Agreement to license the Company’s QCT drug discovery technology to
NLC Pharma, Inc. (a Delaware corporation based in Israel). Pursuant to the
Agreement the Company will receive monies from royalties, licenses or the sale
of QCT technology to third parties that are generated by NLC Pharma Inc. The
Company did not earn any revenue under this agreement during 2005, nor does
it
anticipate receiving any revenues from this agreement in future years.
Note
D —
Equipment
Equipment
is summarized as follows:
|
|
December
31,
|
||||||
|
|
2005
|
2004
|
|||||
|
Office
equipment
|
$
|
26,000
|
$
|
26,000
|
|||
|
Less
accumulated depreciation
|
(26,000
|
)
|
(23,000
|
)
|
|||
|
Net
|
$
|
—
|
$
|
3,000
|
|||
Note
E —
Accounts Payable and Accrued Expenses
Accounts
payable and accrued expenses consist of the following:
|
|
December
31,
|
||||||
|
|
2005
|
2004
|
|||||
|
Professional
fees
|
$
|
23,000
|
$
|
39,000
|
|||
|
Legal
Reserve
|
250,000
|
—
|
|||||
|
Equipment
Return Reserve
|
—
|
100,000
|
|||||
|
Delaware
Franchise Tax
|
—
|
32,000
|
|||||
|
Other
|
4,000
|
68,000
|
|||||
|
$
|
277,000
|
$
|
239,000
|
||||
Note
F —
Capital Lease Obligations
During
2005, the Company terminated all capital lease obligations and as a result
$175,000 in collateral was released from restriction.
Note
G —
Stockholders’ Equity
Preferred
stock
On
January 6, 1992, the Board of Directors designated 4,000,000 shares of preferred
stock as Series A convertible preferred stock. The holders of Series A preferred
stock are entitled to (i) convert on a one-for-one basis to common stock subject
to adjustment, as defined, (ii) voting rights equivalent to voting rights of
common stockholders, (iii) receive dividends equal to $.25 per share payable
on
or about January 15 each year in cash or newly-issued shares of Series A
preferred or a combination thereof (iv) liquidation preferences of $2.50 per
preferred share. The Company, at its option, has the right to redeem all or
any
portion of the Series A convertible preferred stock at $2.50 per share plus
accrued and unpaid dividends.
During
January 2003, the Company elected to pay the required yearly dividend on its
Series A convertible preferred stock by issuing additional shares of Series
A
convertible preferred stock. The Company issued 82,834 shares of Series A
convertible preferred stock to satisfy the 10% dividend. In addition, during
2003, 20,293 shares of Series A convertible preferred stock were converted
into
20,293 shares of common stock.
During
January 2004, the Company elected to pay the required yearly dividend by issuing
additional shares of Series A convertible preferred. The Company issued 89,020
shares to satisfy the 10% dividend. In addition, during 2004, 44,252 shares
of
Series A convertible preferred were converted into 44,252 shares of common
stock
During
January 2005, the Company elected to pay the required yearly dividend by issuing
additional shares of Series A convertible preferred. The Company issued 93,502
shares to satisfy the 10% dividend. In addition, during 2005, 75,995 shares
of
Series A convertible preferred were converted into 75,995 shares of common
stock.
Common
Stock
During
the second quarter 2004, the Board of Directors adopted a resolution providing
for the issuance of shares of the Company’s common stock and the granting of
stock options as part of compensation paid to directors for their service to
the
Company. Upon joining the Board, directors are issued 25,000 shares of common
stock. The chairman of the Board receives an additional 25,000 shares at the
time he assumes this role. Members of the Board of Directors are granted an
option to purchase 5,000 shares of the Company’s common stock on the first day
of each calendar quarter, with an exercise price equal to the closing trading
price of the Company’s common stock on the date of grant. In the second quarter
2004, the Chairman of the Board was issued 50,000 shares of common stock,
Directors were issued 25,000 shares. In the aggregate, 150,000 shares of common
stock were issued and recorded at their fair value on the date of grant. No
common stock was issued to the Board of Directors in 2005.
Stockholder
Rights Plan
On
June
9, 2003, the then current Board of Directors adopted a shareholders rights
plan.
Under the plan, each holder of the Company’s common stock as of the close of
business on June 9, 2003 received, as a non-taxable dividend, one right for
each
share of common stock held. Each right entitles the holder to purchase from
the
Company one one-thousandth of a share of Series B Junior Participating Preferred
Stock at an exercise price of $4.50, subject to adjustment. If a person or
group
acquires beneficial ownership of 15 percent or more of the Company’s common
stock, each right will entitle its holder (other than the acquiring person
or
members of the acquiring group) to purchase, at the right's then current
exercise price (initially $4.50), a number of the Company’s shares of common
stock having a market value of twice such price (initially $9.00).
In
addition, if the Company is acquired in a merger or other business combination
transaction after a person has acquired beneficial ownership of 15 percent
or
more of its common stock, each right will entitle its holder to purchase, at
the
rights' then current exercise price (initially $4.50), a number of the acquiring
company's shares of common stock having a market value of twice such price
(initially $9.00). Following the acquisition by a person or group of beneficial
ownership of 15 percent of the Company’s common stock and prior to an
acquisition of beneficial ownership of 50 percent or more of its common stock
the Board of Directors may exchange the rights (other than rights owned by
such
acquiring person or group, which will have become null and void and
nontransferable), in whole or in part, at an exchange ratio of one share of
common stock (or one-thousandth of a share of Series B Junior Participating
Preferred Stock) per right. The Company may redeem the rights at a price of
$.001 per right at any time prior to the time a person has become the beneficial
owner of 15% or more of the Company’s outstanding common stock. The rights will
expire on June 9, 2013, unless earlier exchanged or redeemed.
Subscriptions
receivable
In
May
2001, we sold 100,000 shares of common stock to our former President and Chief
Executive Officer, Ronald L. Goode, Ph.D., for a purchase price of $3.25 per
share, the fair market value at the time of the transaction. Dr. Goode paid
the
purchase price of $325,000 with $25,000 in cash and issued a $300,000 five-year
promissory note to us bearing interest at a rate of 4.71% per annum, with
interest payable semi-annually. The 100,000 shares sold to Dr. Goode, serve
as
collateral to secure the note. The note provides that in the event of a default
on the note, as defined in the agreement, Dr. Goode’s obligation to the Company
is limited to $65,000 and proceeds from the public sale of the collateralizing
stock. Through December 31, 2004, Dr. Goode has made $86,000 in interest
payments. A stock certificate for these shares was not issued to Dr. Goode
until
September 2003. In February 2004, Dr. Goode resigned, thereby terminating his
employment agreement with the Company and in 2005 he has failed to make $14,000
in interest payments. In the second quarter 2005, the Company recorded a reserve
against the subscription receivable balance so that the net balance is
approximately equal to Dr. Goode’s obligation under the note.
Warrants
At
December 31, 2005, outstanding warrants to acquire shares of the Company’s
common stock are as follows:
|
Warrant
Type
|
Exercise
Price
|
Expiration
Dates
|
Number
of
Shares
Reserved
|
|||
|
Other
|
$0.55
to $1.00
|
July
2004-March 2008
|
290,000
|
On
August
13, 2002 the Company issued warrants to purchase 125,000 shares of its common
stock at a purchase price of $1.00 per share, with an expiration date of August
13, 2007, and additional warrants to purchase 125,000 shares of our common
stock
at a purchase price of $0.55 per share, with an expiration date of August 13,
2007 to Roan/Meyers Associates, L.P. in exchange for financial advisory
services. In connection with this exchange, the Company recorded a charge of
$91,000 to operations during 2002 using the Black-Scholes option-pricing model.
In
March
2003, the Company entered into an agreement with Petkevich & Partners, LLC
whereby the Company issued warrants to purchase 40,000 shares of common stock
at
$0.58 per share expiring on March 5, 2008. These warrants vested during 2003;
the Company determined the fair value based on the Black-Scholes option pricing
model of these warrants to be approximately $5,000, which was charged to
operations during 2003.
The
Company did not incur any warrant related expenses in 2004 and
2005.
Stock
options
During
1996, the Board of Directors and the stockholders of the Company approved the
1996 Stock Option Plan (the “1996 Plan”) that provides for the granting of
incentive and nonstatutory options for up to 750,000 shares of common stock
to
officers, employees, directors and consultants of the Company. During 1998,
the
Board of Directors and the stockholders of the Company approved an amendment
to
the Plan to allow for the granting of an additional 750,000 options. At December
31, 2005 and 2004, 980,000 and 922,000, respectively, options were available
for
future grant under the 1996 Plan.
During
2000, the Board of Directors and the stockholders of the Company approved the
2000 Stock Option Plan (the “2000 Plan”), which provides for the granting of
incentive and nonstatutory options for up to 1,500,000 shares of common stock
to
officers, employees, directors, independent contractors, advisors and
consultants of the Company. The Company subsequently amended the 2000 plan
to
increase the options available for future grants by 1,250,000 shares and to
change the vesting period. At December 31, 2005 and 2004, 2,365,000 and
1,820,000, respectively, options are available for grant under the 2000
Plan.
Options
granted under the Plans are exercisable for a period of up to 10 years from
date
of grant at an exercise price which is not less than the fair value of the
common stock on date of grant, except that the exercise period of options
granted to a stockholder owning more than 10% of the outstanding capital stock
may not exceed five years and their exercise price may not be less than 110%
of
the fair value of the common stock at date of grant. For the 1996 Plan, options
generally vest 40% after six months of employment and thereafter 20% annually
on
the anniversary date of the grant. For the 2000 Plan, as a result of an
amendment approved by the stockholders in 2001, the vesting period changed
from
50% annually on the anniversary date of the grant, to 33 1/3% annually on the
anniversary date of the grant. Under the 2000 plan, the Board of Directors
has
authority to modify the vesting period. Non-employee director options are
immediately exercisable on the date of grant.
