<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to 14a-11(c) or 14a-12
</TABLE>
ECOGEN 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):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(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) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (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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/X/ Fee paid previously with preliminary materials.
/ / 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.
(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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<PAGE> 2
ECOGEN INC.
Langhorne, Pennsylvania 19047-1810
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
April 24, 1996
------------------------
TO THE STOCKHOLDERS OF ECOGEN INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders
of Ecogen Inc., a Delaware corporation (the "Company"), will be held at The
Sheraton Bucks County Hotel, 400 Oxford Valley Road, Langhorne, Pennsylvania,
on April 24, 1996, at 2:00 p.m., local time, for the following purposes:
To elect eight members of the Board of Directors, each to
serve until the next annual meeting.
To consider and approve a proposal to amend the Company's
Stock Option Plan to increase the number of shares of Common Stock to be issued
upon exercise of options granted under the Plan to non-employee directors of
the Company.
To ratify the appointment of KPMG Peat Marwick LLP as
independent auditors to audit the Company's books and accounts for the fiscal
year 1996.
To transact such other business as may properly come before
the meeting.
The Board of Directors has fixed March 21, 1996 as the record
date for determining the holders of Common Stock and Series B Convertible
Preferred Stock entitled to notice of and to vote at the meeting.
Consequently, only holders of Common Stock and Series B Convertible Preferred
Stock of the Company of record on the transfer books of the Company at the
close of business on March 21, 1996, will be entitled to notice of and to vote
at the meeting.
We invite all stockholders to attend the meeting. TO ENSURE
THAT YOUR SHARES WILL BE VOTED AT THE MEETING, HOWEVER, PLEASE COMPLETE, DATE
AND SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY. If you attend the meeting,
you may vote in person, even though you have sent in your proxy.
James P. Reilly, Jr.
Chairman and Chief Executive Officer
Langhorne, Pennsylvania
March 25, 1996
<PAGE> 3
ECOGEN INC.
2005 CABOT BOULEVARD WEST
LANGHORNE, PENNSYLVANIA 19047-1810
PROXY STATEMENT
The accompanying proxy is solicited by the Board of Directors
of Ecogen Inc. (the "Company") for use at its 1996 Annual Meeting of
Stockholders (the "Annual Meeting") to be held on April 24, 1996. Copies of
this proxy statement and the accompanying proxy are being mailed on or after
March 25, 1996, to the holders of record of the Company's common stock, par
value $.01 per share (the "Common Stock"), and the holders of record of the
Company's Series B Convertible Preferred Stock, par value $.01 per share (the
"Convertible Preferred Stock"), on March 21, 1996. The proxy may be revoked by
a stockholder at any time prior to its use by giving written notice of such
revocation to the Secretary of the Company or by voting in person at the Annual
Meeting. The expense of this solicitation will be paid by the Company.
Officers and other employees of the Company may solicit proxies personally or
by telephone.
The persons named in the accompanying proxy will vote as set
forth under "Election of Directors" with respect to the election of directors.
With respect to the other subjects referred to in this proxy statement, the
persons named in the accompanying proxy will vote as stated in the proxy.
At a special meeting duly called and held on January 29, 1996,
the stockholders of the Company approved an amendment to the Company's
Certificate of Incorporation that effected a one-for-five reverse stock split
of the Company's outstanding Common Stock (the "Reverse Split"). As a result
of the Reverse Split as of January 29, 1996, the outstanding shares of Common
Stock of the Company were reduced from approximately 30,109,000 to
approximately 6,022,000. All references in this proxy statement to shares of
Common Stock and exercise prices of outstanding stock options take into account
the effect of the Reverse Split unless otherwise stated or the context
otherwise requires.
Holders of Common Stock and Convertible Preferred Stock of
record at the close of business on March 21, 1996, will be entitled to one vote
per share held of record on all business of the Annual Meeting. On March 21,
1996, there are expected to be approximately 7,000,000 shares of Common Stock
outstanding and 17,501 shares of Convertible Preferred Stock outstanding.
Pursuant to the Company's Restated Certificate of Incorporation, as amended,
the holders of Common Stock and Convertible Preferred Stock vote together as a
single class. The presence at the Annual Meeting in person or by proxy of the
holders of a majority of the shares of Common Stock and Convertible Preferred
Stock, taken together as a class, outstanding on the record date will
constitute a quorum to conduct business at the meeting. Proxies submitted
which are marked "abstain" or "withhold authority" will be deemed present at
the meeting for purposes of determining a quorum to conduct business at the
meeting.
If a quorum is present, the election of directors will be
decided by a plurality of the shares of Common Stock and Convertible Preferred
Stock represented in person or by proxy at the meeting and entitled to vote
thereon. Shares represented by proxies which are marked "abstain" or "withhold
authority" and shares as to which a broker indicates that it does not have
discretionary authority to vote (referred to herein as non-votes by brokers)
with respect to any or all nominee(s) for director will not be deemed present
for purposes of voting on the election of any or all such nominee(s) for
director and therefore will have no impact on the vote on any or all such
nominee(s).
<PAGE> 4
The approval of all other matters brought before the meeting
will require the affirmative vote of a majority of the shares of Common Stock
and Convertible Preferred Stock represented in person or by proxy at the
meeting and entitled to vote thereon. Shares represented by proxies which are
marked "for, "against or "abstain" will be counted for purposes of determining
the vote required for approval of these other matters, and the total number of
votes cast "for" each of these other matters will determine whether sufficient
affirmative votes have been cast. An abstention from voting on these other
matters has the same legal effect as a vote against any such matter and shares
represented by proxies which are marked "withhold authority" (including
non-votes by brokers) are not counted for purposes of determining whether these
other matter have been approved.
On December 28, 1994, the Company changed its fiscal year end
from December 31 to October 31 so that its fiscal year would better conform to
the agricultural growing season in its primary markets. References in this
proxy statement to the years 1994 and 1995 shall, unless the context otherwise
requires, be deemed to mean the ten-month period beginning on January 1, 1994
and ending on October 31, 1994 and fiscal year 1995 beginning on November 1,
1994 and ending on October 31, 1995, respectively.
2
<PAGE> 5
PROPOSAL I
ELECTION OF DIRECTORS
Eight directors are to be elected at the 1996 Annual Meeting
of Stockholders to serve until the 1997 Annual Meeting of Stockholders and
until their respective successors are elected and qualified. The persons named
in the accompanying proxy intend to vote for the election of the nominees
identified below unless authority to vote for one or more of such nominees is
specifically withheld in the proxy.
The Board of Directors is informed that all of the nominees
are willing to serve as directors, but if any of them should decline to serve
or become unavailable for election as a director at the Annual Meeting, an
event which the Board of Directors does not anticipate, the persons named in
the proxy will vote for such nominee or nominees as may be designated by the
Board of Directors, unless the Board of Directors reduces the number of
directors accordingly.
The nominees for election to the Company's Board of Directors
are:
MR. PATRICK OWEN BURNS, 58, has served as a director of the
Company since October 1986. Since July 1986, he has been a Vice President of
R&D Funding Corp, the general partner of PruTech Research and Development
Partnership II. Mr. Burns is also Senior Vice President of Prudential
Securities Incorporated ("Prudential Securities"). Since 1986, he has held
various other offices, including Vice President and First Vice President, in
Prudential Securities. Mr. Burns is also a director of Texas Biotechnology
Corporation, Synbiotics Corporation and Creative BioMolecules, Inc., all of
which are biotechnology companies.*/**
MR. JOHN E. DAVIES, 60, has served as a director of the
Company since December 1983. From April 1988 to October 1995, he served as
Chairman of the Board of Directors of the Company. From December 1983 to
January 1994, Mr. Davies served as Chief Executive Officer of the Company and
from December 1983 to March 1988, Mr. Davies served as President of the
Company. From 1977 until he joined the Company, Mr. Davies was employed in
various management capacities by Rhone-Poulenc, Inc., a multi-national chemical
company, most recently, from April 1982 until November 1983, as Senior Vice
President and General Manager of Rhone-Poulenc's Agrichemical Division.*/**
DR. JACK D. EARLY, 67, has served as a director of the Company
since November 1990. From February 1991 until his retirement in 1994, he was
the Director of Legislative Affairs of Technology Sciences Group, Inc. From
November 1989 to October 1990, Dr. Early was President ex officio of the
National Agricultural Chemicals Association, a trade association. From
September 1976 to November 1989, he was President of that association.*/***
MR. ESTEBAN A. FERRER, 45, has served as a director of the
Company since January 1996. From 1983 until 1995, he served as Secretary of
the Company. Since September 1990, Mr. Ferrer has been a partner at the law
firm of Paul, Hastings, Janofsky & Walker, and he has served as
- ----------------------------------
* Member, Audit Committee
** Member, Nominating Committee
*** Member, Compensation Committee
3
<PAGE> 6
Chair of the firm's Business Law Department since 1993. Mr. Ferrer holds a
Juris Doctor degree from Columbia University School of Law and is admitted to
practice in the States of Connecticut and New York.
DR. LOWELL N. LEWIS, 64, has served as a director of the
Company since February 1989. Since February 1992, Dr. Lewis has been an
International Research Management Consultant. From January 1988 through his
retirement from the University of California in April 1991, Dr. Lewis was
employed at the University of California as Associate Vice President for
Programs, Agriculture and Natural Resources; Associate Director of the
California Agricultural Experiment Station; and Associate Director of
Cooperative Extension.***/
MS. MARY E. PAETZOLD, 46, has served as a director of the
Company since March 1996. Since she joined the Company in August 1994, Ms.
Paetzold has been the Company's Vice President, Chief Financial Officer and
Treasurer. Prior to joining the Company, Ms. Paetzold was a partner of KPMG
Peat Marwick LLP, certified public accountants, where she worked for over
twenty years.