Stock
option activity under the Plans are summarized as follows:
|
|
Year
Ended December 31,
|
||||||||||||||||||
|
|
2005
|
2004
|
2003
|
||||||||||||||||
|
|
Shares
|
Weighted
Average
Exercise
Price
|
Shares
|
Weighted
Average
Exercise
Price
|
Shares
|
Weighted
Average
Exercise
Price
|
|||||||||||||
|
Options
outstanding at beginning of year
|
1,100,000
|
$
|
3.02
|
2,158,000
|
$
|
3.02
|
3,286,855
|
$
|
4.29
|
||||||||||
|
Granted
|
80,000
|
.40
|
165,000
|
.82
|
455,000
|
0.51
|
|||||||||||||
|
Exercised
|
—
|
—
|
(360,000
|
)
|
0.53
|
(10,000
|
)
|
0.40
|
|||||||||||
|
Expired
|
(275,000
|
)
|
0.72
|
(863,000
|
)
|
3.64
|
(1,573,855
|
)
|
5.06
|
||||||||||
|
Canceled
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||
|
Options
outstanding at end of year
|
905,000
|
3.37
|
1,100,000
|
3.02
|
2,158,000
|
3.02
|
|||||||||||||
|
Options
exercisable at end of year
|
880,000
|
3.44
|
971,660
|
3.32
|
1,932,000
|
3.26
|
|||||||||||||
The
following table presents information relating to stock options outstanding
under
the plans as of December 31, 2005:
|
|
Options
Outstanding
|
Options
Exercisable
|
||||||||||||||
|
Range
of
Exercise
Price
|
Shares
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Life
in Years
|
Shares
|
Weighted
Average
Exercise
Price
|
|||||||||||
|
$0.40-$2.99
|
450,000
|
$
|
1.49
|
|
3.48
|
425,000
|
$
|
1.45
|
||||||||
|
$3.00-$4.99
|
305,000
|
4.27
|
0.20
|
305,000
|
4.27
|
|||||||||||
|
$5.00-$7.43
|
40,000
|
6.75
|
0.18
|
40,000
|
6.75
|
|||||||||||
|
$7.44-$9.88
|
110,000
|
7.45
|
0.09
|
110,000
|
7.45
|
|||||||||||
|
905,000
|
880,000
|
|||||||||||||||
Pro
forma
information regarding net income and earnings per share is required by SFAS
No.
123, and has been determined as if we accounted for our stock option grants
under the fair market value method as prescribed by such statement. The fair
market value of our stock options was estimated at the date of grant using
the
Black-Scholes option-pricing model with the following assumptions.
|
|
2005
|
2004
|
2003
|
|||||||
|
Risk-free
interest rates
|
3.6%
to 4.3
|
%
|
2.9%
to 3.6
|
%
|
2.5%
to 3.5
|
%
|
||||
|
Expected
option life in years
|
5
|
5
|
5
|
|||||||
|
Expected
stock price volatility
|
63%
to 75
|
%
|
72%
to 75
|
%
|
89%
to 105
|
%
|
||||
|
Expected
dividend yield
|
0
|
%
|
0
|
%
|
0
|
%
|
||||
The
weighted average fair value at date of grant for options granted during 2005,
2004 and 2003 was $0.40, $0.81, and $0.09 per option, respectively. The Company
accounts for stock- based compensation according to Accounting Principles Board
Opinion No. 25 and the related interpretations under Financial Accounting
Standards Board ("FASB") Interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation." The Company adopted the required
disclosure provisions under Statement of Financial Accounting Standards No.
148
and continues to use the intrinsic value method of accounting for stock-based
compensation.
|
|
Year
Ended December 31,
|
|||||||||
|
|
2005
|
2004
|
2003
|
|||||||
|
Net
loss attributable to common stockholders as reported
|
$
|
(420,000
|
)
|
$
|
(2,149,000
|
)
|
$
|
(6,000,000
|
)
|
|
|
Deduct:
Total stock-based employee compensation expense determined under
fair
value based method for all awards, net of related tax
effects
|
(11,000
|
)
|
(32,000
|
)
|
(154,000
|
)
|
||||
|
Pro
forma net income
|
$
|
(431,000
|
)
|
$
|
(2,181,000
|
)
|
$
|
(6,154,000
|
)
|
|
|
Earnings
per share:
|
||||||||||
|
Basic
and diluted-as reported
|
$
|
(0.03
|
)
|
$
|
(0.13
|
)
|
$
|
(0.38
|
)
|
|
|
Basic
and Diluted-pro forma
|
$
|
(0.03
|
)
|
$
|
(0.14
|
)
|
$
|
(0.39
|
)
|
|
The
Black-Scholes option valuation model was developed for use in estimating the
fair market value of traded options that have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input
of
highly subjective assumptions including the expected stock price volatility.
Because our stock options have characteristics significantly different from
those of traded options, and because changes in the subjective input assumptions
can materially affect the fair market value estimates, in management’s opinion,
the existing models do not necessarily provide a reliable single measure of
the
fair market value of our stock options.
Note
H —
Income Taxes
At
December 31, 2005 and 2004, the Company had approximately $53,080,000 and
$51,041,000 of net operating loss carry forwards and $491,000 and $521,000
of
research and development credit carry forwards, respectively, for federal income
tax purposes that expire in years 2006 through 2022.
At
December 31, 2005 and 2004, the Company had a deferred tax asset of
approximately $18,541,000 and $19,521,000 respectively, representing the
benefits of its net operating loss and research and development credit carry
forwards and certain expenses not currently deductible for tax purposes,
principally related to the granting of stock options and warrants, and non-cash
reorganization and merger expenses. The Company’s deferred tax asset has been
fully reserved by a valuation allowance since realization of its benefit is
uncertain. The difference between the statutory tax rate of 34% and the
Company’s effective tax rate is principally due to the increase (decrease) in
the valuation allowance of ($980,000) (2005), $644,000 (2004), and $1,902,000
(2003). The Company’s ability to utilize its carry forwards may be subject to an
annual limitation in future periods pursuant to Section 382 of the Internal
Revenue Code of 1986, as amended.
Note
I —
Commitments and Other Matters
Leases
The
Company leases office space from RFG Associates, an entity in which John A.
Paganelli, chairman of the Board of Directors of the Company is an equity owner.
The lease provides for a monthly rent of $625 and is cancelable by either party
upon thirty (30) days notice. Rent expense, prior to any reorganization expense,
was approximately $11,000, $20,000, and $238,000 for the years ended December
31, 2005, 2004 and 2003, respectively.
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 the Company, against
the
Company, as a nominal defendant, and former directors: Joseph M. Davie, Robert
J. Easton, Ronald L. Goode and Walter Lovenberg, (collectively referred to
as
the “Individual Defendants”), and purportedly as a derivative action on behalf
of the Company against the Individual Defendants (the “Weiss Litigation”). On
April 12, 2005 the judge, in a ruling from the bench, dismissed the matter
with
prejudice.
Labidi
Proceeding.
On
October 5, 2005, in the matter brought by Abdel Hakim Labidi (one of our former
employees) against the Company, a jury ruled in favor of Dr. Labidi determining
that the Company converted certain biological research materials owned by Dr.
Labidi, and the Company committed theft of biological materials owned by Dr.
Labidi. The jury awarded Dr. Labidi a total of $600,000. The Company is
reviewing this matter to determine the validity of appealing the decision of
the
jury. The final amount due by the Company to Dr. Labidi under such judgment
is
likely to be between $250,000 and $750,000, however the Company has recorded
a
provision of $250,000 in the financial statements.
2110
Research Row, Ltd. Proceeding.
On
December 31, 2003, the termination date of our lease agreement, we vacated
19,300 square feet of office and laboratory space that we occupied at 2110
Research Row, Dallas, Texas. 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. In October 2003, we filed suit against the Landlord and 9000
Harry Hines, Inc., in a Dallas County District Court. The Company, as tenant,
and the Landlord were parties to a lease agreement (“Lease Agreement”) dated
October 1, 1991, as amended. On March 19, 2004, we entered into
a settlement agreement with the Landlord, whereby we made a $33,000 payment
to
the Landlord, dismissed the suit with prejudice and entered into a mutual
release of any and all claims by all parties. On April 9, 2004, the
Landlord and the Company filed an Agreed Order Of Dismissal With Prejudice
in
The District Court, 134th
Judicial
District, Dallas County Texas.
Employment
agreements
David
Hostelley
On
July
1, 2005 David Hostelley was named Chief Financial Officer of the Company. The
Company’s agreement with Mr. Hostelley calls for him to receive $2,500 per
month, and his employment is terminable by either side upon written
notice.
Related
party transactions
John
Paganelli
In
January 2004, the Company entered into a lease agreement for office space with
RFG Associates, an entity in which John A. Paganelli, chairman of the Board
of
Directors of the Company is an equity owner. The lease provides for a monthly
rent of $625 and is cancelable by either party upon thirty (30) days
notice.
Note
J —
401(k) Plan
The
Company had maintained a defined contribution 401(k) plan available to eligible
employees but discontinued this plan during 2003. Employee contributions were
voluntary and were determined on an individual basis, limited to the maximum
amount allowable under federal tax regulations. The Company made no
contributions during 2005, 2004, and 2003.
Note
K —
Quarterly Results (Unaudited)
|
|
Quarter
Ended
|
|||||||||||||||
|
|
March
31
|
June
30
|
September
30
|
December
31
|
Total
Year
|
|||||||||||
|
2005
|
||||||||||||||||
|
Revenues
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
||||||
|
Net
(loss) income
|
(290,000
|
)
|
(434,000
|
)
|
870,000
|
(332,000
|
)
|
(186,000
|
)
|
|||||||
|
Loss
per share — basic and diluted(a)
|
(0.03
|
)
|
(0.03
|
)
|
0.05
|
(0.01
|
)
|
0.03
|
||||||||
|
2004
|
||||||||||||||||
|
Revenues
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
||||||
|
Net
loss
|
(739,000
|
)
|
(531,000
|
)
|
(368,000
|
)
|
(288,000
|
)
|
(1,926,000
|
)
|
||||||
|
Loss
per share — basic and diluted(a)
|
(0.06
|
)
|
(0.03
|
)
|
(0.02
|
)
|
(0.02
|
)
|
(0.13
|
)
|
||||||
|
(a)
|
Per
common share amounts for the quarters and full year have been calculated
separately. Accordingly, quarterly amounts may not add to the annual
amount because of differences in the weighted average common shares
outstanding during each period due to the effect of the Company’s issuing
shares of its common stock during the
year.
|
eXegenics
Inc.
(in
thousands except share data)
|
June
30,
|
December
31,
|
||||||
|
2006
|
2005
|
||||||
|
ASSETS
|
(unaudited)
|
||||||
|
Current
assets:
|
|||||||
|
Cash
and cash equivalents
|
$
|
8,805
|
$
|
8,901
|
|||
|
Prepaid
expenses and other current assets
|
70
|
99
|
|||||
|
Total
current assets
|
8,875
|
9,000
|
|||||
|
Total
assets
|
$
|
8,875
|
$
|
9,000
|
|||
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|||||||
|
Current
liabilities:
|
|||||||
|
Accounts
payable and accrued expenses
|
$
|
262
|
$
|
277
|
|||
|
Total
current liabilities
|
262
|
277
|
|||||
|
|
|
||||||
|
Total
liabilities
|
262
|
277
|
|||||
|
Commitments
and contingencies
|
|||||||
|
Stockholders’
equity:
|
|||||||
|
Preferred
stock - $.01 par value, 10,000,000 shares authorized; 1,002,017 and
952,839 shares of Series A convertible preferred issued and outstanding
(liquidation value $2,505,000 and $2,382,000)
|
10
|
10
|
|||||
|
Common
stock - $.01 par value, 30,000,000 shares authorized; 16,991,101
and
16,945,026 shares issued and outstanding
|
170
|
169
|
|||||
|
Additional
paid-in capital
|
68,385
|
68,384
|
|||||
|
Subscriptions
receivable, net of reserve
|
(101
|
)
|
(101
|
)
|
|||
|
Accumulated
deficit
|
(56,514
|
)
|
(56,402
|
)
|
|||
|
Treasury
stock, 611,200 shares of common stock, at cost
|
(3,337
|
)
|
(3,337
|
)
|
|||
|
Total
stockholders’ equity
|
8,613
|
8,723
|
|||||
|
Total
liabilities and stockholders’ equity
|
$
|
8,875
|
$
|
9,000
|
|||
|
See
Notes to Financial Statements.
|
|||||||
eXegenics
Inc.
(in
thousands, except per share data)
|
Three
Months Ended
|
Six
Months Ended
|
||||||||||||
|
June
30,
|
June
30,
|
||||||||||||
|
2006
|
2005
|
2006
|
2005
|
||||||||||
|
(unaudited)
|
(unaudited)
|
||||||||||||
|
Revenue:
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
|||||
|
Operating
Expenses:
|
—
|
—
|
|||||||||||
|
General
and administrative
|
170
|
484
|
359
|
815
|
|||||||||
|
170
|
484
|
359
|
815
|
||||||||||
|
Operating
loss
|
(170
|
)
|
(484
|
)
|
(359
|
)
|
(815
|
)
|
|||||
|
Other
(income) expense, primarily interest
|
(102
|
)
|
(50
|
)
|
(247
|
)
|
(90
|
)
|
|||||
|
Loss
before provision (benefit) for taxes
|
(68
|
)
|
(434
|
)
|
(112
|
)
|
(725
|
)
|
|||||
|
Provision
(benefit) for taxes
|
—
|
—
|
—
|
—
|
|||||||||
|
Net
Loss
|
(68
|
)
|
(434
|
)
|
(112
|
)
|
(725
|
)
|
|||||
|
Preferred
stock dividend
|
—
|
—
|
(238
|
)
|
(234
|
)
|
|||||||
|
Net
loss attributable to
|
|||||||||||||
|
to
common shareholders
|
(68
|
)
|
(434
|
)
|
(350
|
)
|
(959
|
)
|
|||||
|
Net
loss per share-basic and diluted
|
(0.00
|
)
|
(0.03
|
)
|
(0.02
|
)
|
(0.06
|
)
|
|||||
|
Weighted
average number of
|
|||||||||||||
|
shares
outstanding - basic and diluted
|
16,378
|
16,878
|
16,358
|
16,264
|
|||||||||
|
See
Notes to Financial Statements.
|
|||||||||||||
eXegenics
Inc.
(in
thousands)
|
Six
Months Ended
|
|||||||
|
June
30,
|
|||||||
|
2006
|
2005
|
||||||
|
(unaudited)
|
|||||||
|
Cash
flows from operating activities:
|
|||||||
|
Net
loss
|
$
|
(112
|
)
|
$
|
(725
|
)
|
|
|
Adjustments
to reconcile net loss to net cash used in
|
|||||||
|
operating
activities:
|
|||||||
|
Depreciation
and amortization
|
—
|
2
|
|||||
|
Reserve
for Subscription Receivable
|
—
|
201
|
|||||
|
Compensation
expense - Stock Options
|
2
|
—
|
|||||
|
Changes
in:
|
|||||||
|
Prepaids
and other assets
|
29
|
(16
|
)
|
||||
|
Accounts
payable and accrued expenses
|
(15
|
)
|
(79
|
)
|
|||
|
Net
cash used in operating activities
|
(96
|
)
|
(617
|
)
|
|||
|
NET
DECREASE IN CASH
|
(96
|
)
|
(617
|
)
|
|||
|
Cash
and cash equivalents at beginning of period
|
8,901
|
8,734
|
|||||
|
CASH
AND CASH EQUIVALENTS AT END OF PERIOD
|
$
|
8,805
|
$
|
8,117
|
|||
|
See
Notes to Financial Statements.
|
|||||||
eXegenics
Inc.
| (1) |
Financial
Statement Presentation
|
The
unaudited financial statements of eXegenics
Inc., a
Delaware corporation (the “Company”), included herein have been prepared in
accordance with the rules and regulations promulgated by the Securities and
Exchange Commission and, in the opinion of management, reflect all adjustments
necessary to present fairly the results of operations for the interim periods
presented. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. However, management believes that the disclosures are adequate
to
make the information presented not misleading. These financial statements and
the notes thereto should be read in conjunction with the financial statements
and the notes thereto included in the Company’s Annual Report on Form 10-K for
the fiscal year ended December 31, 2005. The results for the interim periods
are
not necessarily indicative of the results for the full fiscal year.
| (2) |
Cash
and Cash Equivalents
|
The
Company considers all non-restrictive, highly liquid short-term investments
purchased with an original maturity of three months or less to be cash
equivalents. Cash and cash equivalents, which amount to
$8,805,000 and $8,901,000
at June
30, 2006 and December 31, 2005, respectively, consist principally of
interest-bearing cash deposits.
| (3) |
Loss
Per Common Share
|
Basic
and
diluted loss per common share is based on the net loss increased by dividends
on
preferred stock divided by the weighted average number of common shares
outstanding during the period. No effect has been given to outstanding options,
warrants or convertible preferred stock in the diluted computation, as their
effect would be antidilutive.
| (4) |
Share-Based
Compensation
|
During
the six months ended June 30, 2006, the stock option activity under our 1996
Stock Option Plan and 2000 Stock Option Plan (collectively the “Stock Option
Plans”), was as follows:
|
Weighted
Average Price
|
Number
of Shares
|
Weighted
Average Remaining Contractual Term (In
Years)
|
||||||||
|
Outstanding,
January 1, 2006
|
$
|
3.37
|
905,000
|
|||||||
|
Granted
|
0.41
|
40,000
|
||||||||
|
Canceled
or Expired
|
4.31
|
(670,000
|
)
|
|||||||
|
Forfeited
|
—
|
—
|
||||||||
|
Exercised
|
—
|
—
|
||||||||
|
Outstanding,
June 30, 2006
|
$
|
0.63
|
275,000
|
8.42
|
||||||
|
Options
exercisable as of June 30, 2006
|
275,000
|
8.42
|
||||||||
Under
the
Stock Option Plans, 3,975,000 shares of our Common Stock are available for
issuance. Options outstanding and exercisable were granted at a stock option
price, which was not less than the fair market value of our Common Stock on
the
date the option was granted and no option has a term in excess of ten years.
Additionally, options vested and became exercisable either on the date of grant
or commencing one or two years from the option grant date.
In
December 2004, Financial Accounting Standards Board issued SFAS No. 123R,
Share-Based Payment (“SFAS No. 123R” or the “Statement”). This Statement is a
revision of SFAS No. 123, Accounting Principles Board Option No. 25, Accounting
for Stock Issued to Employees (“APB No. 25”) and its related implementation
guidance. On January 1, 2006, we adopted the provisions of SFAS No. 123R using
the modified prospective method. SFAS No. 123R focuses primarily on accounting
transactions in which an entity obtains employee or similar services in
share-based payment transactions. The Statement requires entities to recognize
compensation expense for awards of equity instruments to employees or employee
equivalents based on the grant-date fair value of those awards (with limited
exceptions). SFAS No. 123R also requires the benefits of tax deductions in
excess of recognized compensation expense to be reported as financing cash
flows, rather than as an operating cash flow as prescribed under the prior
accounting rules. This requirement reduces net operating cash flows and
increases net financing cash flows in periods after adoption. Total cash flow
remains unchanged from what would have been reported under prior accounting
rules.
Prior
to
the adoption of SFAS No. 123R, we followed the intrinsic value method in
accordance with APB No. 25 to account for our employee stock options.
Accordingly, no compensation expense was recognized for the issuance of stock
options under any of our Stock Option Plans for periods ended prior to January
1, 2006. The adoption of SFAS No. 123R primarily resulted in a change in our
method of recognizing the fair value of share-based compensation. Specifically,
the adoption of SFAS No. 123R will result in our recording compensation expense
for employee stock options.
The
pre-tax share-based employee compensation expense recorded in the 2006 second
quarter was approximately $2,000. Such expense resulted solely from the
estimated value to be recognized from the share-based payments of options
granted to our board of directors. The options outstanding at December 31,
2005
did not and will not impact 2006 consolidated results of operations and
financial positions since substantially all option-holders were fully vested
in
such options at December 31, 2005.
The
fair
market value of the shared-based payments made in the second quarter of 2006
was
estimated using Black -Scholes option pricing model with the following weighted
average assumptions:
|
Risk-free
interest rate
|
4.9%
|
|
|
Expected
volatility
|
12.8%
|
|
|
Weighted
average expected life (in years)
|
5.0
|
|
|
Dividend
yield
|
0%
|
Results
for 2005 first quarter have not been restated. Had compensation expense for
employee stock options granted under our Stock Option Plans been determined
based on fair value at the grant date consistent with SFAS No. 123, our net
income and earnings per share for the 2005 first quarter would have been pro
forma amounts indicated below:
|
Three
Months Ended
|
Six
Months Ended
|
||||||
|
June
30,
|
June
30,
|
||||||
|
2005
|
2005
|
||||||
|
Net
loss attributable to common stockholders as reported
|
$
|
(434
|
)
|
$
|
(959
|
)
|
|
|
Deduct:
Total stock-based employee compensation expense determined under
fair
value based method for all awards, net of related tax
effects
|
(1
|
)
|
(7
|
)
|
|||
|
Pro
forma net loss
|
$
|
(435
|
)
|
$
|
(966
|
)
|
|
|
Earnings
per share:
|
|||||||
|
Basic
and diluted-as reported
|
$
|
(0.03
|
)
|
$
|
(0.06
|
)
|
|
|
Basic-pro
forma
|
$
|
(0.03
|
)
|
$
|
(0.06
|
)
|
|
| (5) |
Dividends
|
During
the six month periods ended June 30, 2006 and June 30, 2005, 10% preferred
stock
dividends were declared equal to $238,000 and $234,000
respectively.
|
(7)
|
Subscriptions
Receivable
|
In
May,
2001, the Company entered into a limited recourse note and pledge agreement
with
a former President and Chief Executive Officer (Dr. Ronald Goode) in connection
with a stock subscription arrangement. The amount of this note is $300,000
plus
4.71% interest paid on a semi-annual basis. Dr. Goode failed to make the
semi-annual interest payment since May 2005 and principal due May 2006. The
Company is in discussions with Dr. Goode relative to these past payments and
the
status of the note. During the second quarter period ended June 30, 2005, the
Company created a reserve and the subscription receivable balance on June 30,
2006 is presented net, equal to the value of the underlying
collateral.
|
(8)
|
Recently
Issued Accounting Standards
|
In
March
2005, the FASB issued FASB Interpretation No. 47, “Accounting for Conditional
Retirement Obligations, an interpretation of FASB Statement No. 143” (“FIN 47”),
which requires an entity to recognize a liability for the fair value of a
conditional asset retirement obligation when incurred if the liabilities fair
value can be reasonably estimated. FIN 47 is effective no later than the end
of
fiscal years ending after December 15, 2005. The Company does not expect the
adoption of this Interpretation to have a material impact on its consolidated
financial statements.