MR. JAMES P. REILLY, JR., 49, has served as Chairman of
the Board of Directors of the Company since November 1, 1995 and as a director
of the Company since June 1992. Since January 1994, Mr. Reilly has been the
Chief Executive Officer of the Company and since June 1992, he has been the
Company's President. From June 1992 to January 1994, Mr. Reilly served as
Chief Operating Officer of the Company. From 1976 until he joined the Company,
Mr. Reilly was employed in various management capacities at Rhone Poulenc,
Inc., most recently, from April 1991 to May 1992, as Vice President and General
Manager of the Fine Chemicals Division.**/
MR. JOHN R. SUTLEY, 53, has served as a director of the
Company since March 1996. Since 1994 he has been President and Chief Executive
Officer of Nalco/Exxon Energy Chemicals, L.P., a specialty chemicals company.
From 1968 to 1994 Mr. Sutley was employed in various management capacities at
Nalco Chemical Co. most recently from 1991 to 1994 as Group Vice President of
Nalco Chemical Co. and President of Nalco Europe.
All directors hold office until the next annual meeting of
the Company's stockholders and until their successors are elected and
qualified. In calendar year 1995, non-employee directors ("Outside Directors")
were each paid an annual retainer of $12,000 and no additional fees for
attendance at meetings of the Board were paid to the Outside Directors in
calendar year 1995. Messrs. Burns, Early and Lewis also were paid $750 each
for a director meeting in November 1994. Messrs. Burns, Early, Ferrer and
Lewis are currently entitled to receive an annual retainer of $12,000 with no
additional fees for attendance at meetings of the Board. Mr. Davies has waived
receipt of his annual retainer for 1996.
- ----------------------------------
* Member, Audit Committee
** Member, Nominating Committee
*** Member, Compensation Committee
4
<PAGE> 7
Directors are eligible to be granted options to purchase
Common Stock under the Company's Stock Option Plan (the "Plan"). Currently,
Outside Directors, upon their first election to the Board of Directors, are
granted non-statutory stock options to purchase a total of 1,800 shares of
Common Stock of the Company (an "Initial Grant"). In addition, Outside
Directors are currently granted, on the first day of each calendar year,
non-statutory stock options to purchase 400 shares of Common Stock (an "Annual
Grant"), continuing until each such Outside Director has been granted options
to purchase a total of 2,000 shares of Common Stock pursuant to the Annual
Grants. The Initial Grants become exercisable ratably over a three-year period
and the Annual Grants become exercisable ratably over a two-year period. The
Initial Grants and the Annual Grants are exercisable at a price equal to the
fair market value of the Common Stock of the Company on the date of grant, as
determined under the Plan.
The Board of Directors held seven regularly scheduled and
six special meetings during fiscal 1995. During fiscal 1995, the standing
committees of the Board of Directors were the Audit Committee, the Compensation
Committee and the Nominating Committee.
The Audit Committee, which met on three occasions in
fiscal 1995, is responsible for: (i) reviewing the Company's financial results
and the scope and results of audits; (ii) evaluating the Company's system of
internal controls and meeting with independent auditors and with appropriate
Company financial and auditing personnel concerning the Company's system of
internal controls; (iii) recommending to the Board of Directors the appointment
of the independent auditors; and (iv) evaluating the Company's financial
reporting activities and the accounting standards and principles followed.
The Compensation Committee, which met on three occasions
in fiscal 1995, is responsible for: (i) recommending to the Board of Directors
the appointment of new corporate officers; (ii) considering and recommending to
the Board of Directors compensation for corporate officers; (iii) performing
such duties which, under the terms of the Plan, are assigned to the Board of
Directors and which by law may be delegated to a committee of the Board of
Directors; (iv) considering and recommending changes in the Company's
non-officer employee compensation structure; and (v) considering and
recommending to the Board of Directors changes in director compensation.
The Nominating Committee, which met on two occasions in
fiscal 1995, is responsible for recommending qualified candidates for election
as directors of the Company, including the slate of directors which the Board
of Directors proposes for election by stockholders at each annual meeting, and
for making recommendations to the Board of Directors concerning the structure
and membership of the committees of the Board of Directors. The Nominating
Committee will consider recommendations of stockholders for nominees for
election to the Company's Board of Directors if such nominations are submitted
in writing and include the name and description of the qualifications of the
nominee along with the reason for such nomination, addressed to the Company at
its Langhorne, Pennsylvania office, to the attention of the Nominating
Committee.
In fiscal 1995, each of the incumbent directors attended
at least 75% of the aggregate of all meetings of the Board of Directors and
committees of which he was a member.
5
<PAGE> 8
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16 of the Securities Exchange Act of 1934 requires
directors and executive officers and persons, if any, owning more than ten
percent of a class of the Company's equity securities to file with the
Securities and Exchange Commission initial reports of ownership and reports of
changes in ownership of the Company's equity and derivative securities. Based
solely upon a review of the copies of the forms furnished to the Company, or
written representations from reporting persons, the Company believes that
during 1995 all filing requirements applicable to its officers and directors
were met except with respect to one report of initial ownership on Form 3 and
in connection with required Forms 5. A Form 3 report for Dr. Leigh English,
the Company's Vice President, Research, was required to be filed following Dr.
English's election as an executive officer in October 1995 but was
inadvertently not filed until February 1996. In addition, due to changes in
administrative procedures resulting from the Company's change in fiscal year
end, Forms 5 for Messrs. Early, Burns and Lewis were inadvertently not filed
until February 1996.
6
<PAGE> 9
PROPOSAL II
AMENDMENT TO STOCK OPTION PLAN
The Board of Directors has unanimously approved an
amendment to the Plan to provide for increases in the number of shares issuable
pursuant to options automatically granted to Outside Directors, and the
submission of the amendment to a vote of the Company's stockholders. The
amendment provides that (i) the number of shares of Common Stock issuable
pursuant to non-statutory options automatically granted to each Outside
Director upon his or her first election to the Board of Directors on or after
February 1, 1996 be increased from 1,800 shares to 9,000 shares; (ii) the
number of shares of Common Stock issuable pursuant to non-statutory options
automatically granted to each Outside Director on the first day of each
calendar year be increased from 400 shares to 2,000 shares; and (iii) the limit
on the total number of shares of Common Stock that may be issuable pursuant to
Annual Grants be deleted in its entirety.
The availability of stock options is an important feature
of the Company's ability to attract and retain qualified persons willing to
serve on the Board of Directors. The Company believes that an increase in the
number of options granted under the Plan to Outside Directors is necessary to
ensure that the Company retains its present Outside Directors. In addition,
the Company must be able to offer compensation to prospective Outside Directors
that is competitive with similar companies in order to attract additional
Outside Directors to serve on the Company's Board of Directors if and when so
desired. Compensation in the form of stock options is an important feature of
the Company's compensation structure as a whole because, among other reasons,
it provides employees as well as directors with a personal stake in the
Company's stock performance and enables the Company to competitively compensate
employees and directors without adversely affecting its cash flow, and because
the Board of Directors believes that compensation in the form of stock options
helps attract and retain experienced Outside Directors. Therefore, the Board
of Directors believes that it is in the Company's best interest to compensate
Outside Directors with additional grants of options under the Plan.
The affirmative vote of a majority of the shares of Common
Stock and Convertible Preferred Stock outstanding on the record date and
represented in person or by proxy at the meeting will be required to approve
this proposal. Shares represented by proxies which are marked "abstain" will
have the same effect as a vote against this proposal and shares represented by
proxies which are marked "withhold authority" (including non-votes by brokers)
are not counted for purposes of determining the majority requirement.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
AN AFFIRMATIVE VOTE FOR THIS PROPOSAL
SUMMARY OF THE PLAN
In October 1987, the Company's Board of Directors adopted
and, in June 1988, the Company's stockholders approved, the Plan, authorizing
the granting of options to officers, directors and employees of the Company.
At the present time, there are 800,000 shares of Common Stock authorized for
issuance under the Plan, with 685,666 of such shares being subject to
outstanding options and an additional 114,334 shares being available for future
grants.
7
<PAGE> 10
Under the Plan, both incentive stock options and
non-statutory stock options may be granted. Incentive stock options granted
under the Plan are intended to be "incentive stock options" within the meaning
of the Internal Revenue Code of 1986, as amended (the "Code"), while
non-statutory stock options are not intended to be treated as incentive stock
options under the Code. The purchase price per share of stock deliverable upon
the exercise of an option is determined by the Board of Directors on the date
such option is authorized, provided that the option exercise price of incentive
stock options may not be less than 100% of the fair market value of the Common
Stock at the time the option is granted to the employee (or in the case of an
employee who, at the time of the grant, is the owner of stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company or any parent or subsidiary corporation, may not be less than 110% of
the fair market value of the Common Stock at the time the option is granted).
The term "fair market value" is defined in the Plan generally as the closing
trading price of the Common Stock, as reported on The NASDAQ National Market
System or, if the Common Stock is then listed on a stock exchange, the
principal stock exchange on which the Common Stock is listed, on the trading
day ending immediately prior to the option grant date for which such trading
price is available. Certain other terms and conditions with respect to such
options, including dates of exercisability, may be determined by the Board of
Directors on the grant date.
Options are granted without cash consideration and are
nontransferable except by will or by the laws of descent and distribution and
may be exercised during the optionee's life only by the optionee. The options
that have been granted to date pursuant to the Plan generally become
exercisable ratably over a period from three to five years from the option
grant date. Unless earlier terminable in accordance with the terms of the
option, all options terminate ten years after the date of grant (or five years,
in the case of incentive stock options granted to an employee who, at the time
of the grant is the owner of stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or any parent or
subsidiary corporation), or, subject to certain exceptions, following the
termination of the optionee's employment, whichever occurs earlier. As of
February 1, 1996, approximately 100 employees and directors held options under
the Plan. The last sale price of the Common Stock on February 1, 1996 as
reported by The NASDAQ National Market System was $7.125.
The Plan currently is administered by the Compensation
Committee under the direction of the Board of Directors. Subject to the
express provisions of the Plan, the Board and the Compensation Committee have
the authority to administer and interpret the Plan, including the authority to
determine when and to whom options will be granted and to set the specific
terms of individual options. Additionally, to facilitate the recruitment of
new non-officer employees between meetings of the Compensation Committee or the
Board of Directors, the Chairman of the Board and the President have been given
discretion to grant options under the Plan. Outside Directors are
automatically granted Initial Grants (non-statutory options to purchase 1,800
shares of Common Stock) upon their first election to the Board of Directors.