In
May
2005, the FASB issued Statement of Financial Accounting Standards No. 154,
“Accounting Changes and Error Corrections-a replacement of APB Opinion No. 20
and FASB Statement No. 3” (SFAS 154”). This Statement replaces APB Opinion No.
20, “Accounting Changes,” and FASB Statement No. 3, “Reporting Accounting
Changes in Interim Financial
Statements.”
SFAS 154 requires retrospective application to prior periods’ financial
statements for changes in accounting principle, unless it is impractical to
determine either the period-specific effects or the cumulative effect of the
change. SFAS 154 also requires that a change in depreciation, amortization,
or
depletion method for long, non-financial assets be accounted for as a change
in
accounting estimate effected by a change in accounting principle. SFAS is
effective for accounting changes and corrections of errors made in fiscal years
beginning after December 15, 2005. The Company believes that adoption of the
provisions of SFAS 154 will not have a material effect on the Company’s
consolidated financial statements.
STOCK
PURCHASE AGREEMENT
THIS
STOCK PURCHASE AGREEMENT (this “Agreement”),
dated
as of August __ 2006, is made by and between eXegenics, Inc. a Delaware
corporation (the “Company”),
and
the Investors listed on Exhibit
A
hereto
(each, an “Investor”
and
collectively, the “Investors”).
RECITALS
A. The
Investors desire to acquire from the Company, and the Company desires to
issue
and sell to the Investors, in the manner and on the terms and conditions
hereinafter set forth, shares of Common Stock of the Company.
B. In
connection with the Investors’ purchase of the Common Stock, the Company and the
Investors desire to establish certain rights and obligations between
themselves.
AGREEMENTS
NOW,
THEREFORE, in consideration of these premises, the mutual covenants and
agreements herein contained and for other good and valuable consideration,
the
sufficiency and receipt of which are hereby acknowledged, the Company and
the
Investors hereby agree as follows:
SECTION
1. DEFINITIONS.
The
following terms when used in this Agreement have the following respective
meanings:
“Affiliate”
means
with respect to any Person, any (i) officer, director, partner or holder
of more
than 10% of the outstanding shares or equity interests of such Person, (ii)
any
Relation of such Person, or (iii) any other Person which directly or indirectly
Controls, is controlled by, or is under common control with such Person.
A
Person will be deemed to control another Person if such Person possesses,
directly or indirectly, the power to direct or cause the direction of the
management and policies of the “Controlled” Person, whether through ownership of
voting securities, by contract, or otherwise.
“Business
Day”
means
a
day other than Saturday, Sunday or statutory holiday in the State of New
York
and in the event that any action to be taken hereunder falls on a day which
is
not a Business Day, then such action shall be taken on the next succeeding
Business Day.
“Bylaws”
means
the Bylaws of the Company.
“Certificate
of Incorporation”
means
the Certificate of Incorporation of the Company, as amended and as on file
with
the Secretary of State of the State of Delaware on the date of this
Agreement.
“Closing”
has
the
meaning set forth in Section
3.1
hereof.
“Closing
Date”
has
the
meaning set forth in Section
3.1
hereof.
“Common
Stock”
means
shares of the common stock, $.01 par value, of the Company.
“Company
Stockholder Approval”
means,
collectively, the approval, by the requisite vote of the Stockholders of
the
Company, of (i) the proposed amendment to the Certificate of Incorporation
of
the Company increasing the number of shares of Common Stock that the Company
shall be authorized to issue and (ii) the consummation of the transaction
contemplated by this Agreement.
“Goode
Matter”
means
the subscriptions receivable from Ronald L. Goode, all as more particularly
described in the SEC Filings.
“Governmental
Authority”
means
the United States, any state or municipality, the government of any foreign
country, any subdivision of any of the foregoing, or any authority, department,
commission, board, bureau, agency, court, or instrumentality of any of the
foregoing.
“Initial
Purchase Price”
means
the sum of $8,613,000, which amount reflects the Stockholders’ Equity of the
Company at June 30, 2006.
“Investors
Voting Agreement”
means a
written agreement executed by the Investors, in a form reasonably satisfactory
to the Company, pursuant to which each Investor agrees, for a period of three
(3) years after the Closing Date, to vote its shares of capital stock of
the
Company in favor of the election to the board of directors of the Company
of
John Paganelli and Robert Baron, or their respective successors, as more
particularly described in the Investors Voting Agreement.
“Knowledge”
as
to
the Company means the actual knowledge of the officers of the Company after
due
and diligence inquiry of the employees or agents of the Company reasonably
believed to have knowledge of such matters.
“Labidi
Matter”
means
the matter brought by Abdel Hakim Labidi against the Company, all as more
particulary described in the SEC Filings.
“Lien”
means
any mortgage, lien, pledge, security interest, easement, conditional sale
or
other title retention agreement, or other encumbrance of any kind.
“1934
Act”
means
the Securities Exchange Act of 1934, as amended.
“1933
Act”
means
the Securities Act of 1933, as amended.
“Material
Adverse Effect”
means
a
change or effect in the condition (financial or otherwise), properties, assets,
liabilities, rights, operations or business of the Company which change or
effect, individually or in the aggregate, could reasonably be expected to
be
materially adverse to such condition, properties, assets, liabilities, rights,
operations or business.
“Person”
means an
individual, corporation, limited liability company, partnership, joint venture,
trust, unincorporated organization, or Governmental Authority.
“Proxy
Statement”
means
the proxy statement for the Stockholders Meeting, together with any amendments
or supplements thereto.
“SEC”
means
the Securities and Exchange Commission.
“SEC
Filings”
has
the
meaning set forth in Section
4.2(d)
hereof.
“Series
A Preferred Shares”
means
shares of the Series A Preferred Stock, par value $.01 per share, of the
Company.
“Stockholders”
mean
the record holders of shares of capital stock of the Company.
“Stockholders’
Equity”
means,
as of any date, the amount determined by subtracting the liabilities of the
Company as of such date from the assets of the Company, all as determined
in
accordance with
generally
accepted accounting principles applied on a consistent basis (“GAAP”),
provided, however, in any event, any expenses of the Company associated with
the
transactions contemplated by this Agreement, including the procurement of
a
fairness opinion by the Company, will, to the extent not paid as of the date
of
determination of Stockholders Equity, be accrued as a liability of the Company.
“Stockholders
Meeting”
means
the special meeting of the stockholders of the Company held for purposes
of
considering an amendment to the Company’s Certificate of Incorporation and the
issuance of the Common Stock.
“Stockholders
Voting Agreement”
means a
written voting agreement executed by the holders of shares of voting stock
of
the Company, in a form reasonably acceptable to the Investors, pursuant to
which
each stockholder agrees to vote all shares of Common Stock owned by them
in
favor of the transactions included in the Company Stockholder
Approval.
SECTION
2. PURCHASE
AND SALE OF COMMON STOCK.
2.1 Issuance
and Purchase of Common Stock.
At the
Closing, based upon the representations, warranties, covenants and agreements
of
the parties set forth in this Agreement, the Company shall issue and sell
to the
Investors, and the Investors shall purchase from the Company, an aggregate
of
19,440,491 shares of the Common Stock to be allocated among the Investors
as
provided in Exhibit
A
attached
hereto. At the Closing, the Company will issue and deliver to each of the
Investors a stock certificate registered in the name of the Investor
representing the number of shares of the Common Stock, against payment of
the
Initial Purchase Price therefore, listed next to each such Investors name
on
Exhibit
A
hereto.
The shares of Common Stock issued to the Investors will, in the aggregate,
equal
fifty-one percent (51%) of the outstanding capital stock of the Company on
the
Closing Date, on a fully-diluted basis, after giving effect to the conversion
or
exercise of all convertible instruments and securities. Without limitation,
this
calculation shall take into account any shares of Common Stock issuable upon
conversion of outstanding shares of the Company’s Series A Preferred Stock and
any shares of Common Stock issuable upon the exercise of outstanding options
or
warrants to purchase shares of Common Stock.
2.2 Consideration
for Common Stock.
The
purchase price for the Common Stock shall be the Stockholders’ Equity of the
Company at the Closing Date. The Investors shall pay to the Company, on the
Closing Date, the Initial Purchase Price, and the Initial Purchase Price
shall
be subject to adjustment as set forth in Section 2.3. The Investors will
pay the
Initial Purchase Price by wire transfer of immediately available funds to
an
account designated in writing by the Company.
2.3 Adjustment
to Purchase Price.
The
final purchase price will be in an amount equal to Stockholders’ Equity at the
Closing Date and will be determined as follows:
(a) The
Company
will prepare a balance sheet of the Company, in accordance with GAAP
consistently applied, as of the Closing Date, including a computation of
Stockholders’ Equity as of the Closing Date (the “Closing
Date Balance Sheet”)
and
will deliver the Closing Date Balance Sheet to the Investors within sixty
(60)
days after the Closing Date. Such Closing Date Balance Sheet shall, if the
Labidi Matter and/or the Goode Matter have not been resolved, include reserves
reflecting the maximum potential liability of the Company in connection with
any
such unresolved matter. If, within thirty days following delivery of the
Closing
Date Balance Sheet to the Investors, the Investors have not given the Company
notice of their objection to the Closing Date Balance Sheet (such notice
must
contain a statement of the basis of the Investors’ objection), then the
Stockholders’ Equity reflected in the Closing Date Balance Sheet will be used in
determining the purchase price. If the Investors give such notice of objection,
then the Investors and the Company shall use reasonable efforts to resolve
any
such dispute. If the Company and the Investors are unable to finally resolve
such dispute within ten (10) days after the
Company’s
receipt of the Investors’ notice of objection, then the dispute shall be
resolved by an independent certified public accounting firm that is reasonably
acceptable to the Company and the Investors (the "Independent
Accounting Firm")
considering recent past, current and anticipated future engagements. The
Company
and the Investors shall retain the Independent Accounting Firm within ten
(10)
days of the end of the ten (10) day period for the Company and Investors
to
resolve their dispute. The determination of the Independent Accounting Firm
shall be made as promptly as practicable, but in no event more than 15 days
after such matter(s) has been submitted to the Independent Accounting Firm,
and
shall be final and binding on the Company and the Investors. The fees and
expenses of the Independent Accounting Firm shall be borne by the party found
to
be incorrect with regard to the objections. If both parties are found to
be
partially incorrect with regard to the objections, then the fees and expenses
of
the Independent Accounting Firm shall be shared proportionately by the parties
based upon the amount the objections successfully contested by the Investors
bears to the total of the objected amounts submitted to the Independent
Accounting Firm.