However, if Proposal II is approved by the stockholders, the Initial Grant
applicable to future Outside Directors will be increased from non-statutory
options to purchase 1,800 shares of Common Stock to non-statutory options to
purchase 9,000 shares of Common Stock. Also, Outside Directors are
automatically granted, on the first day of each calendar year, Annual Grants
(non-statutory options to purchase 400 shares of Common Stock), continuing
until each such Outside Director has been granted options to purchase a total
of 2,000 shares of Common Stock pursuant to Annual Grants. However, if
Proposal II is approved by the stockholders, the Annual Grants will be
increased from non-statutory options to purchase 400 shares of Common Stock to
non-statutory options to purchase 2,000 shares of Common Stock and such awards
8
<PAGE> 11
will no longer cease upon receipt of options to purchase an aggregate amount of
2,000 shares of Common Stock. The Initial Grants of options become exercisable
ratably over a three-year period and the Annual Grants of options become
exercisable ratably over a two-year period. All options granted to Outside
Directors have an exercise price equal to the fair market value of the Common
Stock, as determined under the Plan, at the time the option is granted. As
each of the nominees for election to the Board of Directors who is an Outside
Director is eligible to participate in the Plan, each may be considered to have
an interest in Proposal II. The current Outside Directors are Messrs. Burns,
Davies, Early, Ferrer and Lewis.
There are no federal income tax consequences to an
optionee by reason of the grant of an incentive stock option under the Plan.
Generally, no income or gain must be recognized upon the exercise of an
incentive stock option unless the option holder is (i) subject to the
alternative minimum tax or (ii) utilizing the net issuance method of exercising
his incentive stock options. However, income or gain must be recognized upon
the disposition of shares obtained upon exercise of an incentive stock option.
If the shares are held for at least two years from the date of grant of the
option and one year from the date of exercise, any gain recognized on
disposition of the shares would generally be treated as a long-term capital
gain for federal income tax purposes. However, if the shares are disposed of
within the periods described in the preceding sentence (a "disqualifying
disposition"), the option holder would generally recognize ordinary income upon
such disposition equal to the excess, if any, of (i) the lesser of (A) the fair
market value of the shares on the date of exercise and (B) the amount received
by the option holder from such disposition, over (ii) the exercise price.
Currently, the maximum federal income tax rate imposed on net capital gain with
respect to individuals is 28 percent, while the maximum federal ordinary income
tax rate with respect to individuals is 39.6 percent. Net capital gain means
the excess of net long-term capital gain over net short-term capital loss, if
any. The Company will not be entitled to take an income tax deduction upon the
grant or exercise of an incentive stock option, but may be entitled to a
business deduction with respect to income recognized by an option holder upon a
disqualifying disposition.
There are no federal income tax consequences to an
optionee by reason of the grant of a non-statutory stock option under the Plan.
Taxable ordinary income (in the case of an employee, subject to wage
withholding) in an amount by which the fair market value of the shares on the
date of exercise exceeds the exercise price will normally be recognized by an
optionee upon the exercise of a non-statutory stock option. The Company will
be entitled to a business deduction in the amount of the ordinary income
recognized by the optionee, provided the Company files the appropriate tax
returns. Upon disposition of such shares the optionee will generally recognize
a capital gain or loss in an amount equal to the difference between the selling
price and the sum of the amount paid for such shares plus any amount recognized
as ordinary income upon exercise of the option. The Company will not realize
any tax consequences as a result of the disposition of shares acquired upon
exercise of a non-statutory stock option.
The foregoing description of the Federal income tax
consequences of options granted under the Plan is for general informational
purposes only, and does not address the consequences that may arise under
special situations (such as when the employee utilizes the net issuance method
to exercise a stock option or transfers Common Stock to the Company in exercise
of a stock option).
9
<PAGE> 12
The following table sets forth the number of options
awarded under the Plan to the Company's current executive officers individually
and as a group, current Outside Directors as a group, and all employees of the
Company (excluding executive officers) as a group for fiscal year 1995.
<TABLE>
<CAPTION>
SHARES SUBJECT
INDIVIDUAL OR GROUP TO OPTIONS
------------------- ----------
<S> <C>
James P. Reilly, Jr. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,000
Chairman and Chief Executive Officer
Richard A Deak. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,000
Vice President, General Counsel and Secretary
Mary E. Paetzold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,000
Vice President, Chief Financial Officer and Treasurer
Leigh English . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,000
Vice President, Research
All current executive officers as a group (4 persons) . . . . . . . . . . . . . . . . . . 150,000
All current Outside Directors as a group (6 persons) . . . . . . . . . . . . . . . . . . 1,200
All employees as a group (excluding executive
officers) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,360
</TABLE>
The following table represents the aggregate number of
shares issuable during a fiscal year pursuant to Annual Grants if Proposal II
is approved by the Company's stockholders.
NEW PLAN BENEFITS TABLE
1987 STOCK OPTION PLAN
<TABLE>
<CAPTION>
SHARES SUBJECT
INDIVIDUAL OR GROUP TO OPTIONS
- ------------------- --------------
<S> <C>
All current Outside Directors as . . . . . . . . . . . . . . . . . 12,000
a group (6 persons)
</TABLE>
10
<PAGE> 13
PROPOSAL III
RATIFICATION OF APPOINTMENT OF AUDITORS
Subject to stockholder ratification, the Board of
Directors has appointed the firm of KPMG Peat Marwick LLP as independent
auditors to audit the Company's books and accounts for the fiscal year 1996.
If the stockholders do not ratify this appointment, the appointment will be
reconsidered by the Board of Directors.
KPMG Peat Marwick LLP has audited the Company's books and
accounts since August 1987. Audit services provided by KPMG Peat Marwick LLP
for the fiscal year ended October 31, 1995, included: examination of the
Company's consolidated financial statements, limited reviews of interim
reports, review of the Company's filings with the Securities and Exchange
Commission and consultations on matters related to accounting, taxation and
financial reporting. A representative of KPMG Peat Marwick LLP is expected to
be present at the Annual Meeting, at which this representative may make a
statement and will be available to respond to appropriate questions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE FOR SUCH RATIFICATION.
OTHER BUSINESS
The Board of Directors does not intend to present to the
meeting any business other than the matters described in this proxy statement.
If any other matter is presented to the meeting which under applicable proxy
regulations need not be included in this proxy statement or which the Board of
Directors did not know would be presented within a reasonable time before this
solicitation, the persons named in the accompanying proxy will have
discretionary authority to vote proxies with respect to such matter in
accordance with their best judgment.
11
<PAGE> 14
COMPENSATION COMMITTEE REPORT
Dear Stockholders:
Responsibility for determining compensation of the
Company's executive officers for services rendered during fiscal 1995 rested
with the Compensation Committee of the Company's Board of Directors. Those
recommendations were then considered and approved by the Board.
In determining the compensation of the Company's executive
officers, the Compensation Committee has adopted the philosophy that aligning
compensation with each executive officer's contribution to Company-wide
performance objectives and encouraging stock ownership result in optimal
performance by its executive officers which, in turn, should positively affect
the Company's future performance. The major components of the Company's
executive officers' compensation are salary, cash or other bonuses and stock
options. Salaries of the Company's executive officers tend to be set at the
midpoint of industry peers, and stock option grants and cash bonuses are
employed to enhance the competitiveness of compensation packages within the
industry, to reward outstanding performance and to provide incentive for
reaching further performance goals.
The challenge in determining executive compensation with a
company like Ecogen, which has only recently become a fully integrated product
development, manufacturing and commercialization enterprise, is that there are
few objective and meaningful criteria by which to measure the Company's
performance. Consequently, the Compensation Committee has followed a more
subjective path in determining executive compensation. While mindful of
criteria like the Company's financial results, the Committee has placed great
emphasis on the success achieved by the Company, and each executive's
contribution to such success, in moving toward its long-term strategic
objective of becoming a leading developer and supplier of biological pesticide
products. This is measured by such things as (1) progress in research and
development programs, (2) improvements in product manufacturing processes, (3)
diversification and expansion of product lines, (4) product sales levels, (5)
management of Company expense levels and cash requirements, (6) success in
raising the capital needed by the Company's business, and (7) progress toward
profitability. However, the relative importance (and in some cases, the
absolute importance) of any single factor will likely change over time as the
Company reacts to the many challenges of a growing enterprise. The
Compensation Committee determined that the fiscal 1995 performance measurements
should be viewed as a whole with no particular emphasis on any single
measurement.
It is our hope that you, the stockholders, will come to
view our decisions on executive compensation during this phase of the Company's
growth as indicators of how your directors view both the individual
contributions of each of the Company's executives and where the Company stands
along its strategic path.
With respect to the compensation of Mr. Reilly, the
Company's Chairman and Chief Executive Officer during fiscal 1995, Mr. Reilly
was paid at the annual salary rate set forth in his Employment Agreement with
the Company that was in effect at the beginning of fiscal 1995. Pursuant to
his Employment Agreement, Mr. Reilly was paid an aggregate of $225,000 during
fiscal 1995. Mr. Reilly's performance during fiscal 1995 resulted in a cash
bonus of $60,000 and a grant of options under the Plan to purchase up to 60,000
shares of the Company's Common Stock, at an exercise price of $7.185 per share
(representing the fair market value of the Common Stock on the date of grant,
as determined under the Plan).
12
<PAGE> 15
In arriving at the total fiscal 1995 bonus recommendation
and stock option grant for Mr. Reilly, the Committee attempted to measure the
value to the Company of Mr. Reilly's contribution to the progress made by the
Company during fiscal 1995 toward the achievement of its principal strategic
objectives as measured by the factors listed above. The Committee concluded
that the Company made significant progress during fiscal 1995 toward
achievement of its objectives. The Company's progress included the successful
termination of the Company's relationship with 3A S.r.l.; the acquisition of
approximately 71% of the outstanding stock of Ecogen Technologies I
Incorporated ("ETech"), a corporation that was organized by, but as of the end
of fiscal 1994 was not affiliated with, the Company; a substantial improvement
in product gross margin due, among other things, to improvements in the
Company's manufacturing processes; and the successful conclusion of private
placement financing transactions.