(b) On
the tenth
business day following the final determination of the Stockholders’ Equity at
the Closing Date, if that amount is greater than the Initial Purchase Price,
the
Investors will pay the difference to the Company, and if the final Stockholders’
Equity at the Closing Date is less than the Initial Purchase Price, the Company
will pay the difference to the Investors, based on the portion of the aggregate
purchase price paid for the Common Stock by each Investor (as set forth on
Exhibit
A).
All
payments must be made in immediately available funds.
(c) In
the event
that the Closing Date Balance Sheet included additional reserves for the
Labidi
Matter or the Goode Matter and if, prior to December 31, 2006, the Company
subsequently resolves such matters for an amount or amounts less than the
amounts reserved on the Closing Date Balance Sheet, then the Investors shall
pay
to the Company, in the form of additional purchase price, an amount equal
to the
difference between the actual amount paid or incurred by the Company and
the
amount of the reserve in the Closing Date Balance Sheet, such payment to
be made
within ten (10) days’ of receipt of written notice from the
Company.
SECTION
3. THE
CLOSING.
3.1 Closing.
The
closing of the issuance and sale of the Common Stock pursuant to Section
2.1
hereof and certain of the other transactions contemplated hereby (the “Closing”)
will take place at 9:00 A.M. at the offices of the Company located at 1250
Pittsford-Victor Road, Pittsford, New York, on the next business day (or
such
later date as the parties hereto may agree) following the later of (i) the
Stockholders Meeting or (ii) the satisfaction or waiver of the conditions
set
forth in Article 6 hereof, (the “Closing
Date”),
or at
such other time or place as the parties mutually agree.
3.2 Deliveries
by the Company.
At the
Closing, the Company shall deliver or cause to be delivered to the Investors
the
following items (in addition to any other items required to be delivered
to the
Investors pursuant to any other provision of this Agreement):
(a) certificates
representing the shares of Common Stock being issued and sold by the Company
to
the Investors pursuant to Section 2.1 hereof, duly recorded on the books
of the
Company in the names of each of the Investors as set forth in Exhibit
A;
and
(b) a
certificate of the Secretary of State of the State of Delaware as to the
good
standing of the Company dated within five days prior to the Closing
Date.
3.3 Deliveries
by the Investors.
At the
Closing, each of the Investors shall deliver or cause to be delivered to
the
Company the following items (in addition to any other items required to be
delivered
to
the
Company pursuant to any other provision of this Agreement): payment by wire
transfer of immediately available funds necessary to satisfy each Investor’s
obligations to the Company under Section 2.2 hereof and to insure payment
to the
Company of the Initial Purchase Price.
SECTION
4. REPRESENTATIONS
AND WARRANTIES.
4.1 Representations
and Warranties of the Company.
In
order to induce each of the Investors to purchase the Common Stock that it
is
purchasing hereunder, the Company represents and warrants to the Investors
that:
(a) Organization
and Standing.
The
Company is duly incorporated and validly existing under the laws of the State
of
Delaware, and has all requisite corporate power and authority to own or lease
its properties and assets and to conduct its business as it is presently
being
conducted. The Company does not own any equity interest, directly or indirectly,
in any other Person or business enterprise. The Company is qualified to do
business and is in good standing in each jurisdiction in which the failure
to so
qualify could reasonably be expected to have a material adverse effect upon
its
assets, properties, financial condition, results of operations or
business.
(b) Capitalization.
At the
date of this Agreement, the authorized capital stock of the Company consists
of
(i) 30,000,000 shares of Common Stock, of which 16,991,101 shares are issued
and
outstanding, and (ii) 10,000,000 shares of Preferred Stock, of which 4,000,000
shares have been designated Series A Preferred Stock, of which 1,002,017
shares
are issued and outstanding, and (iv) 6,000,000 shares of undesignated Preferred
Stock, none of which are issued and outstanding. The Company has no other
equity
securities of any class issued, reserved for issuance or outstanding. Except
as
set forth below, there are (x) no outstanding options, offers, warrants,
conversion rights, contracts or other rights to subscribe for or to purchase
from the Company, or agreements obligating the Company to issue, transfer,
or
sell (whether formal or informal, written or oral, firm or contingent), shares
of capital stock or other securities of the Company (whether debt, equity,
or a
combination thereof) or obligating the Company to grant, extend, or enter
into
any such agreement and (y) no agreements or other understandings (whether
formal
or informal, written or oral, firm or contingent) which require or may require
the Company to repurchase any of its Common Stock. There are no preemptive
or
similar rights with respect to the Company’s capital stock. There are no
anti-dilution or price adjustment provisions contained in any security issued
by
the Company (or in any agreement providing rights to security holders). The
Company is not a party to, and to the Knowledge of the Company no Stockholder
is
a party to, any voting agreements, voting trusts, proxies or any other
agreements, instruments or understandings with respect to the voting of any
shares of the capital stock of the Company, or any agreement with respect
to the
transferability, purchase or redemption of any shares of the capital stock
of
the Company. The issue and sale of the Common Stock to the Investors will
not
obligate the Company to issue any shares of Common Stock or other securities
to
any Person (other than the Investors) and will not result in a right of any
holder of Company securities to adjust the exercise, conversion, exchange
or
reset price under such securities. The outstanding Series A Preferred Shares
and
the outstanding Common Stock are all duly and validly authorized and issued,
fully paid and nonassessable. At June 30, 2006, there were: 1,002,017 shares
of
common stock reserved for issuance upon conversion of Series A Preferred
Stock;
295,000 shares reserved for issuance upon exercise of outstanding stock options;
290,000 shares reserved for issuance upon exercise of outstanding warrants;
and
100,000 shares reserved for issuance in connection with stock
bonuses.
(c) Capacity
of the Company; Authorization; Execution of Agreements.
The
Company has all requisite power, authority, and capacity to enter into this
Agreement and to perform the transactions and obligations to be performed
by it
hereunder. Subject to the Company Stockholder Approval, as contemplated by
this
Agreement, the execution and delivery of this Agreement by the
Company,
and the performance by the Company of the transactions and obligations
contemplated hereby, including, without limitation, the issuance and delivery
of
the shares of Common Stock to the Investors hereunder, have been duly authorized
by all requisite action of the Company. This Agreement has been duly executed
and delivered by a duly authorized officer of the Company, and constitutes
a
valid and legally binding agreement of the Company, enforceable in accordance
with its terms, except as enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws of the United
States (both state and federal), affecting the enforcement of creditors’ rights
or remedies in general from time to time in effect and the exercise by courts
of
equity powers or their application of principles of public policy.
(d) Status
of shares of Common Stock.
The
Common Stock to be issued and purchased hereunder, when issued by the Company
to
the Investors and paid for by the Investors pursuant to the terms of this
Agreement, will (i) be duly authorized, validly issued, fully paid and
nonassessable, (ii) be issued in compliance with all applicable United States
federal and state securities laws, (iii) subject to restrictions under this
Agreement, and applicable United States federal and state securities laws,
have
the rights and preferences set forth in the Certificate of Incorporation,
and
(iv) be free and clear of all Liens.
(e) Conflicts;
Defaults.
Subject
to the Company Stockholder Approval, as contemplated by this Agreement, the
execution and delivery of this Agreement by the Company and the performance
by
the Company of the transactions and obligations contemplated hereby and thereby
to be performed by it will not (i) violate, conflict with, or constitute
a
default under any of the terms or provisions of, the Certificate of
Incorporation, the Bylaws, or any provisions of, or result in the acceleration
of any obligation under, any Contract, note, debt instrument, security
agreement, or other instrument to which the Company is a party or by which
the
Company, or any of its assets is bound; (ii) result in the creation or
imposition of any Liens or claims upon the Company’s assets or upon the
Company’s Shares; (iii) constitute a violation of any law, statute, judgment,
decree, order, rule, or regulation of a Governmental Authority applicable
to the
Company; or (iv) constitute an event which, after notice or lapse of time
or
both, would result in any of the foregoing. The Company is not presently
in
violation of its Certificate of Incorporation or Bylaws.
(f) SEC
Filings.
The SEC
Filings, when filed, complied in all material respects with the requirements
of
the 1934 Act, did not, as of the dates when filed, contain an untrue statement
of material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading. The SEC Filings
are
all of the filings that the Company was required to file with the SEC during
the
periods covered thereby and all such filings were made on a timely basis
when
due. The financial statements of the Company included in the SEC Filings
complied in all material respects with the rules and regulations of the SEC
with
respect thereto as in effect at the time of filing. Such financial statements
have been prepared in accordance with GAAP applied on a consistent basis
during
the periods covered by such financial statements, except as may be otherwise
specified in such financial statements or the notes thereto, and fairly present
in all material respects the financial position of the Company as of and
for the
dates thereof and for the periods indicated, and the results of operations
and
cash flows for the periods then ended, subject, in the case of unaudited
statements, to normal, immaterial, year-end audit adjustments. All material
agreements to which the Company is a party or to which the property or assets
of
the Company are subject and which are required to be disclosed pursuant to
the
1934 Act are included as part of or specifically identified in the SEC
Filings.
(g) Material
Changes.
Since
the date of the latest audited financial statements included within the SEC
Filings, except as specifically disclosed in the SEC Filings, (i) there has
been
no event that could result in a Material Adverse Effect, (ii) the Company
has
not incurred any liabilities (contingent or otherwise) other than (A) trade
payables and accrued expenses incurred in the ordinary course of business
consistent with past practice and (B) liabilities not required to be reflected
in the Company’s financial statements pursuant to GAAP as required to be
disclosed in filings made with the SEC, (iii) the Company has not altered
its
method of accounting or the identity of its auditors, except as disclosed
in its
SEC Filings (iv) the Company has not declared or made any dividend or
distribution of cash or other property to its shareholders or purchased,
redeemed or made any agreements to purchase or redeem any shares of its capital
stock, and (v) the Company has not issued any equity securities to any officer,
director or affiliate.
(h) Absence
of Litigation.
Except
as described in the SEC Filings, there is no action, suit, claim, proceeding,
inquiry or investigation before or by any court, public board, government
agency, self-regulatory organization or body pending or, to the knowledge
of the
Company, threatened against or affecting the Company.
(i) Brokers,
Finders, and Agents.
The
Company is not, directly or indirectly, obligated to anyone acting as broker,
finder, or in any other similar capacity in connection with this Agreement
or
the transactions contemplated hereby. No Person has or, immediately following
the consummation of the transactions contemplated by this Agreement, will
have,
any right, interest or valid claim against the Company or the Investors for
any
commission, fee or other compensation as a finder or broker in connection
with
the transactions contemplated by this Agreement, nor are there any brokers’ or
finders’ fees or any payments or promises of payment of similar nature, however
characterized, that have been paid or that are or may become payable in
connection with the transactions contemplated by this Agreement, as a result
of
any agreement or arrangement made by the Company.
(j) Application
of Takeover Protections.
Except
as provided in Delaware General Corporation Law Section 203 (“GCL
203”),
there
is no control share acquisition, business combination, poison pill (including
any distribution under a rights agreement) or other similar anti-takeover
provision under the Company’s Certificate of Incorporation or Bylaws that is or
could become applicable to any of the Investors as a result of the Investors
and
the Company fulfilling their obligations or exercising their rights under
this
Agreement, including without limitation, as a result of the Company’s issuance
of the Common Stock and the Investors’ ownership of the Common
Stock.
(k) Disclosure. All
disclosure materials provided to the Investors regarding the Company, its
business and the transactions contemplated hereby, including the Schedules
to
this Agreement, furnished by or on behalf of the Company are true and correct
in
all material respects and as otherwise contemplated in this Agreement and
do not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements made therein not misleading.
No
event or circumstance has occurred or information exists with respect to
the
Company or its business, properties, operations or financial condition, which,
under applicable law, rule or regulation, requires public disclosure or
announcement by the Company but which has not been so publicly announced
or
disclosed. The Company acknowledges and agrees that no Investor makes or
has
made (i) any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in Section 4.2
or
(ii) any statement, commitment or promise to the Company or any of its
representatives which is or was an inducement to the Company to enter into
this
Agreement.
4.2 Representations
and Warranties of the Investors.
Each of
the Investors hereby severally, but not jointly, represents and warrants
to the
Company that:
(a) Investment
Intent.
The
Common Stock to be purchased by the Investor hereunder is being purchased
for
its own account, not as a nominee or agent, and not with the view to, or
for
resale in connection with, any distribution or public offering thereof within
the meaning of the 1933 Act. The Investor understands that the Common Stock
has
not been registered under the 1933 Act by reason of its issuance in a
transaction exempt from the registration and prospectus delivery requirements
of
the 1933 Act pursuant to Section 4(2) thereof and/or the provisions of Rule
506
of Regulation D promulgated thereunder, and under the securities laws of
applicable states and agrees to deliver to the Company, if requested by the
Company, an investment letter in customary form. The Investor further
understands that the certificates representing the Common Stock will bear
a
legend substantially similar to the following and agrees that it will hold
such
Common Stock subject thereto:
THE
SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES LAWS. NEITHER
THIS SECURITY NOR ANY PORTION HEREOF OR INTEREST HEREIN MAY BE SOLD, ASSIGNED,
TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF UNLESS THE SAME IS REGISTERED
UNDER SAID ACTS AND APPLICABLE STATE SECURITIES LAWS OR UNLESS AN EXEMPTION
FROM
SUCH REGISTRATION IS AVAILABLE AND THE COMPANY SHALL HAVE RECEIVED, AT THE
EXPENSE OF THE HOLDER HEREOF, EVIDENCE OF SUCH EXEMPTION REASONABLY SATISFACTORY
TO THE COMPANY (WHICH MAY INCLUDE, AMONG OTHER THINGS, AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY).
(b) Capacity
of the Investor; Execution of Agreement.
The
Investor has all requisite power, authority, and capacity to enter into this
Agreement and to perform the transactions and obligations to be performed
by it
hereunder. The execution and delivery of this Agreement, and the performance
by
the Investor of the transactions and obligations contemplated hereby have
been
duly authorized by all requisite corporate or individual, as the case may
be,
action of the Investor. This Agreement has been duly executed and delivered
by
the Investor and constitutes a valid and legally binding agreement of the
Investor, enforceable in accordance with its terms, except as enforcement
thereof may be limited by bankruptcy, insolvency, reorganization, moratorium
or
other similar laws, both state and federal, affecting the enforcement of
creditors’ rights or remedies in general from time to time in effect and the
exercise by courts of equity powers or their application of principles of
public
policy.
(c) Accredited
Investor.
The
Investor is an “accredited
investor”
as
defined in Rule 501(a) of Regulation D promulgated under the 1933
Act.
(d) Suitability
and Sophistication.
The
Investor has (i) such knowledge and experience in financial and business
matters
that it is capable of independently evaluating the risks and merits of
purchasing the Common Stock; (ii) independently evaluated the risks and merits
of purchasing the Common Stock and has independently determined that the
shares
of Common Stock are a suitable investment for it; and (iii) sufficient financial
resources to bear the loss of its entire investment in the Common Stock.
The
Investor has had an opportunity to review: the Company’s Annual Report on Form
10-K for the year ended December 31, 2005; the Company’s definitive proxy
statement filed in connection with its annual meeting held January 6, 2006;
and
other filings made by the Company under Section 13(a) of the Exchange Act
since
January 1, 2004 (the “SEC
Filings”).
The
Investor acknowledges that it has had the opportunity to ask questions and
receive answers concerning the Company and the Common Stock.
(e) Brokers,
Finders, and Agents.
The
Investor is not, directly or indirectly, obligated to anyone acting as broker,
finder, or in any other similar capacity in connection with this Agreement
or
the transactions contemplated hereby. No Person has or, immediately following
the consummation of the transactions contemplated by this Agreement, will
have,
any right, interest or valid claim against the Company or the Investor for
any
commission, fee or other compensation as a finder or broker in connection
with
the transactions contemplated by this Agreement, nor are there any brokers’ or
finders’ fees or any payments or promises of payment of similar nature, however
characterized, that have been paid or that are or may become payable in
connection with the transactions contemplated by this Agreement, as a result
of
any agreement or arrangement made by the Investor.
(f) Nationality;
Residence.
The
Investor is a citizen of the United States of America and a resident of the
state set forth underneath such Investor’s name on Exhibit
A
attached
to this Agreement.
4.3 Rule
144.
Each of
the Investors acknowledges that the Common Stock must be held indefinitely
unless subsequently registered under the 1933 Act or unless an exemption
from
such registration is available. Each of the Investors is aware of the provisions
of Rule 144 promulgated under the 1933 Act which permit limited resale of
shares
purchased in a private placement subject to the satisfaction of certain
conditions, including, among other things, the availability of certain current
public information about the Company, the resale occurring not less than
one (1)
year after a party has purchased and paid for the security to be sold, the
sale
being effected through a “broker’s transaction” or in transactions directly with
a “market maker” and the number of shares being sold during any three-month
period not exceeding specified limitations.
SECTION
5. COVENANTS
OF THE PARTIES.
5.1 Commercially
Reasonable Efforts.
Subject
to the terms and conditions hereof, each party will use commercially reasonable
efforts to take, or cause to be taken, all actions and to do, or cause to
be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate the transactions contemplated by this Agreement
as
promptly as practicable after the date hereof, including (i) preparing and
filing as promptly as practicable all documentation to effect all necessary
applications, notices, petitions, filings, tax ruling requests and other
documents and to obtain as promptly as practicable all consents, waivers,
licenses, orders, registrations, approvals, permits, tax rulings and
authorizations necessary or advisable to be obtained from any Person and/or
any
Governmental Authority in order to consummate any of the transactions
contemplated by this Agreement, (ii) executing and delivering such other
documents, instruments and agreements as any party hereto shall reasonably
request, and (iii) taking all reasonable steps as may be necessary to obtain
all
such material consents, waivers, licenses, registrations, permits,
authorizations, tax rulings, orders and approvals. In furtherance and not
in
limitation of the foregoing, each party hereto agrees to vigorously defend
any
lawsuits or other legal proceedings, whether judicial or administrative,
challenging this Agreement or the transactions contemplated hereby, including
seeking to have any stay or temporary restraining order entered by any
Governmental Authority vacated or reversed. Notwithstanding the foregoing,
in no
event shall any party have any obligation, in order to consummate the
transaction, to (a) take any action(s) that would result in a material adverse
change in the benefits to the Company on the one hand or to the Investors
on the
other of this Agreement, or (b) dispose of any material assets or make any
material change in its business, or (c) expend any material amount of funds
or
otherwise incur any material burden other than those contemplated by this
Agreement.
(a) As
promptly as practicable after the date hereof, the Company shall prepare
and
file the Proxy Statement with the SEC. The Company shall mail the Proxy
Statement to its stockholders as promptly as practicable after the SEC staff
has
completed its review thereof and, if necessary, after the Proxy Statement
shall
have been so mailed, promptly circulate amended, supplemental or supplemented
proxy material and, if required in connection therewith, resolicit proxies.
The
Proxy Statement will not, at the date it is first mailed to the stockholders
of
the Company, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to
make
the statements therein, in light of the circumstances under which they are
made,
not misleading, except that no representation or warranty is made by the
Company
with respect to statements made or incorporated by reference therein based
on
information supplied by the Investors specifically for inclusion or
incorporation by reference in the Proxy Statement.
(b) No
filing
of, or any amendment or supplement to, the Proxy Statement will be made by
the
Company without providing the Investors the opportunity to review and comment
thereon. The Company will advise the Investors, promptly after it receives
notice thereof, of any request by the SEC for amendment of the Proxy Statement
or comments thereon and responses thereto or requests by the SEC for additional
information. If, at any time prior to the Closing Date, it is determined
that
any information that is not included in the Proxy Statement should be included
therein, or in an amendment or supplement thereto, so that the Proxy Statement,
as amended or supplemented, would not include any misstatement of a material
fact or omit to state any material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, an appropriate amendment or supplement describing such information
shall be promptly filed with the SEC and, to the extent required by law or
regulation, disseminated to the stockholders of the Company.
(c) The
Company and the Investors shall cooperate with one another in (i) determining
whether any other action by or in respect of, or filing with, any Governmental
Authority is required, or any actions, consents, approvals or waivers are
required to be obtained from parties to any material contracts, in connection
with the consummation of the transactions contemplated hereby, and (ii) taking
or seeking any such other actions, consents, approvals or waivers or making
any
such filings, furnishing information required in connection therewith. Each
party shall permit the other party to review any communication given by it
to,
and shall consult with each other in advance of any meeting or conference
with,
any Governmental Authority or, in connection with any proceeding by a private
party, with any other Person, and to the extent permitted by the applicable
Governmental Authority or other Person, give the other party the opportunity
to
attend and participate in such meetings and conferences, in each case in
connection with the transactions contemplated hereby.
(d) The
Company shall timely file all reports required to be filed by it pursuant
to
Section 13(a) of the 1934 Act and all other documents required to be filed
by it
with the SEC under the 1933 Act or the 1934 Act from the date of this Agreement
to the Closing.