With respect to executive officers' compensation generally
during fiscal 1995, the Compensation Committee primarily focused on the
compensation of management-level employees at both comparable companies and at
divisions of larger companies engaged in the same industry as the Company, and
also considered the contribution made by each individual officer to the
achievement of the Company-wide objectives outlined above.
The Company has considered the effect of Internal Revenue
Code Section 162(m) and proposed regulations thereunder concerning the
non-deductibility of certain executive compensation payments in excess of $1
million and has determined that the Company need not adopt a policy with
respect thereto because the level of compensation of any executive officer does
not approach and is unlikely to reach $1 million.
Lowell N. Lewis, Chairman Jack D. Early
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
Dr. Lowell N. Lewis and Dr. Jack D. Early served as
members of the Company's Compensation Committee throughout fiscal 1995. Until
December 31, 1995, Dr. Early was a director of ETech. Subsequent to October
31, 1994, the Company acquired approximately 71% of the outstanding stock of
ETech. See "Certain Transactions."
13
<PAGE> 16
EXECUTIVE COMPENSATION
COMPENSATION
The following tables set forth the compensation earned by
the Chief Executive Officer and the four other named executive officers of the
Company for services Company during the fiscal year ended October 31, 1995:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation*
(Awards/ All other
Annual Compensation Payouts) Compensation($)
------------------- -------------- ---------------
Name and Principal Salary Bonus Options
Position Year** ($) ($) (#)
------------------ ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
James P. Reilly, Jr., 1995 $225,000 $ 60,000 60,000 $ 5,250 2/
Chairman and Chief 1994 187,500 120,000 1/ 20,000 3,750 2/
Executive Officer 1993 185,000 25,000 80,000 60,834 3/
John E. Davies, Chairman4/ 1995 $273,333 $ -0- -0- $35,152 4/
1994 220,800 -0- -0- 3,842 2/
1993 225,000 25,000 11,000 4,497 2/
Bruce C. Carlton, Executive 1995 $145,000 $ -0- -0- $ 3,850 2/
Vice President, Research 1994 158,333 -0- 10,000 4,620 2/
and Development5/ 1993 170,000 -0- 4,000 4,497 2/
Richard A. Deak, Vice 1995 $163,167 $ -0- 30,000 $ 4,130 2/
President, General Counsel 1994 128,333 -0- 10,000 3,850 2/
and Secretary 1993 133,722 15,000 6/ 11,000 6/ 3,870 2/
Mary E. Paetzold, Vice 1995 $162,500 $ -0- 30,000 53,850 8/
President, Chief Financial 1994 37,500 -0- 30,000 7/ -0-
Officer and Treasurer
</TABLE>
14
<PAGE> 17
- ----------------------------------
*/ The Company did not make long-term compensation plan awards of stock
appreciation rights or restricted stock to the five named executive officers in
fiscal 1995, 1994 or 1993 or make any long-term plan payout during such
periods.
**/ The year 1995 represents the twelve month period ended October 31,
1995. The year 1994 represents the ten month period ended October 31, 1994.
The year 1993 represents the twelve month period ended December 31, 1993.
1/ Mr. Reilly was paid $120,000 in connection with Mr. Reilly's redemption
of 40,000 Phantom Units which had been issued to Mr. Reilly under the Company's
Phantom Stock Award Agreement with Mr. Reilly.
2/ Reflects the Company's contribution on behalf of such executive officer
to the Company's 401(k) Profit Sharing Plan.
3/ "All Other Compensation" was comprised of $56,542, reflecting the
forgiveness of the non-interest bearing promissory note negotiated when Mr.
Reilly joined the Company and $4,292, reflecting the Company's contribution on
Mr. Reilly's behalf to the Company's 401(k) Profit Sharing Plan.
4/ Mr. Davies' employment with the Company terminated on December 31,
1995. "All Other Compensation" was comprised of $30,000, reflecting the
forgiveness of a loan made by the Company to Mr. Davies, and $5,152, reflecting
the Company's contribution on Mr. Davies' behalf to the Company's 401(k) Profit
Sharing Plan.
5/ Dr. Carlton's employment with the Company terminated on December 31,
1995.
6/ Mr. Deak was granted options to purchase 8,000 shares of Common Stock,
included in the column entitled "Options" and was awarded a bonus of $15,000,
upon his joining the Company. The remaining options were part of the annual
option grants that were granted to employees generally. Mr. Deak began his
employment with the Company in January 1993.
7/ Ms. Paetzold was granted options to purchase 20,000 shares of Common
Stock upon her joining the Company. The remaining options were part of the
annual option grants that were granted to employees generally. Ms. Paetzold
began her employment with the Company in August 1994.
8/ "All Other Compensation" was comprised of $3,850, reflecting the
Company's contribution on Ms. Paetzold's behalf to the Company's 401(k) Profit
Sharing Plan, and $50,000, reflecting a relocation allowance to which Ms.
Paetzold was entitled upon her joining the Company.
15
<PAGE> 18
The Company does not have a defined benefit or actuarial
pension plan. The Company does not have a long-term incentive plan nor did it
make any long-term incentive awards in fiscal 1995.
OPTION GRANTS TABLE
Option Grants for Last Fiscal Year
<TABLE>
<CAPTION>
% of Total Potential Realizable Value at
Options Granted Exercise Assumed Annual Rates of Stock
Options to Employees Price Expiration Price Appreciation for
Name Granted(1) for Fiscal Year (/sh) Date Option Term(2)
---- -------- ---------------- ---------- ----------- --------------------------------
5%($) 10%($)
----- ------
<S> <C> <C> <C> <C> <C> <C>
J.P. Reilly, Jr. 60,000 30% $7.185 1/10/06 $271,140 $687,060
J.E. Davies -0- N/A N/A N/A N/A N/A
B.C. Carlton -0- N/A N/A N/A N/A N/A
R.A. Deak 30,000 15% 7.185 1/10/06 135,570 343,530
M.E. Paetzold 30,000 15% 7.185 1/10/06 135,570 343,530
</TABLE>
- ----------------------------------
(1) Exercisable ratably over a three-year period beginning on the first
anniversary of the date of grant.
(2) Option terms are generally ten years. The dollar amounts under these
columns are the result of calculation at the 5% and 10% rates set by the
Securities and Exchange Commission and are not intended to forecast possible
future appreciation, if any, of the Company's stock price.
16
<PAGE> 19
OPTION EXERCISE AND YEAR-END VALUE TABLE
Aggregated Option Exercises in Last Fiscal Year
and Full Year-End Option Value
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Options at Fiscal In-the-Money Options
Year-End (#) at Fiscal Year End($)(1)
------------------------- ------------------------
Shares Acquired Value
Name on Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- ---------------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
J.P. Reilly, Jr. None N/A 62,334 70,666 $-0- $-0-
J.E. Davies None N/A 60,083 34,166 -0- -0-
B.C. Carlton None N/A 25,167 5,333 -0- -0-
R.A. Deak None N/A 13,086 37,914 -0- -0-
M.E. Paetzold None N/A 15,000 45,000 -0- -0-
</TABLE>
- -------------------------------
(1) The dollar values have been calculated by determining the difference
between the fair market value of the securities underlying the options at
fiscal year end and the exercise prices of the option. For purpose of
determining the fair market value of the in-the-money options at October 31,
1995, the fair market value of the Company's Common Stock was $5.94.
REPORT OF COMPENSATION COMMITTEE
ON REPRICING OF OPTIONS
The Company's Stock Option Plan (the "Plan") is intended
to encourage Company employees, through their individual efforts, to improve
the Company's overall performance and to promote profitability by providing
them an opportunity to participate in the increased values they help create.
In May 1995, the Compensation Committee determined, based on the recommendation
of management, that the imbalance between the exercise prices under many of the
stock options then outstanding (equal to the respective market prices for the
Common Stock at the times they were granted) and the lower market prices which
prevailed for the Common Stock at that time was not an incentive for the
employees holding such options from exerting their best efforts to achieve the
Company's long-term goals. To restore that incentive, the Committee extended
to each employee stock option holder, other than Outside Directors, holding
stock options with an exercise price of $30.00 or more, the opportunity, at his
or her election, to receive a repriced option under the Plan, exercisable at
the $10.94 market price on the date the Committee approved the repricing
provided that such employee remained employed with the Company through November
12, 1995. Except as modified as described above, each new option continues to
be governed by the same terms as applied to the surrendered option (including
the schedule pursuant to which such option becomes exercisable).
17
<PAGE> 20
Pursuant to the above program, employees holding options
for an aggregate of 290,079 Shares, exercisable under the terms of the original
grants at prices ranging from $32.30 to $65.88 per Share, were exchanged for
new options at the new exercise price of $10.94. The participation by
executive officers in the program is shown in the table entitled "Ten-Year
Option Repricings" below.
Lowell N. Lewis, Chairman Jack D. Early
TEN-YEAR OPTION REPRICINGS
The following table provides information with respect to
the participation in the Company's repricings of employee stock options during
the last ten completed fiscal years by then executive officers of the Company.
<TABLE>
<CAPTION>
Number of
Securities Years of Original
Underlying Market Price of Exercise Price Option Term
Name and Options Repriced Stock at Time of at Time of New Remaining at Date
Principal or Amended Repricing or Repricing or Exercise of Repricing or
Position Date (Shares) Amendment ($) Amendment ($) Price ($) Amendment
- --------- ---- -------- ------------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
J.P. Reilly, Jr. 5/12/95 40,000 $10.94 $47.56 $10.94 6
Chairman and CEO 5/12/95 5,000 10.94 35.20 10.94 7
5/12/95 8,000 10.94 33.40 10.94 8
J.E. Davies* 10/25/89 12,000 21.88 31.25 21.88 8
Chairman 7/2/90 12,000 12.56 21.87 12.56 7
5/12/95 5,000 10.94 65.87 10.94 6
5/12/95 10,000 10.94 35.22 10.94 7
5/12/95 11,000 10.94 33.40 10.94 8
B.C. Carlton* 5/12/95 4,000 10.94 65.88 10.94 6
V.P., Research and 5/12/95 5,000 10.94 35.20 10.94 7
Development 5/12/95 4,000 10.94 33.40 10.94 8
R.A. Deak 5/12/95 8,000 10.94 39.30 10.94 7
V.P. and General 5/12/95 3,000 10.94 33.40 10.94 8
Counsel
M.E. Paetzold 5/12/95 20,000 10.94 34.65 10.94 8
V.P. and CFO
J. Leslie* 10/25/89 18,000 21.88 38.81 21.88 9
President 7/2/90 18,000 12.56 21.87 12.56 8
</TABLE>
- -------------------------------
* Not currently an executive officer of the Company.
18
<PAGE> 21
PERFORMANCE GRAPH
The following is a line graph comparison of the Company's yearly percentage
change in cumulative total shareholder return with that of the NASDAQ Composite
Index and the Zacks Agricultural Operations Index for the period beginning with
December 31, 1990 and ending October 31, 1995.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG ECOGEN INC., NASDAQ COMPOSITE INDEX,
PIPER JAFFRAY AGRI-BIOTECHNOLOGY COMPANIES INDEX,
AND ZACKS AGRICULTURAL OPERATIONS INDEX
<TABLE>
<CAPTION>
PIPER JAF-
MEASUREMENT PERIOD ECOGEN FRAY AGRI- BI- NASDAQ COMPOS
(FISCAL YEAR COVERED) INC.($) OTECH($) ZACKS INDEX ITE
<S> <C> <C> <C> <C>
1990 100 100 100 100
1991 777 173 180 169
1992 477 142 209 191
1993 431 148 280 245
194 238 84 266 247
1995 73 82 387 333
</TABLE>
- ---------------
* Included in the Zacks Index are AG Services of America Inc., Chai Na Ta
Corporation, DeKalb Genetics Corp., Delta & Pine Land Co., DNA Plant
Technology, Corp., Embrex, Inc., Mycogen Corp., Neogen Corp., Northland
Cranberries Inc., Pioneer Hi Bred International and U.S. Home & Garden Inc.
Due to the unavailability of the Piper Jaffray Agri-Biotechnology Companies
Index, the Zacks Agricultural Operations Index will replace the Piper Jaffray
Index in future filings.
** All values through December 31 for 1990-1993 and as of October 31 thereafter.
19
<PAGE> 22
EMPLOYMENT AGREEMENTS
As of January l, 1994, Mr. Davies entered into an
employment and consulting agreement with the Company. During the employment
term of the agreement, which ended on December 31, 1995, Mr. Davies received an
annual salary of $265,000 in consideration for his services as Chairman of the
Board and Director of the Company. Mr. Davies is providing the Company with
consulting services from January 1, 1996 through December 31, 1998 for which he
is compensated at an annual rate of $165,000. See Certain Transactions.
As of February 22, 1995, Dr. Carlton entered into an
employment and consulting agreement with the Company. The employment term of
the agreement ended on December 31, 1995. During 1995, Dr. Carlton received a
salary of $145,000 as consideration for his services as Executive Vice
President, Research and Development and as a Director of the Company. Pursuant
to the terms of the agreement, as of January 1, 1996 and terminating on June
30, 1997, Dr. Carlton is serving as a consultant to the Company and as Chairman
of the Company's Scientific Advisory Board. Dr. Carlton will receive an annual
consulting fee of up to $100,000 during the first year of the consulting term
and a fee of $30,000 during the remaining six months of the consulting term.
The Company has entered into severance compensation
agreements with each of James P. Reilly, Jr., Chairman and Chief Executive
Officer of the Company, Richard A. Deak, Vice President, General Counsel and
Secretary of the Company, Dr. Leigh English, Vice President, Research and Mary
E. Paetzold, Vice President, Chief Financial Officer and Treasurer of the
Company (each an "executive"). Under each agreement, if the executive's
employment is terminated (as defined in the agreement) under certain
circumstances the Company is obligated to continue to pay to the executive the
executive's salary and benefits for a period of eighteen months.
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of February
15, 1996, with respect to the beneficial ownership of the Company's Common
Stock by all persons known by the Company to be the beneficial owners of more
than 5% of its outstanding Common Stock, by each director and nominee for
director, by each named executive officer, and by all current executive
officers and directors as a group. Except as indicated in the footnotes to the
table, the persons named in the table have sole voting and investment power
with respect to all shares of Common Stock beneficially owned by them.
20
<PAGE> 23
<TABLE>
<CAPTION>
Number Percentage
Name and Address (1) of Shares of Class
---------------- --------- ------------
<S> <C> <C>
Monsanto Company 943,397 13.5%
800 North Lindbergh Boulevard
St. Louis, MO 63167
James P. Reilly, Jr. (2) 64,000 *
Richard A. Deak (3) 16,000 *
Leigh H. English (4) 5,580 *
Mary E. Paetzold (5) 15,000 *
Patrick Owen Burns (6) 3,200 *
Bruce C. Carlton (7) 38,711 *
John E. Davies (8) 108,898 1.5%
Jack D. Early (9) 2,208 *
Esteban A. Ferrer (10) - 0 - - 0 -
Lowell N. Lewis (11) 3,200 *
John R. Sutley - 0 - - 0 -
All current executive officers and 256,797 3.6%
directors as a group (ten persons) (2)
(3) (4) (5) (6) (8) (9) (10) and (11)
</TABLE>
- -------------------------------
* Indicates amount is less than 1%.
(1) The addresses of all officers, directors and nominees for director of
the Company listed above are in care of the Company. The Company's
corporate headquarters are located at 2005 Cabot Boulevard West,
Langhorne, Pennsylvania 19047. For purposes of calculating the
beneficial ownership of the officers and directors of the Company,
the Company relied upon the questionnaires completed by each officer
and director in February 1996.
(2) Includes 61,000 shares which Mr. Reilly has the right to acquire upon
exercise of stock options under the Plan which are exercisable on or
within 60 days following February 15, 1996. Does not include 70,000
shares which Mr. Reilly has the right to acquire upon exercise of
stock options under the Plan which are not presently exercisable and
not exercisable within 60 days following February 15, 1996.
(3) Includes 16,000 shares which Mr. Deak has the right to acquire upon
exercise of stock options under the Plan which are exercisable on or
within 60 days following February 15, 1996. Does not include 35,000
shares which Mr. Deak has the right to acquire upon exercise of stock
options
21
<PAGE> 24
under the Plan which are not presently exercisable and not
exercisable within 60 days following February 15, 1996.
(4) Includes 4,960 shares which Dr. English has the right to acquire upon
exercise of stock options under the Plan which are exercisable on or
within 60 days following February 15, 1996. Does not include 31,300
shares which Dr. English has the right to acquire upon exercise of
stock options under the Plan which are not presently exercisable and
not exercisable within 60 days following February 15, 1996.
(5) Includes 15,000 shares which Ms. Paetzold has the right to acquire
upon exercise of stock options under the Plan which are exercisable
on or within 60 days following February 15, 1996. Does not include
45,000 shares which Ms. Paetzold has the right to acquire upon
exercise of stock options under the Plan which are not presently
exercisable and not exercisable within 60 days following February 15,
1996.
(6) Includes 3,200 shares which Mr. Burns has the right to acquire upon
the exercise of stock options under the Plan which are exercisable on
or within 60 days following February 15, 1996. Does not include 600
shares which Mr. Burns has the right to acquire upon exercise of
stock options under the Plan which are not presently exercisable and
not exercisable within 60 days following February 15, 1996.
(7) Includes 3,150 shares held by Dr. Carlton's wife. Dr. Carlton
disclaims beneficial ownership of these shares. Includes 25,500
shares which Dr. Carlton ha the right to acquire upon exercise of
stock options under the Plan which are exercisable on or within 60
days following February 15, 1996.
(8) Includes 34,089 shares held by Mr. Davies' wife. Mr. Davies
disclaims beneficial ownership of these shares. Includes 61,000
shares which Mr. Davies has the right to acquire upon exercise of
stock options under the Plan which are exercisable on or within 60
days following February 15, 1996. Does not include 400 shares which
Mr. Davies has the right to acquire upon exercise of stock options
under the Plan which are not yet exercisable and not exercisable
within 60 days following February 15, 1996.
(9) Includes 2,208 shares which Dr. Early has the right to acquire upon
the exercise of stock options under the Plan which are exercisable on
or within 60 days following February 15, 1996. Does not include 600
shares which Dr. Early has the right to acquire upon exercise of
stock options under the Plan which are not presently exercisable and
not exercisable within 60 days following February 15, 1996.
(10) Does not include 1,800 shares which Mr. Ferrer has the right to
acquire upon exercise of stock options under the Plan which are not
presently exercisable and not exercisable within 60 days following
February 15, 1996.
(11) Includes 3,200 shares which Dr. Lewis has the right to acquire upon
exercise of stock options under the Plan. Does not include 600
shares which Dr. Lewis has the right to acquire upon exercise of
stock options under the Plan which are not presently exercisable and
not exercisable within 60 days following February 15, 1996.
22
<PAGE> 25
(12) Gives full effect to stock options and warrants, which are presently
exercisable, held by executive officers and directors.
23
<PAGE> 26
CERTAIN TRANSACTIONS
On January 24, 1996, the Company closed a transaction with
Monsanto Company ("Monsanto") forming a strategic alliance for development of
the Company's proprietary BT technology. Under the terms of the agreement,
Monsanto purchased 943,397 shares of Common Stock for $10.60 per share for an
aggregate purchase price of $10 million. Monsanto is required to maintain its
ownership position in Ecogen stock during the term of the four year Research
and Development Agreement (described below) between Ecogen and Monsanto and
Monsanto is prohibited, for three years after closing, from acquiring more than
a 25% aggregate equity interest in the Company. These restrictions, however,
terminate upon the occurrence of certain defined events relating to a change of
control of the Company. Monsanto has certain registration rights with respect
to the shares of Company Common Stock. In addition, Monsanto has a right of
first refusal to purchase securities from the Company in order to maintain its
percentage ownership interest in the Company.
Monsanto also acquired for $5 million certain rights to
Ecogen's existing Bt strain library and insecticidal crystal protein gene
library, and the intellectual property rights associated with such libraries
including certain patents and patent applications (the "Bt Technology").
Ecogen maintains rights to the Bt Technology for applications other than
in-plant uses. Monsanto did not acquire any rights to Ecogen's fermentation
and formulation technology, Ecogen's insectary technology or Ecogen's
technology related to the movement of Bt genes from Bt and back into Bt without
foreign DNA.
Monsanto and Ecogen also entered into a Research and
Development Agreement to perform research and development focusing on Bt
technology (the "R & D Program"). Under the R & D Program, Monsanto will
provide Ecogen with a minimum of $10 million over four years, of which $3
million has been received to date. The results of the R & D Program will be
owned by Monsanto and licensed to Ecogen for use outside of in-plant
applications. Under the terms of the agreement with Monsanto, Ecogen will also
share in the commercialization success of transgenic plants incorporating the
Bt Technology. Monsanto shall pay a commercialization success fee based on
sales revenue and license fees received by Monsanto from products which
incorporate the Bt Technology or the results from the R & D Program.
As of January 1, 1996, Mr. Davies began providing the
Company with consulting services pursuant to the terms of an employment and
consulting agreement between the Company and Mr. Davies dated January 1, 1994.
During the consultancy term, which terminates on December 31, 1998, Mr. Davies
will receive an annual consulting fee of $165,000 for providing advice and
assistance to the Company in connection with the selection and recruitment of
key management personnel, the development and implementation of the Company's
strategic plans and objectives, and the identification and pursuance of working
capital financing alternatives. Upon termination of Mr. Davies' consultancy
for any reason other than cause or upon his termination as a director (as those
terms are defined in the agreement), the voluntary resignation by Mr. Davies,
or Mr. Davies' death or disability, the Company is obligated to continue to pay
Mr. Davies' consulting fee for the balance of the term of the agreement, and to
continue Mr. Davies' health insurance and related medical benefits.
Mr. Burns is a Vice President of R&D Funding Corp., a
general partner of PruTech Research and Development Partnership II ("PruTech").
In December 1985, the Company and PruTech entered into a research and
development agreement, technology licensing agreements and other related
agreements. These agreements were amended in 1990 to provide terms more
favorable to the
24
<PAGE> 27
Company. In consideration for such amendments, the Company issued to PruTech a
warrant to purchase up to 52,000 shares of Common Stock for a purchase price of
$17.50 per share, representing a premium above the fair market value of shares
of Common Stock at that time. In 1991, PruTech partially exercised the
warrant, leaving a balance of 2,640 shares of Common Stock remaining to be
purchased. The warrant expired on September 28, 1995. In 1991, the Company
exercised its option to acquire from PruTech an exclusive license to exploit
certain technology covered by the aforementioned agreements. The Company paid
PruTech for the exclusive license through the issuance to PruTech of 9,892
shares of Common Stock. The Company is obligated to pay PruTech royalties
based on the exploitation of products resulting from this technology and
through fiscal 1995, the Company has paid approximately $60,000 in royalties to
PruTech. In addition, so long as PruTech owns at least 60,000 shares of Common
Stock and has yet to receive earned royalties from the Company aggregating at
least $3 million, the Company will be required to exercise its best efforts to
include a designee of PruTech in the slate of nominees submitted by management
of the Company for election as director at each annual meeting of the Company's
stockholders. PruTech has not exercised this right in connection with the 1996
Annual Meeting.
In 1992, as part of the initial funding of ETech, the
Company licensed or sublicensed certain of its technologies to subsidiaries of
ETech for the purpose of enabling the ETech subsidiaries to initiate or
accelerate research and development of such technologies. In addition, the
Company and the ETech subsidiaries entered into research and development
agreements pursuant to which the Company performs research and development on
behalf of such ETech subsidiaries using the technologies licensed to the ETech
subsidiaries. Each subsidiary is obligated to pay the Company an amount equal
to all of the development costs associated with its respective product and a
management fee equal to 3.89% of such costs. In addition, the Company entered
into a services agreement with ETech and its subsidiaries pursuant to which the
Company provides certain financial, legal and administrative services to ETech
and its subsidiaries on a cost reimbursement basis and is paid a management fee
equal to 5.75% of the costs of such services. In connection with the research
and development agreements, the Company earned contract revenue of
approximately $6,800,000 from ETech during fiscal 1994. Mr. Davies is Chief
Executive Officer and a director, Mr. Reilly is President, Chief Operating
Officer and Chairman of the Board, Mr. Deak is Vice President and General
Counsel, and Ms. Paetzold is Vice President, Chief Financial Officer and
Treasurer of ETech. In addition, until December 31, 1995, Dr. Early was a
director of ETech. The executive officers do not receive additional
compensation in connection with their services to ETech. In January 1995, the
Company acquired approximately 71% of the outstanding stock of ETech under the
terms of an exchange offer pursuant to which the Company issued 822,240 shares
of its Common Stock in exchange for common stock of ETech.
The Company has hired KDS Marketing, Inc. ("KDS") as the
Company's advertising agency. Mr. Davies' son, Kevin Davies, is a principal of
KDS. Prior to forming KDS, Kevin Davies was employed by a firm that previously
provided advertising service to the Company. The terms of the business
relationship between the Company and KDS were negotiated, and the business
relationship is, conducted on an arm's length basis. In fiscal 1995, KDS
provided services to the Company and received compensation in the amount of
approximately $932,000 for advertising, corporate and product identification,
product promotion and stockholder report preparation.
Esteban A. Ferrer, a director of the Company since January
11, 1996, is a partner in the law firm of Paul, Hastings, Janofsky & Walker
("PHJ&W"), which has represented the Company
25
<PAGE> 28
with respect to various legal matters since 1990. During fiscal 1995, the
Company paid $668,235 to PHJ&W for fees and costs in connection with legal
services provided by PHJ&W to the Company.
The Company believes that all of the foregoing
transactions were at the time entered into at terms comparable to those which
could have been obtained from a third party in an arms' length transaction and
furthermore have greatly contributed to the Company's product development and
commercialization successes to date and have greatly assisted the Company in
strategically positioning itself to meet the future challenges of its business.
STOCKHOLDER INFORMATION
Holders of Common Stock and Convertible Preferred Stock of
record on March 21, 1996, will receive a copy of the Company's Annual Report to
Stockholders for the fiscal year ended October 31, 1995. The Annual Report to
Stockholder is not soliciting material and is not incorporated in this proxy
statement by reference.
ANY PERSON FROM WHOM PROXIES FOR THE MEETING ARE SOLICITED
MAY OBTAIN FROM THE COMPANY, WITHOUT CHARGE, A COPY OF THE COMPANY'S ANNUAL
REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED OCTOBER 31, 1995, BY WRITTEN
REQUEST ADDRESSED TO ECOGEN INC., 2005 CABOT BOULEVARD WEST, LANGHORNE,
PENNSYLVANIA, ATTENTION: INVESTOR RELATIONS DEPARTMENT.
FUTURE STOCKHOLDER PROPOSALS
Based upon the Company's current tentative schedule for
the 1997 Annual Meeting of Stockholders, the Company must receive at its
principal office before October 1, 1996, any proposal which a stockholder
wishes to submit to the 1997 Annual Meeting of Stockholders, if the proposal is
to be considered by the Board of Directors for inclusion in the proxy materials
for that meeting.
James P. Reilly, Jr.
Chairman and Chief Executive Officer
March 25, 1996
26
<PAGE> 29
APPENDIX
ECOGEN INC.
STOCK OPTION PLAN, AS AMENDED
<PAGE> 30
ECOGEN INC.
STOCK OPTION PLAN
October, 1987
AS AMENDED
1. Purpose.
The purpose of this plan (the "Plan") is to secure for ECOGEN
INC. (the "Company") and its stockholders the benefits arising from capital
stock ownership by directors and key employees of the Company and its parent
and subsidiary corporations, if any, who are expected to contribute to the
Company's future growth and success.
2. Types of Options and Administration.
(a) Types of Options. Options granted pursuant to the Plan
shall be authorized by action of the Board of Directors of the Company (or one
or more Committees designated by the Board of Directors) and may be either
incentive stock options ("Incentive Stock Options") meeting the requirements of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") or
non-statutory options which are not intended to meet the requirements of Code
Section 422.
(b) Administration. The Plan will be administered by the
Board of Directors of the Company, whose construction and interpretation of the
terms and provisions of the Plan shall be final and conclusive. Except as
provided in subsection 2(c) below, the Board of Directors may in its sole
discretion grant options to purchase shares of the Company's Common Stock and
issue shares upon exercise of such options as provided in the Plan. The Board
of Directors shall have authority, subject to the express provisions of the
Plan, to construe the respective option agreements and the Plan, to prescribe,
amend and rescind rules and regulations relating to the Plan, to determine the
terms and provisions of the respective option agreements, which need not be
identical, to advance the lapse of any waiting or installment periods and
exercise dates, and to make all other determinations in the judgment of the
Board of Directors necessary or desirable for the administration of the Plan.
The Board of Directors may correct any defect or supply any omission or
reconcile any inconsistency in the Plan or in any option agreement in the
manner and to the extent it shall deem expedient to carry the Plan into effect
and it shall be the sole and final judge of such expediency. The foregoing to
the contrary notwithstanding, the Board of
<PAGE> 31
Directors shall have no discretion with respect to the selection of
non-employee directors to receive options under the Plan, the number of shares
subject to any such options, the purchase price therefor or the periods during
which such options may be exercised, all such matters being determined pursuant
to Section 12 below. No director shall be liable for any action or
determination taken or made under or with respect to the Plan or any option in
good faith. The Board of Directors may, to the full extent permitted by law,
delegate any or all of its powers under the Plan to one or more committees
(each herein referred to as a "Committee") appointed by the Board of Directors,
and if one or more Committees are so appointed all references to the Board of
Directors in the Plan as may pertain to the powers so delegated shall mean and
relate to the relevant Committee.
(c) Grant of Options to Directors. The terms and conditions
of options granted to directors of the Company who are also employees of the
Company, or of any Parent Corporation or Subsidiary (as defined in Section 19
hereof), may be determined only by a Committee designated by the Board of
Directors and consisting entirely of persons (including directors) who are not
employees of the Company or of any Parent Corporation or Subsidiary. Directors
of the Company who are not employees of the Company or of any Parent
Corporation or Subsidiary ("Outside Directors") shall receive options only in
accordance with the provisions of Section 12 below.
3. Eligibility.
Options shall be granted only to persons who are, at the time
of grant, officers, employees or directors (which term, for purposes of this
Plan, shall include persons having similar authority and responsibility by
whatsoever title they may be designated) (provided, in the case of Incentive
Stock Options, such directors or officers are then also employees) of the
Company or of any Parent Corporation or Subsidiary (as defined in Section 19
hereof). No person shall be granted any Incentive Stock Option under the Plan
who, at the time such option is granted, owns, directly or indirectly, Common
Stock of the Company possessing more than 10% of the total combined voting
power of all classes of stock of the Company or of any Parent Corporation or
Subsidiary, unless the requirements of paragraph (b) of Section 11 are
satisfied. A person who has been granted an option may, if he or she is
otherwise eligible, be granted an additional option or options if the Board of
Directors shall so determine.
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<PAGE> 32
4. Stock Subject to Plan.
Subject to adjustment as provided in Sections 15 and 16 below,
the maximum number of shares of Common Stock of the Company which may be issued
and sold under the Plan is 800,000 shares. Such shares may be authorized and
unissued shares or may be shares issued and thereafter acquired by the Company.
If an option granted under the Plan shall expire or terminate for any reason
without having been exercised in full, the unpurchased shares subject to such
option shall again be available for subsequent option grants under the Plan.
Stock issuable upon exercise of an option granted under the Plan may be subject
to such restrictions on transfer, repurchase rights or other restrictions as
shall be determined by the Board of Directors.
5. Forms of Option Agreements.
As a condition to the grant of an option under the Plan, each
recipient of an option shall execute an option agreement, substantially in the
form of Exhibit A to the Plan (in the case of Incentive Stock Options) or
Exhibit B to the Plan (in the case of non-statutory options) or in such other
form not inconsistent with the Plan as shall be specified by the Board of
Directors at the time such option is authorized to be granted.
6. Purchase Price.
The purchase price per share of stock deliverable upon the
exercise of an option shall be determined by the Board of Directors on the date
such option is authorized to be granted, provided, however, that in the case of
an Incentive Stock Option, the exercise price shall not be less than 100% of
the fair market value of such stock at the grant of such option, or less than
110% of such fair market value in the case of options described in paragraph
(b) of Section 11. The "fair market value" of the Company's Common Stock on
any date (the "Value Date") shall mean the closing trading price of the Common
Stock as reported on the National Association of Securities Dealers Automated
Quotation System or, if the Common Stock is listed on a stock exchange, the
principal stock exchange on which the Common Stock is listed, on the trading
day ended immediately prior to the Value Date for which such trading price is
available. If the Common Stock is not reported on the National Association of
Securities Dealers Automated
-3-
<PAGE> 33
Quotation System or listed on any stock exchange, then the "fair market value"
shall be determined in good faith by the Board of Directors. Payment of the
exercise price of an option shall be in cash or, in the sole discretion of the
Board of Directors, in capital stock of the Company, by the surrender of other
options to purchase capital stock of the Company, by purchase money note
bearing interest at a rate and coming due in installments determined by the
Board of Directors at the time the option is granted, or by any other lawful
means.
7. Option Period.
Each option and all rights thereunder shall be expressed to
expire on such date as the Board of Directors shall determine on the date such
option is authorized to be granted, but in no event after the expiration of ten
years from the day on which the option is granted (or five years in the case of
options described in paragraph (b) of Section 11), and shall be subject to
earlier termination as provided in the Plan.
8. Exercise of Options.
Each option granted under the Plan shall be exercisable either
in full or in installments at such time or times and during such period as
shall be set forth in the agreement evidencing such option; provided, however,
that no option granted under the Plan shall have a term in excess of ten years
from the date of grant (or five years in the case of options described in
paragraph (b) of Section 11).
9. Nontransferability of Options.
No option granted under the Plan shall be assignable or
transferable by the person to whom it is granted, either voluntarily or by
operation of law, except by will or the laws of descent and distribution.
During the life of the recipient, the option shall be exercisable only by or on
behalf of such person.
10. Effect of Termination of Employment
or Cessation of Services.
No option may be exercised unless, at the time of such
exercise, the optionee is, and has been continuously since the date of grant of
his or her option, employed by or serving as a non-employee director of one or
more of the Company, a Parent Corporation or a Subsidiary, except that
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<PAGE> 34
if and to the extent the option agreement or instrument so provides:
(a) if the optionee ceases to be employed by or to serve as a
non-employee director of any of the foregoing entities for any reason other
than death or disability, the right to exercise the option shall terminate
three months after such cessation (or at such earlier date as may be specified
in the option agreement or instrument);
(b) if the optionee dies while in the employ of, or serving
as a non-employee director of, any of the foregoing entities or within three
months after the optionee ceases to be such an employee or director, the option
may be exercised by the person to whom it is transferred by will or the laws of
descent and distribution within the period of one year after the date of death
(or within such lesser period as may be specified in the option agreement or
instrument); and
(c) if the optionee becomes disabled (within the meaning of
Section 22(e)(3) of the Code) while in the employ of or while serving as a
non-employee director of any of the foregoing entities, the option may be
exercised within the period of one year after the date the optionee ceases to
be such an employee or director because of such disability (or within such
lesser period as may be specified in the option agreement or instrument);
provided, however, that in no event may any option be exercised after the
expiration date of the option. For all purposes of the Plan and any option
granted hereunder, "employment" shall be defined in accordance with the
provisions of Section 1.421-7(h) of the Income Tax Regulations (or any
successor regulations).
11. Incentive Stock Options.
Options granted under the Plan which are intended to be
Incentive Stock Options shall be specifically designated as Incentive Stock
Options and shall be subject to the following additional terms and conditions:
(a) Dollar Limitation.
(i) The aggregate fair market value (determined as of the
respective date or dates of grant) of the Common Stock with respect to
which Incentive Stock Options granted to any employee under the Plan
(and under any other incentive stock option plans of the Company, and
any Parent Corporation and Subsidiary) are exercisable
-5-
<PAGE> 35
for the first time shall not exceed $100,000 in any one calendar year.
(ii) In the event that Section 422 of the Code is amended
to alter the limitation set forth therein so that following such
amendment such limitation shall differ from the limitation set forth
in this paragraph (a), the limitation of this paragraph (a) shall be
automatically adjusted accordingly.
(b) 10% Stockholder. If any employee to whom an
Incentive Stock Option is to be granted under the Plan is at the time of the
grant of such option the owner of stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or of any Parent
Corporation or any Subsidiary, then the following special provisions shall be
applicable to the Incentive Stock Option granted to such individual:
(i) The purchase price per share of the Common Stock
subject to such Incentive Stock Option shall not be less than 110% of
the fair market value of one share of Common Stock at the time of
grant; and
(ii) The option exercise period shall not exceed five
years from the date of grant.
Except as modified by the preceding provisions of this Section
11, all the provisions of the Plan shall be applicable to Incentive Stock
Options granted hereunder.
12. Automatic Grant of Options to Outside Directors.
(a) Automatic Grant of Options Upon Election. A
non-statutory stock option to purchase a total of 9,000 shares (the "Initial
Option") of the Company's Common Stock shall be granted to each Outside
Director upon his or her first election to the Board of Directors on or after
February 1, 1996.
(b) Annual Automatic Grant of Options. A non-statutory stock
option to purchase a total of 2,000 shares (the "Annual Option") of the
Company's Common Stock shall be granted to each Outside Director on the first
day of each calendar year; provided, that each such Outside Director remains an
Outside Director of the Company on a continuous and uninterrupted basis during
the period in question.
-6-
<PAGE> 36
(c) Terms and Conditions of Options. Each Initial Option
shall become exercisable with respect to 3,000 shares on each of the first
three anniversaries of the date of grant and each Annual Option shall become
exercisable with respect to 1,000 shares on each of the first two anniversaries
of the date of grant. Any option granted to an Outside Director pursuant to
this Section 12 shall be exercisable at a purchase price equal to the fair
market value of such stock, as defined in Section 6 above, on the date of
grant. Each such option shall expire ten years after the date of grant and
shall be subject to earlier termination as provided in Section 10 above.
(d) Plan Applicable. Except as set forth in this Section 12,
all the provisions of the Plan shall be applicable to options granted to
Outside Directors hereunder.
(e) Self-Operative Provision. This Section 12 is intended to
be self-operative to the maximum extent consistent with prudent business
practice. Under no circumstances shall any person exercise discretion with
respect to designating the recipient of an option hereunder, or the date of
grant, vesting or purchase price of an option hereunder.
(f) Amendments to Section 12. This Section 12 shall not be
amended more than once every six months, other than to comport with changes in
the Internal Revenue Code, the Employee Retirement Income Security Act, or the
rules thereunder.
13. General Restrictions.
(a) Investment Representations. The Company may require any
person to whom an option is granted, as a condition of exercising such option,
to give written assurances in substance and form satisfactory to the Company to
the effect that such person is acquiring the Common Stock subject to the option
for his own account for investment and not with any present intention of
selling or otherwise distributing the same, and to such other effects as the
Company deems necessary or appropriate in order to comply with federal and
applicable state securities laws.
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<PAGE> 37
(b) Compliance With Securities Laws. Each option shall be
subject to the requirement that, if at any time counsel to the Company shall
determine that the listing, registration or qualification of the shares subject
to such option upon any securities exchange or under any state or federal law,
or the consent or approval of any governmental or regulatory body, is necessary
as a condition of, or in connection with, the issuance or purchase of shares
thereunder, such option may not be accepted or exercised in whole or in part
unless such listing, registration, qualification, consent or approval shall
have been effected or obtained on conditions acceptable to the Board of
Directors. Nothing herein shall be deemed to require the Company to apply for
or to obtain such listing, registration or qualification.
14. Rights as a Stockholder.
The holder of an option shall have no rights as a stockholder
with respect to any shares covered by the option until the date of issue of a
stock certificate to him or her for such shares. Except as otherwise expressly
provided in the Plan, no adjustment shall be made for dividends or other rights
for which the record date is prior to the date such stock certificate is
issued.
15. Recapitalization.
In the event that the outstanding shares of Common Stock of
the Company are changed into or exchanged for a different number or kind of
shares or other securities of the Company by reason of any recapitalization,
reclassification, stock split, stock dividend, combination or subdivision,
appropriate adjustment shall be made in the number and kind of shares available
under the Plan and under any options granted under the Plan. Such adjustment
to outstanding options shall be made without change in the total price
applicable to the unexercised portion of such options, and a corresponding
adjustment in the applicable option price per share shall be made. No such
adjustment shall be made which would, within the meaning of any applicable
provisions of the Code, constitute a modification, extension or renewal of any
option or a grant of additional benefits to the holder of an option.
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<PAGE> 38
16. Reorganization.
In case the Company is merged or consolidated with another
corporation and the Company is not the surviving corporation, or in case all or
substantially all of the assets or more than 50% of the outstanding voting
stock of the Company is acquired by any other corporation, or in case of a
reorganization or liquidation of the Company, the Board of Directors of the
Company, or the board of directors of any corporation assuming the obligations
of the Company, shall, as to all outstanding options, either (i) make
appropriate provision for the protection of all such outstanding options by the
substitution on an equitable basis of appropriate stock of the Company, or of
the merged, consolidated or otherwise reorganized corporation which will be
issuable in respect of the shares of Common Stock of the Company, provided that
no additional benefits shall be conferred upon optionees as a result of such
substitution, and the excess of the aggregate fair market value of the shares
subject to the options immediately after such substitution over the purchase
price thereof is not more than the excess of the aggregate fair market value of
the shares subject to such options immediately before such substitution over
the purchase price thereof, or (ii) upon written notice to all optionees,
provide that all unexercised options must be exercised within a specified
number of days of the date of such notice or they will be terminated. In any
such case, the Board of Directors may, in its discretion, accelerate the
exercise dates of all outstanding options.
17. No Special Employment Rights.
Nothing contained in the Plan or in any option granted under
the Plan shall confer upon any option holder any right with respect to the
continuation of his or her employment by the Company (or any Parent Corporation
or Subsidiary) or interfere in any way with the right of the Company (or any
Parent Corporation or Subsidiary), subject to the terms of any separate
employment agreement to the contrary, at any time to terminate such employment
or to increase or decrease the compensation of the option holder from the rate
in existence at the time of the grant of an option. Whether an authorized
leave of absence, or absence in military or government service, shall
constitute termination or cessation of employment for purposes of this Plan
shall be determined by the Board of Directors.
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<PAGE> 39
18. Other Employee Benefits.
The amount of any taxable income deemed to be received by an
employee as a result of the exercise of an option or the sale of shares
received upon such exercise will not constitute "earnings" with respect to
which any other employee benefits of such employee are determined, including
without limitation benefits under any pension, profit sharing, life insurance
or salary continuation plan.
19. Definition of Subsidiary and Parent Corporation.
(a) Subsidiary. The term "Subsidiary" as used in the Plan
shall mean any corporation in an unbroken chain of corporations beginning with
the Company if each of the corporations other than the last corporation in the
unbroken chain owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations in such chain.
Notwithstanding the foregoing sentence, for purposes of non-statutory stock
options only and Section 17, the term "Subsidiary" as used in the Plan shall
mean any corporation, general partnership or limited partnership in an unbroken
chain of corporations, general partnerships or limited partnerships beginning
with the Company if each of the corporations, general partnerships or limited
partnerships other than the last corporation, general partnership or limited
partnership in the unbroken chain owns stock possessing 50% or more of the
total combined voting power of all classes of stock, in the case of a
subsidiary which is a corporation, or, possesses 50% or more of the total
combined voting power of the general partnership or limited partnership, in the
case of a subsidiary which is a general partnership or limited partnership, in
one of the other corporations, general partnerships or limited partnerships in
such chain.
(b) Parent Corporation. The term "Parent Corporation" as
used in the Plan shall mean any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company if each of the
corporations other than the Company owns stock possessing 50% or more of the
combined voting power of all classes of stock in one of the other corporations
in such chain.
20. Amendment of the Plan.
The Board of Directors may at any time and from time to time
modify or amend the Plan in any respect, except that without the approval of
the stockholders of the Company, the
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<PAGE> 40
Board of Directors may not (a) materially increase the benefits accruing to
individuals who participate in the Plan, (b) materially increase the maximum
number of shares which may be issued under the Plan (except for permissible
adjustments provided in the Plan), or (c) materially modify the requirements as
to eligibility for participation in the Plan. The termination or any
modification or amendment of the Plan shall not, without the consent of an
optionee, affect his or her rights under an option previously granted to him or
her. With the consent of the optionee affected, the Board of Directors may
amend outstanding option agreements in a manner not inconsistent with the Plan.
The Board of Directors shall have the right to amend or modify the terms and
provisions of the Plan and of any outstanding Incentive Stock Options granted
under the Plan to the extent necessary to qualify any or all such options for
such favorable federal income tax treatment (including deferral of taxation
upon exercise) as may be afforded incentive stock options under Section 422 of
the Code.
21. Withholding.
The Company's obligation to deliver shares upon the exercise
of any option granted under the Plan shall be subject to the option holder's
satisfaction of all applicable federal, state and local income and employment
tax withholding requirements.
22. Effective Date and Duration of the Plan.
(a) Effective Date. The Plan shall become effective when
adopted by the Board of Directors, but no Incentive Stock Option granted under
the Plan shall become exercisable unless and until the Plan shall have been
approved by the Company's stockholders. If such stockholder approval is not
obtained within twelve months after the date of the Board's adoption of the
Plan, any Incentive Stock Options previously granted under the Plan shall
terminate and no further Incentive Stock Options shall be granted. Subject to
this limitation, options may be granted under the Plan at any time after the
effective date and before the date fixed for termination of the Plan.
(b) Termination. The Plan shall terminate upon the earlier
of (i) the close of business on the day next preceding the tenth anniversary of
the date of its adoption by the Board of Directors, or (ii) the date on which
all shares available for issuance under the Plan shall have been issued
pursuant to the exercise or cancellation of options
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<PAGE> 41
granted under the Plan. If the date of termination is determined under (i)
above, then options outstanding on such date shall continue to have force and
effect in accordance with the provisions of the instruments evidencing such
options.
Adopted by the Board of Directors on October 7,
1987 and approved by the stockholders on June 7,
1988. Amended on April 20, 1989 by the Board of
Directors. Amended on June 26, 1990 by the Board
of Directors and approved by the stockholders on
September 28, 1990. Amended on November 21, 1991
by the Board of Directors and approved by the
stockholders on July 23, 1992. Amended on November
19, 1992 and January 24, 1993 by the Board of
Directors. Amended on March 25, 1993 by the Board
of Directors and approved by the stockholders on
May 20, 1993. Amended by the Board of Directors on
November 17, 1994 and February 28, 1996.
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<PAGE> 42
ECOGEN INC.
ANNUAL MEETING OF STOCKHOLDERS
April 24, 1996
James P. Reilly, Jr., Richard A. Deak and Mary E. Paetzold, and each of
them, with full power of substitution, are hereby authorized to represent and
to vote the shares of Common Stock and the shares of Series B Convertible
Preferred Stock of Ecogen Inc., held of record by the undersigned on March 21,
1996, as directed on the reverse side and, in their discretion, on all other
matters which may properly come before the Annual Meeting of Stockholders to be
held on April 24, 1996, and at any adjournment as if the undersigned were
present and voting at the meeting.
Whether or not you expect to attend the meeting, you are urged to
execute and return this proxy, which may be revoked at any time prior to its
use.
Your vote for the election of directors will be indicated on the
reverse side. The nominees are: 1-Patrick Owen Burns, 2-John E. Davies,
3-Jack D. Early, 4-Esteban A. Ferrer, 5-Lowell N. Lewis, 6-Mary E. Paetzold,
7-James P. Reilly, Jr., and 8-John R. Sutley
The shares represented by this proxy will be voted as directed by the
stockholder. WHERE NO DIRECTION IS GIVEN WHEN THE DULY EXECUTED PROXY IS
RETURNED, SUCH SHARES WILL BE VOTED FOR ALL ITEMS.
(CONTINUED ON THE REVERSE SIDE)
<PAGE> 43
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL ITEMS.
ITEM I. ELECTION OF DIRECTORS DULY NOMINATED AND LISTED ON THE REVERSE SIDE:
<TABLE>
<S> <C> <C>
For All Nominees Withhold All To withhold authority to vote for any nominee(s), write the
(with exceptions noted) Nominees nominee's name on the space provided below:
/ / / / ___________________________________________________
<CAPTION>
ITEM II. AMENDMENT TO STOCK OPTION PLAN: Amend the Company's Stock Option Plan as fully described in Proposal II of the Proxy
Statement.
<S> <C> <C>
FOR / / AGAINST / / ABSTAIN / /
<CAPTION>
ITEM III. RATIFICATION OF AUDITORS: Ratification of appointment of KPMG Peat Marwick LLP as Independent Auditors.
<S> <C> <C>
FOR / / AGAINST / / ABSTAIN / /
_______________________________ Dated _______________, 1996
Signature (NOTE: Signature should agree with the name
stenciled hereon. When signing as executor, administrator,
trustee, guardian or attorney, please give full title as such.
For joint accounts or co-fiduciaries, all joint owners or
co-fiduciaries should sign.)
_______________________________ Dated _______________, 1996
Signature if held jointly
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
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