5.3 Stockholder
Meeting.
The
Company shall cause a meeting of its stockholders to be duly called and held
for
the purposes of obtaining the Company Stockholder Approval as soon as reasonably
practicable. Except as provided in the next sentence, (a) the Board of Directors
of the Company shall recommend approval and adoption by its stockholders
of the
proposed amendment to the Certificate of Incorporation and approval of the
transaction contemplated by this Agreement (the “Company
Recommendation”),
and
the (b) the Company shall use commercially reasonable efforts to solicit
the
Company Stockholder Approval. The Board of Directors of the Company shall
be
permitted to (i) not recommend to the Company’s Stockholders that they give the
Company Stockholder Approval, or (ii) withdraw or modify in a manner materially
adverse to the Investors the Company Recommendation, only
if
the
Board of Directors by a majority vote determines in its good faith judgment
(after consultation with outside legal counsel) that it is necessary to withdraw
or modify the Company Recommendation to comply with its fiduciary duties
under
applicable law.
5.4 Public
Announcements.
The
parties shall consult with each other before issuing, and provide each other
a
reasonable opportunity to review and comment upon, any press release or public
statement with respect to this Agreement and the transactions contemplated
hereby and, except as may be required by applicable law, will not issue any
such
press release or make any such public statement prior to such
consultation.
5.5 Access
to Information; Notification of Certain Matters.
(a) From
the
date hereof to the Closing and subject to applicable law, the Company shall
(i)
give to each of the Investors, its counsel, financial advisors, auditors
and
other authorized representatives reasonable access to the offices, properties,
books and records of the Company, and (ii) furnish or make available to each
of
the Investors, its counsel, financial advisors, auditors and other authorized
representatives such financial and operating data and other information as
such
Persons may reasonably request.
(b) Each
party hereto shall give notice to each other party hereto, as promptly as
practicable after the event giving rise to the requirement of such notice,
of:
(i) any
communication received by such party from, or given by such party to, any
Governmental Authority in connection with any of the transactions contemplated
hereby;
(ii) any
notice or other communication from any Person alleging that the consent of
such
Person is or may be required in connection with the transactions contemplated
by
this Agreement; and
(iii) any
actions, suits, claims, investigations or proceedings commenced or, to its
knowledge, threatened against, relating to or involving or otherwise affecting
such party or any of its Affiliates that, if pending on the date of this
Agreement, would have been required to have been disclosed, or that relate
to
the consummation of the transactions contemplated by this Agreement;
provided,
however,
that
the delivery of any notice pursuant to this Section 5.5(b) shall not limit
or
otherwise affect the remedies available hereunder to the party receiving
such
notice.
5.6 Anti-Takeover
Provisions.
The
Company’s Board of Directors will take such action as may be necessary to waive
the applicability of the provisions of GCL 203 to the transactions contemplated
by this Agreement.
5.7 Board
of Directors.
The
Company agrees to set the size of its Board of Directors at five members,
appoint three designees of Phillip Frost, M.D. to the Board at Closing and
obtain any necessary resignations from members of the Board so that immediately
after the Closing the Board of Directors shall consist of five members.
5.8 Interim
Operations of the Company.
During
the period from the date of this Agreement to the Closing, the Company shall
conduct its business only in the ordinary course of business consistent with
past practice, except to the extent otherwise necessary to comply with the
provisions hereof and with applicable laws and regulations. Additionally,
during
the period from the date of this Agreement to the Closing, except as required
hereby in connection with this Agreement, the Company shall not, without
the
prior consent of a majority in interest of the Investors, (i) amend or otherwise
change its Certificate of
Incorporation
or Bylaws, (ii) issue, sell or authorize for issuance or sale (including,
but
not limited to, by way of stock split or dividend), shares of any class of
its
securities or enter into any agreements or commitments of any character
obligating it to issue such securities, other than in connection with the
conversion of shares of preferred stock or the exercise of outstanding warrants
or outstanding stock options or bonuses granted to directors, officers or
employees of the Company prior to the date of this Agreement; (iii) declare,
set
aside, make or pay any dividend or other distribution (whether in cash, stock
or
property) with respect to its common stock, (iv) redeem, purchase or otherwise
acquire, directly or indirectly, any of its capital stock, (v) enter into
any
material contract or agreement or material transaction or make any material
capital expenditure other than those relating to the transactions contemplated
by this Agreement, (vi) create, incur, assume, maintain or permit to exist
any
indebtedness except as otherwise incurred in the ordinary course of business,
consistent with past practice, (vii) pay, discharge or satisfy claims or
liabilities (absolute, accrued, contingent or otherwise) other than in the
ordinary course of business consistent with past practice, (viii) cancel
any
material debts or waive any material claims or rights, (ix) make any loans,
advances or capital contributions to, or investments in financial instruments
of
any Person, (x) assume, guarantee, endorse or otherwise become responsible
for
the liabilities or other commitments of any other Person, (xi) grant any
increase in the compensation payable or to become payable by the Company
to any
of its employees, officers or directors or any increase in any bonus, insurance,
pension or other employee benefit plan, payment or arrangement made to, for
or
with any such employees, officers or directors, (xii) enter into any employment
contract or grant any severance or termination pay or make any such payment
with
or to any officer, director or employee of the Company, (xiii) alter in any
material way the manner of keeping the books, accounts or records of the
Company
or the accounting practices therein reflected other than alterations or changes
required by GAAP or applicable law, (xiv) enter into any indemnification,
contribution or similar contract pursuant to which the Company may be required
to indemnify any other Person or make contributions to any other Person,
(xv)
amend or terminate any existing contracts in any manner that would result
in any
material liability to the Company for or on account of such amendment or
termination or (xvi) or change any existing or adopt any new tax accounting
principle, method of accounting or tax election except as provided herein
or
agreed to in writing by the Investors. Among other things, the Company agrees
to
take such actions as may be necessary to suspend the automatic grants of
stock
options to directors.
5.9 Voting
Agreements.
Each
Investor hereby agrees that he will enter into the Investor Voting Agreement
and
will deliver the Agreement to the Company at or prior to the Closing.
Simultaneously with the execution of this Agreement, or within ten days thereof,
each director of the Company will enter into the Stockholder Voting Agreement.
The Company further agrees to use commercially reasonable efforts to have
the
Stockholder Voting Agreements executed by each director of the Company and
each
holder of more than 5% of the issued and outstanding stock of the
Company.
SECTION
6. CONDITIONS.
6.1 Conditions
to the Obligations of Each Party.
The
obligations of the Company and the Investors to consummate the transactions
contemplated by this Agreement are subject to the satisfaction of the following
conditions:
(a) The
Company Stockholder Approval shall have been obtained;
(b) No
Governmental Authority of competent authority or jurisdiction shall have
issued
any order, injunction or decree, or taken any other action, that is in effect
and restrains, enjoins or otherwise prohibits the consummation of the
transactions contemplated hereby; and
(c) The
parties shall have obtained or made all consents, approvals, actions, orders,
authorizations, registrations, declarations, announcements and filings
contemplated by this Agreement.
6.2 Conditions
to the Obligations of the Company.
The
obligations of the Company to consummate the transactions contemplated by
this
Agreement are subject to the satisfaction of the following further
conditions:
(a) The
Investors shall have performed in all material respects all of their obligations
hereunder required to be performed by it at or prior to the
Closing;
(b) The
representations and warranties of each of the Investors contained in this
Agreement shall have been true and correct when made and at and as of the
time
of the Closing as if made at and as of such time (except to the extent any
such
representation or warranty expressly speaks as of an earlier date, in which
case
it shall be true and correct as of such date);
(c) The
Company shall have received a certificate signed by each of the Investors
to the
foregoing effect; and
6.3 Conditions
to the Obligations of the Investors.
The
obligations of the Investors to consummate the transactions contemplated
by this
Agreement are subject to the satisfaction of the following further
conditions:
(a) The
Company shall have performed in all material respects all of its obligations
hereunder required to be performed by it at or prior to the
Closing;
(b) The
representations and warranties of the Company contained in this Agreement
shall
have been true and correct when made and at and as of the time of the Closing
as
if made at and as of such time (except to the extent any such representation
or
warranty expressly speaks as of an earlier date, in which case it shall be
true
and correct as of such date);
(c) The
Investors shall have received a certificate signed by the president or acting
president of the Company to the foregoing effect;and
SECTION
7. TERMINATION.
7.1 Termination.
This
Agreement may be terminated at any time prior to the Closing by written notice
by the terminating party to the other party (except if such termination is
pursuant to Section 7.1(a)), whether before or after the Company Stockholder
Approval shall have been obtained:
(a) by
mutual
written agreement of the Investors and the Company;
(b) by
either
the Investors or the Company, if
(i) the
transactions contemplated by this Agreement shall not have been consummated
by
January 31, 2007 (the “End
Date”);
provided,
however,
that
the right to terminate this Agreement under this Section 7.1(b)(i) shall
not be
available to any party whose breach of any provision of or whose failure
to
perform any obligation under this Agreement has been the cause of, or has
resulted in, the failure of the transactions to occur on or before the End
Date;
(ii) a
judgment, injunction, order or decree of any Governmental Authority having
competent jurisdiction enjoining the Company or the Investors from consummating
the transactions contemplated by this Agreement is entered and such judgment,
injunction, judgment or order shall have become final and nonappealable and,
prior to such termination, the parties shall have used their respective
commercially reasonable efforts to resist, resolve or lift, as applicable,
such
judgment,
injunction,
order or decree; provided, however, that the right to terminate this Agreement
under this Section 7.1(b)(ii) shall not be available to any party whose breach
of any provision of or whose failure to perform any obligation under this
Agreement has been the cause of such judgment, injunction, order or decree;
or
(iii) at
the
Company Stockholders Meeting (including any adjournment or postponement
thereof), the Company Stockholder Approval shall not have been obtained;
or
(c) by
the
Company:
(i) if
a
breach of or failure to perform any representation, warranty, covenant or
agreement on the part of the Investors set forth in this Agreement shall
have
occurred which would cause the conditions set forth in Sections 6.2(a) or
6.2(b)
not to be satisfied, and either such condition shall be incapable of being
satisfied by the End Date or such breach or failure to perform has not been
cured within 10 days after notice of such breach or failure to perform has
been
given by the Company to the Investors.
(d) by
the
Investors:
(i) if
a
breach of or failure to perform any representation, warranty, covenant or
agreement on the part of the Company set forth in this Agreement shall have
occurred which would cause the conditions set forth in Sections 6.3(a) or
6.3(b)
not to be satisfied, and either such condition is incapable of being satisfied
by the End Date or such breach or failure to perform has not been cured within
10 days after notice of such breach or failure to perform has been given
by the
Investors to the Company.
7.2 Effect
of Termination.
If this
Agreement is terminated pursuant to Section 7.1, except as set forth in Section
7.3 below, there shall be no liability or obligation on the part of the
Investors or the Company, or any of their respective officers, directors,
shareholders, agents or Affiliates, except that the provisions of this Section
7.2, Section 7.3 and Section 8 of this Agreement shall remain in full force
and
effect and survive any termination of this Agreement and except that,
notwithstanding anything to the contrary contained in this Agreement, neither
the Company nor the Investors shall be relieved of or released from any
liabilities or damages arising out of its material breach of or material
failure
to perform its obligations under this Agreement.
7.3 Termination
Fee and Expenses.
(a) Whether
or not the transactions contemplated by this Agreement are consummated and
subject to Section 2.3 of this Agreement, all fees and expenses incurred
in
connection with this Agreement and the transactions contemplated hereby shall
be
paid by the party incurring such expenses; provided, however, if any party
shall
terminate this Agreement pursuant to Section 7.1(b)(iii) due to the failure
to
obtain the Company Stockholder Approval and the Company shall have exercised
its
rights under Section 5.3 of this Agreement to (i) not recommend to the Company’s
Stockholders that they give the Company Stockholder Approval or (ii) withdraw
or
modify in a manner materially adverse to the Investors the Company
Recommendation, the Company shall pay the Investors an aggregate termination
fee
equal to $300,000, which shall be paid pro rata to the Investors, based on
that
portion of the aggregate purchase price to be paid for the Common Stock by
each
Investor, as set forth on Exhibit
A.
(b) Notwithstanding
anything to the contrary contained in this Agreement, the Company shall not
be
required to pay a termination fee to the Investors if at the time of termination
of this Agreement one or more of the Investors are in material breach of
this
Agreement or has (have) materially
failed
to
perform its/their obligations under this Agreement and such breach or failure
to
perform would give rise to a right on the part of the Company to terminate
this
Agreement pursuant to Section 7.1(c).
SECTION
8. MISCELLANEOUS.
8.1 Waivers
and Amendments.
This
Agreement may be amended or modified in whole or in part only by a writing
which
makes reference to this Agreement executed by the Investors and the Company.
The
obligations of either party hereunder may be waived (either generally or
in a
particular instance and either retroactively or prospectively) only with
the
written consent of the party claimed to have given the waiver; provided,
however,
that
any waiver by any party of any violation of, breach of, or default under
any
provision of this Agreement or any other agreement provided for herein shall
not
be construed as, or constitute, a continuing waiver of such provision, or
waiver
of any other violation of, breach of or default under any other provision
of
this Agreement or any other agreement provided for herein.
8.2 Entire
Agreement.
This
Agreement (together with the Schedules and the Exhibits hereto) and the other
agreements and instruments expressly provided for herein, together set forth
the
entire understanding of the parties hereto and supersede in their entirety
all
prior contracts, agreements, arrangements, communications, discussions,
representations, and warranties, whether oral or written, among the parties
with
respect to the subject matter hereof.
8.3 Governing
Law.
This
Agreement shall in all respects be governed by and construed in accordance
with
the internal substantive laws of the State of New York without giving effect
to
the principles of conflicts of law thereof.
8.4 Notices.
Any
notice, request or other communication required or permitted hereunder shall
be
in writing and be deemed to have been duly given (a) when personally delivered
or sent by facsimile transmission (the receipt of which is confirmed in
writing), (b) one Business Day after being sent by a nationally recognized
overnight courier service or (c) five Business Days after being sent by
registered or certified mail, return receipt requested, postage prepaid,
to the
parties at their respective addresses set forth below.
If
to the
Company:
eXegenics
Inc.
1250
Pittsford-Victor Road
Pittsford,
New York 14534
Attention:
John
A. Paganelli, Chairman
Facsimile:
(585)
383-4291
with
a
copy to:
Harris
Beach PLLC
99
Garnsey Road
Pittsford,
New York 14534
Attention:
Thomas E. Willett, Esq.
Facsimile:
(585) 419-8818
If
to
Investors:
At
the
addresses set forth across from each Investor’s name on Exhibit
A
hereto.
with
a
copy to:
Steven
D.
Rubin, Esq.
4400
Biscayne Boulevard
Miami,
Florida 33137
Facsimile:
(305) 575-6049
Any
party
by written notice to the other may change the address or the persons to whom
notices or copies thereof shall be directed.
8.5 Counterparts;
Facsimile Signatures.
This
Agreement may be executed in any number of counterparts, each of which shall
be
deemed to be an original, and all of which together will constitute one and
the
same instrument. Any facsimile copy of this Agreement will be deemed an original
for all purposes.
8.6 Successors
and Assigns.
This
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and permitted assigns, except that
the
Company may not assign or transfer its rights hereunder without the prior
written consent of the Investors.
8.7 Third
Parties.
Nothing
expressed or implied in this Agreement is intended, or shall be construed,
to
confer upon or give any Person other than the parties hereto and their
successors and assigns any rights or remedies under or by reason of this
Agreement.
8.8 Schedules.
The
Schedules and Exhibit
A
attached
to this Agreement are incorporated herein and shall be part of this Agreement
for all purposes.
8.9 Headings.
The
headings in this Agreement are solely for convenience of reference and shall
not
be given any effect in the construction or interpretation of this
Agreement.
8.10 Interpretation.
Whenever the context may require, any pronoun used herein shall include the
corresponding masculine, feminine or neuter forms, and the singular form
of
nouns, pronouns and verbs shall include the plural and vice versa.
[Signature
Page Follows]
SIGNATURE
PAGE TO
STOCK
PURCHASE AGREEMENT
BY
AND AMONG
EXEGENICS,
INC.
AND
THE
INVESTORS
IN
WITNESS WHEREOF, the Company and each of the Investors have executed this
Agreement as of the date first above written.
The
Company:
eXegenics
Inc.
By:
/s/
John
A. Paganelli
Name:
John
A.
Paganelli
Title:
Chairman
The
Investors:
Frost
Gamma Investments Trust
By:
/s/ Phillip Frost, M.D.
Phillip
Frost, M.D., Sole Trustee
New
Valley, LLC
By:
___________________________________
Name:_________________________________
Title:
_________________________________
EXHIBIT
A
SCHEDULE
OF PURCHASERS
|
Name,
Address and State of Residence
|
Number
of Shares of Common Stock
to
be Purchased
|
Aggregate
Purchase
Price
for Shares
|
|
Frost
Gamma Investments Trust
4400
Biscayne Blvd, Miami Florida 33137
Attn:
Phillip Frost, M.D., Sole Trustee
Fax:
(305) 575-6016
|
15490546
|
$6,863,000.00
|
|
New
Valley LLC
100
S.E. Second Street, 32nd
Floor, Miami, Florida 33131
Attn:
Richard J. Lampen, Manager
Attn:
Howard Lorber, Manager
Fax:
(305) 579-8009
|
2,257,110
|
$1,000,000.00
|
|
RFJM
LLC
900
3rd
Avenue, Suite 201
New
York, New York 10022
Attn:
Richard Friedman
Fax:
(646) 660-9613
|
225711
|
$100,000
|
|
MZ
Trading LLC
961
Hyacinth Dr.
Del
Ray Beach, FL 33483
Attn:
Mark Zeitchick
Fax:
(561) 620-2111
|
112,856
|
$50,000
|
|
Joseph
and Diane DeLuca
5
Stone Ridge Road
Sussex,
New Jersey 07461
Fax:
(973) 209-1895
|
282,139
|
$125,000
|
|
Harter
Financial Inc.
17
Village Road
New
Vernon, NJ 07976
Fax:
(973) 734-0101
|
112,856
|
$50,000
|
|
Ms.
Marie V. Wolf
15
Sutton Drive, Box 150
New
Vernon, NJ 07976
Fax:
(973) 734-0101
|
282,139
|
$125,000
|
|
Ms.
Ronnie Rosenstock
194
Tempo Place
Eastport,
New York 11941
Fax:
(631) 325-1572
|
112,856
|
$50,000
|
|
Mr.
Robert Sudack
1025
Fifth Avenue
New
York, New York 10028
Fax:
(718) 786-9310
|
112,856
|
$50,000
|
|
Encore
Atlantic LLC
194
Tempo Place
Eastport,
New York 11941
Attn:
Richard Rosenstock
Fax:
(631) 325-1572
|
451,422
|
$200,000
|
PROXY eXegenics,
Inc.
PROXY
SOLICITED BY THE BOARD OF DIRECTORS OF EXEGENICS, INC.
Special
Meeting of Stockholders On ________, 2006
The
undersigned, revoking any proxy heretofore given, hereby constitutes and
appoints John A. Paganelli and Robert Baron, or either of them, proxies
of the
undersigned, each with full power of substitution, to vote all shares of
capital
stock of eXegenics, Inc. (the "Company") which the undersigned is entitled
to
vote at the Special Meeting of Stockholders to be held on ____day, _______,
2006
at 9:00 a.m. local time (the "Special Meeting"), and at any adjournment
thereof,
as hereinafter specified with respect to the following proposals, more
fully
described in the Notice of Special Meeting and the Proxy Statement for
the
Special Meeting, receipt of which is hereby acknowledged. The Board of
Directors
recommends a vote FOR
proposals 1, 2, 3 and 4.
| 1. |
To
approve the sale of 19,440,491 shares of the Company’s common stock
pursuant
to the Stock Purchase Agreement dated
August 14, 2006;
|
|
For
o
Against o Abstain
o
|
| 2. |
To
approve an amendment to the Company's Certificate of Incorporation
to increase the number of authorized shares of common stock
from 30,000,000 to 75,000,000;
|
| For o Against o Abstain o |
| 3. |
To
approve the issuance of 50,000 shares of common stock to each
of
John
A. Paganelli and Robert Baron;
|
| For o Against o Abstain o |
| 4. |
To
approve the adjournment of the Special Meeting, if necessary,
to solicit
additonal proxies.
|
| For o Against o Abstain o |
| 5. |
In
their discretion the proxies will vote upon any other business
which may properly come
before the Special Meeting or any adjournment
thereof.
|
THE
SHARES REPRESENTED BY THIS PROXY WILL BE VOTED FOR
THE PROPOSALS SET FORTH HEREIN UNLESS A CONTRARY CHOICE IS SPECIFIED. THE
PROXIES WILL USE THEIR DISCRETION WITH RESPECT TO ANY OTHER MATTERS WHICH
PROPERLY COME BEFORE THE SPECIAL MEETING OR ANY ADJOURNMENT
THEREOF.
Signature
__________________________ Date ____________ Signature
__________________________ Date__________
Note:
(Please sign exactly as name appears hereon. For joint accounts, each joint
owner should sign. Executors, administrators, trustees, etc. should so indicate
when signing).
COMPLETE,
DATE, SIGN AND MAIL THIS PROXY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE.