<PAGE> 1
As filed with the Securities and Exchange Commission on January 29, 1996.
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 10-K
/x/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition period from ________to___________
COMMISSION FILE NUMBER 1-9579
ECOGEN INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-2487948
------------------------- ------------------------------
(State or other Jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2005 CABOT BOULEVARD WEST 19047
LANGHORNE, PENNSYLVANIA (Zip Code)
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (215) 757-1590
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
WARRANTS TO PURCHASE COMMON STOCK AT AN EXERCISE PRICE OF $43.75 PER SHARE.
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.
/X/ YES
/ / NO
<PAGE> 2
THE APPROXIMATE AGGREGATE MARKET VALUE OF VOTING STOCK HELD BY NON-AFFILIATES
OF THE REGISTRANT IS $41,039,000 AS OF JANUARY 15, 1996. (A)
6,021,956
- --- ---
(NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF JANUARY 15, 1996 AFTER
GIVING RETROACTIVE EFFECT TO THE ONE-FOR FIVE REVERSE STOCK SPLIT EFFECTED
JANUARY 29, 1996).
139,501
- --- ---
(NUMBER OF SHARES OF CONVERTIBLE PREFERRED STOCK OUTSTANDING AS OF JANUARY 15,
1996)
Indicate by check mark if disclosure of delinquent filers pursuant to item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. / /
<PAGE> 3
DOCUMENTS INCORPORATED BY REFERENCE
<TABLE>
<CAPTION>
Document Form 10-K Part
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<S> <C> <C>
(1) Definitive Proxy Statement with respect III
to the Annual Meeting of Stockholders
scheduled to be held in April, 1996,
to be filed by Ecogen Inc. with the
Commission (hereinafter the
"Proxy Statement")
</TABLE>
(A) Excludes 52,658 shares of Common Stock held of record by directors,
officers and stockholders known to the registrant to hold more than five
percent of the Common Stock outstanding as of December 8, 1995 (after giving
retroactive effect to the one-for-five reverse stock split effected January 29,
1996). Exclusion of shares held by any person should not be construed to
indicate that such person possesses the power, direct or indirect, to direct or
cause the direction of the management or policies of the registrant, or that
such person is controlled by or under common control with the registrant.
<PAGE> 4
PART I
ITEM 1. BUSINESS
INTRODUCTION
Ecogen Inc. ("Ecogen" or the "Company"), a Delaware corporation
incorporated in 1983, is a biotechnology company specializing in the
development and marketing of environmentally compatible products for the
control of pests in agricultural and related markets. Ecogen's product
revenues are generated by sales of biological insecticides derived from the
bacterial microorganism Bacillus thuringiensis ("Bt") and various pest control
and crop pollination products based on pheromone and related technologies. In
addition, Ecogen is introducing to the marketplace biofungicide products for
the control of powdery mildew and post harvest rot disease. Ecogen also sells
into certain niche markets insecticidal nematodes (microscopic roundworms) for
the control of insect pests. Ecogen was the first company to sell genetically
enhanced biological pesticide products which are registered with the U.S.
Environmental Protection Agency (the "EPA") for commercial sale. In addition,
Ecogen is the only company to have received an EPA approval to sell a Bt
insecticide incorporating a recombinant Bt strain.
On January 24, 1996 the Company entered into a strategic alliance
with Monsanto Company for the joint development of Bt technology. As part of
the transaction, Monsanto agreed to purchase a 13% interest in the Company for
$10 million, acquired certain rights with respect to Ecogen's Bt technology for
$5 million and agreed to fund a four-year $10 million research and development
program.
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. Unless the context
otherwise requires, all references in this document to the year 1995 shall mean
fiscal year 1995 beginning on November 1, 1994 and ending on October 31, 1995,
and all references to the fiscal 1994 shall mean the ten months beginning on
January 1, 1994 and ending on October 31, 1994.
REVERSE STOCK SPLIT
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, the outstanding shares of
Common Stock of the Company were reduced from approximately 30,109,000 to
6,022,000. All references in this document to shares of Common Stock take into
account the effect of the Reverse Split unless the context otherwise requires.
Upon the effectiveness of the Reverse Split, each certificate
representing shares of Common Stock outstanding immediately prior to the
Reverse Split (the "Old Shares") was deemed automatically, to represent one
fifth the number of shares of Common Stock (the "New Shares"). A stockholder's
proportionate ownership interest in the Company remained unchanged by the
Reverse Split. The New Shares issued pursuant to the Reverse Split were fully
paid and nonassessable. The voting and other rights of the Common Stock were
not altered. The authorized number of shares of the Company's Preferred Stock,
$.01 par value per share (the "Preferred Stock") remained unchanged after the
Reverse Stock Split at 7,500,000 shares. The number of issued and outstanding
shares of Preferred Stock also remained unchanged.
<PAGE> 5
TECHNOLOGY
Many naturally-occurring organisms are either antagonistic to or
produce substances toxic to agricultural pests. These include a variety of
microorganisms such as bacteria, yeasts, fungi, viruses and protozoans that
either directly kill or produce compounds that interfere with certain insects,
fungal pathogens or plant disease organisms. In addition, more complex
organisms such as insecticidal nematodes (microscopic roundworms) that attack
insect pests have been long recognized as a potential source of pest control.
Insect pheromones, which are natural odors emitted by insects, are also a
recognized source of environmentally compatible, biorational insect pest
control. All of these natural agents when isolated and formulated as
commercially useful products are commonly called "biopesticides."
Bacillus thuringiensis ("Bt")
Bt is a bacterium found in soil. The insecticidal activity of Bt
derives from production of spores and specific proteins in the form of crystals
found within the Bt bacteria. These insecticidal agents are produced by the
bacterial cells during a fermentation production process. They are then
formulated into products that are applied to plants by conventional ground and
aircraft spray equipment. When susceptible insects feed on plant foliage
sprayed with Bt-based products, the crystals are ingested and generate soluble
proteins that attack and destroy the insect's intestinal tract. The proteins
produced by various strains of Bt are highly active against specific, targeted
insect pests. Many insects are also susceptible to bacterial spores. Bt has
no adverse activity against non-target insects, fish, birds or mammals
(including humans). The genes for the insecticidal proteins reside on specific
non-essential DNA molecules termed plasmids. Bt bacteria in nature generally
contain several different genes that endow different insecticidal activities.
Plasmids can either be removed ("cured") from cells that harbor them or they
can be transferred between different strains by a natural mating process called
conjugal transfer that occurs in nature between Bt strains and that can be
replicated in the laboratory.
Ecogen has developed, through genetic modification techniques, novel
Bt bioinsecticide products that have higher levels of effectiveness and that
can act against a broader array of significant insect pests than Bt products
previously in use. Ecogen has developed and characterized approximately 10,000
Bt strains and maintains one of the world's largest collections of Bt strains.
The Company uses strains from this collection to screen and test for
insecticidal activities. The characterization of the diversity of Bt
insecticidal proteins found in Ecogen's strain collection, coupled with the
ability to transfer or cure plasmids that contain the genetic code for those
proteins, was the basis for Ecogen's early-stage development of new Bt
bioinsecticides. Potent insecticidal crystal proteins produced by new Bt
strains containing novel and desirable combinations, which are obtained by
plasmid curing and conjugal transfer techniques, have been the active
ingredients in Ecogen's Bt bioinsecticides.
These natural genetic approaches to Bt bioinsecticide development can
be applied, however, only to those plasmids that can be transferred or cured.
Certain insecticidal proteins are encoded by plasmids that are not
transferable, and some plasmid combinations are unstable or yield undesired
insecticidal activities. Under these circumstances, the development of
genetically manipulated strains of Bt having novel activities against specific
insects is greatly facilitated by the application of recombinant DNA
technology. Ecogen has developed a proprietary Bt-based cloning vector system,
its SSR System(TM), that utilizes recombinant DNA technology to develop new Bt
strains having either increased potency or activity on a broader array of
insect species. Ecogen believes that the use of Bt (as opposed to other
microorganisms) as the host microorganism in which new Bt insecticidal gene
combinations are constructed facilitates regulatory review in obtaining field
trial permission and subsequent registrations for recombinant-derived products.
For example, in July 1992 Ecogen received a generic approval from the United
States Environmental Protection Agency to field test recombinant Bt
insecticides using this approach. In January, 1995 the Company received EPA
<PAGE> 6
approval to commercialize Raven(TM) Bioinsecticide, a recombinant Bt product
based on a Bt strain into which protein genes from different Bt strains were
combined. The Company expects to receive EPA approval in 1996 to commercialize
CryMax(TM) Bioinsecticide, a recombinant Bt insecticide for use on vegetable
crops. Ecogen's genetically enhanced bioinsecticides contain multiple
insecticidal genes and have complex modes of action, and Ecogen therefore
believes that pest populations will have difficulty developing resistance to
them.
Ecogen has also developed technology to improve the insecticidal
capabilities of the Bt proteins through its work on the mechanisms involved in
the insecticidal activity. This technology, collectively referred to as
Mechanism Assisted Insecticidal Design ("MAID"), permits Ecogen to move beyond
naturally occurring proteins to identify new and commercially valuable
proteins.
Pheromone and Crop Pollination Technology
Insect pheromones are natural odors emitted by insects that are
undetectable to humans. Pheromones and related technologies act as behavior
modifying agents that can be used to suppress insect mating by disrupting
communications between potential mates, to attract target insects or to
stimulate foraging by target insects. Due to their range of agricultural
applications, pheromone and related products are a significant component of
Ecogen's product strategy.
Pheromones can be used either alone to control insect populations or
in conjunction with biological or chemical insecticides in order to reduce the
amount of such insecticides required to control insect pests. Pheromone
products may be used to disrupt insect mating cycles. These products, which
duplicate the mating attractant emitted by female insects, control insect
populations by confusing male insects and making it more difficult for them to
find females with which to mate. After application of the pheromone product,
male insects become confused and are attracted to the pheromone products rather
than potential mates. In addition, the mating attractant of the pheromone
product camouflages the natural attractant emitted by the female which also
works to disrupt the mating cycle and to control insect populations.
Pheromones can also be used to attract insects to trap devices for the purpose
of monitoring insect populations or to sources of chemical insecticides that
are lethal to the target insects.
Crop pollination technology is designed to attract honey bees to
crops to increase plant quality and grower yields through increased
pollination. Products incorporating this technology assist honey bees in
finding plants, thereby maximizing the number of visitations by such bees to
the flowers of various fruit and vegetable crops. Fruit and vegetable quality
is increased and grower yields are maximized through such increased
pollination. Ecogen's Bee-Scent(TM) Attractant is based on this crop
pollination technology.
Biofungicide Technologies
Biofungicide technologies are based on naturally occurring organisms
such as fungi or yeasts that can control harmful fungi that reduce crop yields
or infect crops after harvesting. Ecogen focuses biofungicide research and
development efforts on two biofungicide technologies: hyperparasitic fungi
which kill other fungi, such as powdery mildews that infect plant leaves,
flowers and fruit; and a yeast formulation which protects stored fruit from
post-harvest rot pathogens.
A fungal hyperparasite, Ampelomyces quisqualis, has been identified
that infects most, if not all, types of powdery mildews harmful to agricultural
products. Ecogen has obtained an exclusive license to this hyperparasite.
Powdery mildew is a significant fungal disease affecting many crops. Special
structures of the mildew penetrate the plant epidermal cells and feed on
cellular tissue, causing dwarfing of the plant and fruit and cosmetic damage
which is particularly undesirable on fresh produce. Plants severely infected
with these pathogens have reduced yields. Historically, chemical fungicides
have been used for the control of these fungal pathogens, but these pathogens
typically
<PAGE> 7
develop resistance to these chemical fungicides over a short period of time.
In response to this market need, the Company developed its AQ10(TM)
Biofungicide, which is based on the fungal hyperparasite Ampelomyces
quisqualis, for use in an integrated pest management system with other
fungicide products to control powdery mildew. AQ10 was the first biofungicide
registered by the U.S. EPA to protect crops from powdery mildew.
Several non-antibiotic producing strains of yeast have been found to
control a number of post harvest rot pathogens of citrus, pome fruits, grapes
and other fruits and vegetables. The Company has incorporated a selection of
these strains into its Aspire(TM) Biofungicide. Aspire, which may be applied
by fruit growers, processors and packers in a manner consistent with the method
of application of standard chemicals, provides control of post harvest rot
pathogens.
Insecticidal Nematodes
Insecticidal or entomopathogenic nematodes are microscopic roundworms
that attack insect pests in the soil or in plant stems. Insecticidal nematodes
are not directly responsible for insect mortality, but rather harbor bacteria
that are released into and cause an infection of the insect after nematode
entry into the pest. Normally the insect dies within 48 hours after infection.
The natural characteristics of insecticidal nematodes give nematode-based
insecticides certain advantages over other insecticides. For example,
nematodes attack insect pests in the soil where approximately 90% of insect
pests spend at least a portion of their life cycle. In addition, insecticides
using nematodes, which cause no adverse effects to humans, animals or plants,
are currently exempt from EPA pesticide regulations and, unlike other
insecticides, including other bioinsecticides, are subject to significantly
lower levels of regulation or are exempt from registration by state agencies.
Nematode product development is dependent on the improvement of
production technology, particularly to obtain higher yields and to reduce the
costs of production. In addition, current shelf life of the insecticidal
nematode products being developed by Ecogen is insufficient for widespread
commercialization. Ecogen is exploring methods of formulating and preserving
the nematodes to further increase shelf life while maintaining the nematodes'
insecticidal capabilities, including the development of formulations that would
be stable at various temperatures.
RELATIONSHIP WITH MONSANTO
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 Ecogen Common Stock for $10.60 per share (as adjusted for the Reverse
Split) 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 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 so as to maintain its
percentage ownership interest in the Company.
In addition, Monsanto 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
<PAGE> 8
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 agreements 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.
RELATIONSHIP WITH ETECH
Between November, 1992 and January, 1993, Ecogen Technologies I
Incorporated ("ETech"), a company incorporated by but not then affiliated with
Ecogen, completed a private placement of 300 ETech Units, each unit consisting
of four shares of common stock of ETech and 2,000 warrants, each to purchase
one share of common stock of Ecogen at a per share purchase price of $43.75 as
adjusted for the Reverse Split (the "Ecogen Warrants"). The Ecogen Warrants
may be exercised at any time prior to January 31, 1998, and the Ecogen Warrants
and the underlying shares of Ecogen common stock are freely tradable. In
January, 1995 the Company exchanged 822,400 shares of its common stock for 854
shares of the common stock of ETech (approximately 70% of the outstanding
common stock of ETech). As a result of this exchange ETech is a majority
owned subsidiary of Ecogen and its financial condition and results of
operations are included in the Company's consolidated financial statements.
ETech was formed in 1992 to initiate or accelerate research and
development of certain products using technology exclusively licensed or
sublicensed by Ecogen to subsidiaries of ETech. The licensed rights include
the right to develop and commercialize products based on technology for: (i)
the control of powdery mildew disease on agricultural crops (including grapes,
fruit and nut trees, vegetables and flowering and other ornamental plants);
(ii) the control of post harvest rot disease on agricultural crops (including
citrus, pome fruits, grapes and a number of other fruits and vegetables); (iii)
the control of the European corn borer insect, which affects corn production;
(iv) the control of black vine weevil, citrus weevil, wireworm and black
cutworm utilizing insecticidal nematodes; (v) the control of corn rootworm; and
(vi) the control of certain insects which cause damage to turf.
Pursuant to research and development agreements between Ecogen and
the subsidiaries of ETech, Ecogen conducted research, development and testing,
on behalf of each ETech subsidiary, on the technology licensed to such
subsidiary (the "ETech R&D Programs"). The ETech R&D Programs were designed
to accelerate the development of products primarily in calendar 1993 and 1994
with reduced budgeted spending levels thereafter. Under each research and
development agreement, ETech pays to Ecogen an amount equal to all of the
qualifying development costs, unless such amount exceeds a previously agreed-up
on development budget, and a management fee equal to 3.89% of such costs. In
addition, the Company entered into a services agreement with ETech pursuant to
which the Company provides certain financial, legal and administrative services
to ETech on a cost reimbursement basis and is paid a management fee equal to
5.75% of the costs of such services. (All references in this document to ETech
shall, unless the context otherwise requires, be deemed to include the ETech
subsidiaries.)
In consideration for issuing the Ecogen Warrants, Ecogen was
granted an option by each purchaser of ETech Units (the "Stock Purchase
Option"), exercisable at any time prior to July, 1996, to purchase all (but not
less than all) of the outstanding shares of ETech common stock which form part
of the ETech Units (but not the Ecogen Warrants or underlying Ecogen common
stock) at a price that has increased to 200% of the cash amounts paid by such
purchaser for the ETech Units. Ecogen, in
<PAGE> 9
its sole discretion, may purchase the ETech shares by payment in cash, in
shares of freely tradable Ecogen common stock or in any combination thereof.
PRODUCTS
The following are Ecogen's current principal products:
CONDOR(R) XL BIOINSECTICIDE -- Condor XL Bioinsecticide is an EPA
registered genetically enhanced Bt product developed by Ecogen for the control
of caterpillar pests in cotton, soybean, corn and other row crops, tree and nut
crops, and forestry applications. Condor is marketed primarily in the southern
United States for use on cotton, soybeans and other row crops.
CONDOR(R) G BIOINSECTICIDE -- Condor G Bioinsecticide, a granular
formulation of Ecogen's Condor product, is an EPA registered genetically
enhanced Bt product for the control of the European corn borer caterpillar on
corn crops. Condor G is marketed in the midwest United States and limited
product sales occurred in 1995.
CUTLASS(R) BIOINSECTICIDE -- Cutlass Bioinsecticide is an EPA
registered genetically enhanced Bt product developed by Ecogen for control of
caterpillar pests that damage vegetable, tree, nut and vine crops. Cutlass is
sold primarily in California and international markets, including Taiwan,
Mexico and Italy.
RAVEN(TM) BIOINSECTICIDE -- Raven Bioinsecticide is the first EPA
registered Bt product developed by Ecogen using recombinant DNA techniques.
Raven was introduced to the market on a limited basis in 1995 for use in the
eastern United States on potatoes, tomatoes and eggplants for control of the
Colorado potato beetle.
NOMATE(R) PHEROMONE PRODUCTS -- Ecogen markets various EPA
registered NoMate pheromone products for the control of pink bollworm on cotton
and for the control of tomato pinworm. NoMate products are marketed primarily
in the southern United States and Mexico.
BEE-SCENT(TM) ATTRACTANT -- Bee-Scent Attractant directs honey
bees to treated blossoms to improve crop pollination, thereby increasing grower
yields and crop quality. Bee-Scent is marketed in various regions of the
United States including California, the Pacific Northwest and the Great Lakes
region.
AQ10(TM) BIOFUNGICIDE -- AQ10 Biofungicide is the first
biofungicide registered by the EPA to protect crops from powdery mildew. In
1995, Ecogen began to introduce AQ10 on a limited basis for use on grapes in
California.
ASPIRE(TM) BIOFUNGICIDE -- Aspire Biofungicide is the first
biofungicide registered by the EPA to protect crops from post harvest rot
pathogens. Ecogen expects to begin to introduce Aspire for use on citrus in
the United States in 1996.
CRUISER(TM) BIOINSECTICIDE -- Cruiser Bioinsecticide contains the
Heterorhabditis bacteriophora nematode and has been developed for the control
of a variety of insect pests. Ecogen had only limited sales of Cruiser in
1995.
<PAGE> 10
During fiscal 1995, the foregoing products represented
substantially all of Ecogen's product sales. Product sales represented
approximately 76% of the Company's total revenues in fiscal 1995. Ecogen's Bt
products represented approximately 60% of Ecogen's product sales in 1995.
MARKETING
Agricultural pesticides and related products are sold in the
United States primarily through traditional agricultural chemical distribution
channels consisting of large wholesale distributors and dealers which serve
extensive farm areas. Ecogen makes use of these traditional channels for the
domestic distribution of its current products. To coordinate these
distribution activities and generate grower interest in its products, the
Company employs a marketing staff including several United States sales
representatives who are located in key agricultural chemical distribution
locations primarily in the southern and western areas of the United States.
Ecogen may enter into one or more distribution agreements to better serve its
primary markets or to access specialty or other selected markets. Ecogen's
domestic product sales for fiscal 1995, the ten months of fiscal 1994, and for
calendar 1993 totaled $8.4 million, $7.7 million, and $5.8 million
respectively.
For the international distribution of its products, Ecogen has
entered into several collaborations with companies that have a significant
presence in the markets covered by their respective agreements. In 1991 the
Company and Roussel Uclaf (now named "AgrEvo") entered into a distribution and
product supply agreement that grants to AgrEvo exclusive distribution rights to
the Company's Condor, Cutlass and Raven products in Europe (except Germany,
which is excluded; and except Spain, Portugal and Italy, where rights are
co-exclusive), Africa, the People's Republic of China, Australia, the Middle
East and Latin America (except Mexico). As part of the distribution agreement,
Ecogen has agreed to supply AgrEvo with the active ingredients necessary to
commercialize the licensed products. Ecogen will be entitled to receive
additional compensation based upon AgrEvo's product revenues on the licensed
products. In addition to its agreement with AgrEvo, Ecogen has distribution
agreements for certain of its products with a number of other companies
including: UAP (for Mexico), Nissan Chemical (for Japan), Intrachem
(International) S.A. (for Italy, Spain and Portugal), ISK Biotech Corporation
(for Mexico), Jia Non Enterprises (for Taiwan) and Incitec Ltd. (for Australia,
and New Zealand). International product sales totaled $716 thousand for fiscal
1995, $897 thousand for the ten months of fiscal 1994, and $1.3 million for
calendar 1993.
PRODUCTION
The manufacturing process for Ecogen's current Bt-based
bioinsecticides involves fermentation of the desired microorganism. Upon
completion of this fermentation process, the product is recovered using
standard techniques, such as centrifugation. The insecticidal agent is then
spray-dried into a technical grade powder. Finally, the product is formulated
into granular or wettable powder form for sale into the commercial market.
Ecogen currently operates fermentation and formulation pilot plants to support
some product requirements for field trials and to facilitate the transition of
products from laboratory to large-scale manufacturing. A significant portion
of Ecogen's research and development activities during 1995 were dedicated to
the improvement of fermentation and formulation techniques in order to improve
product yield and correspondingly reduce the costs of product manufacturing.
Ecogen is a party to a Supply Agreement with biosys Inc. pursuant
to which biosys has agreed to manufacture Ecogen's Bt-based products through
December 31, 1999. Biosys has both fermentation and spray-drying capability,
and supplies Ecogen with finished goods. Ecogen believes that adequate
fermentation, spray-dry and other services will likely continue to be available
from contract manufacturers and Ecogen does not currently intend to build its
own manufacturing facilities.
<PAGE> 11
The Company purchases the active ingredients for its pheromone
products from various suppliers and manufactures its pheromone products at its
facility in Billings, Montana. In addition, the Company obtains certain
manufacturing services from 3M Corporation with respect to the formulation of
some of its NoMate products. The Company believes that its Billings, Montana
facility has sufficient capacity to meet its current and near-term anticipated
pheromone product needs.
The manufacturing process for Ecogen's biofungicide products
involves fermentation of fungal or yeast-based products and formulation of the
fermentation results into a granular form for commercial sale. Ecogen has
engaged Zohar Dalia Factory Ltd., located in Israel, to manufacture the active
ingredient for AQ10 on a contract manufacturing basis. The manufacture of
Aspire was on a pilot plant basis in 1995 and the Company is scaling up to
produce Aspire through toll manufacturers in 1996.
Nematode products are now being manufactured on a pilot plant
basis by Ecogen at its Langhorne, Pennsylvania facility. Ecogen's current
nematode production processes yield products with a shelf life that is
insufficient for widespread commercialization of such products. Ecogen is
investigating methods of fermentation and storage that will result in increased
production yield and insecticidal nematode product shelf life, including the
development of formulations that would be stable at various temperatures.
The most important raw materials needed by Ecogen to conduct its
product manufacturing and research and development activities include both
fermentation media components and formulation chemicals, which are readily
available from a variety of independent sources, and microbial strains that are
either proprietary to Ecogen or are licensed from outside parties. Ecogen does
not anticipate any shortages of these or other raw materials that would
materially affect product availability or cost.
RESEARCH AND PRODUCT DEVELOPMENT
The Company's operating expenses to date have related to a large
extent to the research and development of products for future
commercialization. Costs incurred by Ecogen under third-party funded research
and development programs, aggregated approximately $1.7 million, for fiscal
1995 $6.0 million for the ten months of fiscal 1994 and $6.8 million for
calendar 1993, respectively. Costs incurred under Ecogen-funded research and
development programs, aggregated approximately $7.3 million, $3.3 million, and
$5.3 million for fiscal 1995 and 1994 and calendar 1993, respectively.
During fiscal 1995, the Company derived approximately 24% of its
revenues from research and development contracts and licensing agreements.
This contrasts with approximately 54% in 1994 and 61% in 1993. As a result of
the Exchange Offer in December 1994, the Company did not record contract
revenue in connection with the ETech R&D Programs in fiscal 1995. In 1996, the
Company expects to derive contract revenue from its Research and Development
Agreement with Monsanto Company.
Bacillus thuringiensis Products
Ecogen's Bt product development activities are focused on
improving, through recombinant DNA and other technologies, the efficacy of its
bioinsecticides already in the market, adapting such products for application
to additional uses particularly in markets outside of North America, and
developing new bioinsecticides. In addition, Ecogen is developing improved
formulations for its Bt products that are designed, among other things, to
improve their handling and ease of application, to enhance their insecticidal
activity in the field and to reduce their cost of production. In 1996, Ecogen
plans to continue to focus its research and development efforts on a new
product for the vegetable market that will incorporate recombinant DNA
technologies and is also targeting its research efforts toward a Bt-based
product for the control of fall armyworm, an important corn pest.
<PAGE> 12
Pheromone and Related Products
Ecogen is exploring additional formulations of its pheromone
products in order to develop alternative application techniques for such
products. Tests also are being conducted by the Company in order to expand its
pheromone product line for the control of additional pests such as the
leafroller, the codling moth and other insect pests.
Yeast, Fungal and Other Products
The Company is continuing to develop processes for the commercial
production by fermentation of AQ10 and Aspire Biofungicides. The Company is
also continuing to develop stable and efficacious formulations for these
products. With respect to Aspire Biofungicide, the Company is working to
develop formulations that provide Aspire with increased shelf life at room
temperatures. In addition, the Company is working on different types of
bacteria that may be used for the control of certain plant parasitic nematodes
that feed on or enter roots of growing plants causing damage and reduced crop
yields. In laboratory tests and greenhouse trials, Ecogen has identified
bacterial isolates with nematicidal activity against root knot nematodes which
attack a variety of crop plants.
Insecticidal Nematodes
The Company is (i) developing liquid fermentation techniques that
are designed to allow the Company to more efficiently produce nematodes and
(ii) investigating through its own efforts and the efforts of third parties
methods for increasing the shelf life of nematode products (particularly at
ambient temperatures). In addition, the Company is working on the development
of formulations that are designed to make the Company's products easier to use
and to increase product shelf life.
PATENTS AND TRADE SECRETS
Ecogen pursues a policy of seeking patent protection, both in the
United States and abroad, to protect its novel technologies, compositions of
matter and processes. In particular, Ecogen has patent rights to the Bt
strains utilized as the active ingredients in its Condor, Cutlass and Raven
Bioinsecticides. With respect to the Company's two biofungicide products, AQ10
Biofungicide and Aspire Biofungicide, and with respect to certain of its Bt
technology, the Company holds an exclusive license to patents covering the base
technologies.
There can be no assurance that patents or exclusive license rights
under patents for all of the Company's products and processes will be obtained,
or that issued patents will provide substantial protection or be of commercial
benefit to the Company. The issuance of a patent is not conclusive as to its
validity or enforceability, nor does it provide the patent holder with freedom
to operate without infringing the patent rights of others. A patent could be
challenged by litigation and, if the outcome of such litigation were adverse to
the patent holder, competitors could be free to use the subject matter covered
by the patent or the patent holder could be required to license the technology
to others.
Because of the uncertainty concerning patent protection, the
Company relies, in certain cases, upon trade secret protection and continuing
technological innovation to maintain its competitive position. All Ecogen
employees and consultants sign confidentiality agreements under which they
agree not to use or disclose the Company's confidential information as long as
that information remains proprietary or, in other cases, for fixed time
periods. There can be no assurance, however, that such proprietary technology
will not be independently developed or that secrecy will not be breached. The
Company's research, development and commercialization partners, as well as its
biopesticide production subcontractors, are provided access to know-how under
confidentiality
<PAGE> 13
agreements. To the extent that such entities use this technological
information, disputes may arise as to the proprietary and patent rights to such
technological information and related developments.
The Company is aware that substantial research efforts in
biotechnology are taking place at universities, government laboratories and
other corporations around the world and that numerous patent applications have
been filed, and that patents have been issued, relating to fundamental
technologies and to specific biological pesticide products and processes. The
Company may have to obtain licenses under certain of these patents. No
assurance can be given concerning the terms on which such licenses would be
available, if at all.
GOVERNMENTAL REGULATION
Regulation by governmental authorities in the United States and
other countries is a significant factor affecting the success of products
resulting from biotechnological research.
The pesticide industry is heavily regulated in the United States.
The EPA regulates pesticide products under the Federal Insecticide, Fungicide
and Rodenticide Act ("FIFRA"). Pesticides also are regulated by various state
agencies. Some states, such as California, have their own extensive
registration requirements. To develop and commercialize a pesticide product,
detailed and complex procedures must be followed and federal approvals obtained
under FIFRA. Small scale field testing usually may be conducted prior to
product registration to evaluate product efficacy. To conduct large scale
tests, a company must obtain an Experimental Use Permit ("EUP"), which
generally requires satisfactory completion of certain toxicology and
environmental studies. Synthetic chemical pesticides require additional
extensive toxicology and environmental testing that typically is not required
of biopesticides to substantiate product safety prior to obtaining a product
registration. Commercial sale of a pesticide requires a registration for each
pest and crop for which the product is used. Registration requirements include
submission and EPA approval of the text of a label which must be included on
every pesticide product. The United States Congress has mandated that the EPA
require that all pesticide products registered prior to November 1984 be
re-registered by 1997 using today's stricter testing protocols.
The EPA has recognized that biochemical and microbial pesticides
are distinguished from standard chemical pesticides, and has established
different data requirements as part of its registration regulations. These data
requirements are set out in Subdivision M of the EPA's Pesticide Assessment
Guidelines. Biopesticides currently are subject to a three-tier toxicology
testing procedure, and a four-tier environmental testing procedure. A
biopesticide product which satisfactorily completes both the Tier I toxicology
and environmental tests is not required to go through the tests specified in
subsequent tiers. This has been the case for product registration applications
filed by the Company to date. However, should questions arise during any tier
of testing, additional tests may be required. For a biopesticide product
required to complete only Tier I testing, approximately one year of laboratory
testing is required. Subsequent EPA registration generally takes approximately
one year. Although the process for obtaining regulatory approval to test and
market biopesticides that are genetically modified is designed to be less
complex and time-consuming than the regulatory approval process for synthetic
chemical pesticides, there can be no assurance that approvals will be granted
on a timely basis, if at all.
Certain of Ecogen's products under development utilize recombinant
DNA technology. The Federal government regulates certain recombinant DNA
research activity through the National Institute of Health's Guidelines for
Research Involving Recombinant DNA Molecules ("NIH Guidelines"). The NIH
Guidelines, among other things, set laboratory procedures and establish levels
of biological and physical containment and other standards for recombinant DNA
molecules that must be met for various types of research. Ecogen believes that
it is in compliance with the NIH Guidelines. The Company believes that the
registration in January 1995 of Raven Bioinsecticide indicates that
commercialization of products utilizing recombinant DNA technology will not
likely involve greater time
<PAGE> 14
and expense than it has experienced to date with respect to its nonrecombinant
products. In August, 1992 Ecogen received blanket permission from the EPA to
conduct small-scale field trials of its recombinant Bt strains without prior
notice (generally required for small scale field testing of microbial
pesticides).
Pheromone and related products (other than trap and lure products)
generally require EPA and state registrations.
Insecticidal nematodes are currently exempt from registration
under EPA pesticide regulations and, unlike other insecticides, including other
bioinsecticides, are subject to significantly lower levels of regulation or are
exempt from registration by state agencies.
Ecogen's activities, including operation of its laboratories and
pilot-scale manufacturing facilities, are, or may be, subject to regulation (i)
under various other state and federal laws and regulations, including the
Occupational Safety and Health Act, the Toxic Substances Control Act, the
Federal Food, Drug and Cosmetic Act, the Solid Waste Disposal Act, the Resource
Conservation and Recovery Act, the Emergency Planning and Community
Right-to-Know Act, the Clean Air Act, the Clean Water Act, and other state and
federal laws regulating environmental quality, and the implementing regulations
for all such laws; and (ii) by other state and federal agencies, including the
U.S. Department of Agriculture and the U.S. Food and Drug Administration. In
addition, the actions of federal agencies in reviewing applications by Ecogen
or issuing permits or other authorizations may be subject to the National
Environmental Policy Act, and state or local agencies may be required to comply
with similar state laws. Historically, the cost of compliance with such laws
and regulations have not had a material impact on Ecogen's business.
From time to time, governmental authorities review the need for
additional laws and regulations for biotechnology products and for pesticide
products that could, if adopted, apply to the business of Ecogen. Ecogen is
unable to predict whether any such new regulations will be adopted or whether,
if adopted, such regulations will adversely affect its business.
Historically, the cost to Ecogen of compliance with federal, state
and local provisions enacted for the protection of the environment has not been
material. Toxicology testing, field development trials and related costs for
EPA registrations incurred to date by Ecogen have averaged under $500,000 for
each product registration, while state registration and related costs per
product have been nominal. This does not mean that such costs are unlikely to
increase in the future, particularly if more restrictive approval requirements
are adopted by federal, state or local authorities. Also, delays in obtaining
necessary product registrations can have a significant impact upon Ecogen's
revenues and competitive position in the way of delayed product sales and lost
market opportunities.
Field development and testing, as well as the commercial sale, of
Ecogen's biopesticide products outside the United States can be highly
regulated. The impact of such regulation upon Ecogen's business cannot be
assessed at this time.
COMPETITION
Competition in the pesticide market is intense. Competition is
based principally on price and efficacy, but safety and ease of application are
also factors. Competitors of Ecogen include manufacturers and marketers of
synthetic chemical pesticides and biopesticides including large chemical
companies, such as Abbott Laboratories, Ciba-Geigy Corp., and Sandoz
Corporation as well as specialized biotechnology firms. Many of these
companies have considerably greater financial and marketing resources than
Ecogen. Competitors with respect to research and development activities also
include universities and public and private research organizations. In
addition, Ecogen's bioinsecticide
<PAGE> 15
product's compete with certain transgenic seed and plant products that purport
to have insecticidal capabilities.
Ecogen believes that its ability to compete in the pesticide
market may be enhanced by heightened concerns about the effects of chemical
pesticides upon the environment and, in some cases, by the increasing
resistance of plant pests to synthetic pesticides. However, Ecogen expects
competition in the agricultural pesticide industry to intensify as technical
advances in the fields of pesticides and pest-resistant plants are made. There
can be no assurance that developments by others will not render the Company's
products or technology obsolete or noncompetitive.
SEASONALITY
The bulk of the Company's current products are presently marketed
for agricultural applications in the northern hemisphere, where the growing
season generally runs from spring until fall. Commercial introduction of the
Company's new products is contingent on, among other factors, completion of
field testing and receipt of required regulatory approvals. Unusual weather
conditions during field tests or failure to receive regulatory approvals prior
to the growing season may require additional field tests in subsequent growing
seasons, with resulting delays in product development and commercialization.
In addition, because of the seasonal nature of its business, the Company's
product revenues are likely to be concentrated in the fiscal quarters prior to
and during a particular growing season and may result in substantial variations
in quarter-to-quarter financial results. Product sales from year-to-year are
also affected by unusual weather conditions, such as droughts or floods, and
the level of insect infestation in grower areas.
EMPLOYEES
As of January 15, 1996 Ecogen and its subsidiaries employed full
time 100 persons, of whom 19 hold Ph.D. degrees and 15 hold other advanced
degrees. Doctoral degrees held by employees of Ecogen encompass the areas of
biochemical engineering, biochemistry, entomology, microbiology, molecular
genetics, physiology and plant pathology.
Employees of the Company are required to enter into
confidentiality agreements with Ecogen. Pursuant to these agreements, the
employees have agreed not to disclose Ecogen's proprietary information and to
assign to Ecogen all rights to any inventions made during their employment or
relating to Ecogen's activities, and not to engage in activities similar to
Ecogen's for any other person or entity during the term of their employment and
for one year thereafter. Ecogen believes that its relationship with its
employees is good.
<PAGE> 16
EXECUTIVE OFFICERS
The executive officers of the Company and their respective ages
and positions with the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
James P. Reilly, Jr. 49 Chairman, President and Chief Executive
Officer and Director
Richard A. Deak 41 Vice President, General
Counsel and Secretary
Dr. Leigh English 40 Vice President, Research
Mary Paetzold 46 Vice President, Chief Financial
Officer and Treasurer
</TABLE>
All executive officers are elected by the Board of Directors.
There is no family relationship among any of the officers or directors.
BUSINESS EXPERIENCE
Mr. Reilly has served as Chairman since November 1, 1995 and as a
director of the Company since June 1992. Since January 1994 he 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. He received a B.S. in Business
Administration from Boston College.
Mr. Deak has served as Vice President, General Counsel of the
Company since August 1993 and as Secretary since May, 1995. From January 1993
to July 1993 Mr. Deak served as General Counsel of the Company. From January
1985 until he joined the Company, Mr. Deak was employed by Unisys Corporation
in various positions, including Associate General Counsel, Corporate,
Acquisitions and Finance. Prior to joining Unisys Corporation, Mr. Deak
practiced law with Mann & Ungar and Dechert Price & Rhoads. Mr. Deak received
a J.D. from the University of Pennsylvania Law School and a BBA in Accountancy
from the University of Notre Dame.
Dr. English has served as Vice President, Research of the Company
since October 1995. From March 1986 until October 1995, Dr. English served
Ecogen in various positions including Principal Research Scientist and Team
Leader. Prior to joining Ecogen, Dr. English was a research assistant at Tufts
University School of Medicine. Dr. English received a B.S. in Entomology from
Cornell University and a Ph.D in Membrane Biochemistry from North Dakota State
University.
Ms. Paetzold has served as Vice President, Chief Financial Officer
and Treasurer of the Company since she joined Ecogen in August 1994. Prior to
joining the Company, Ms. Paetzold was a partner with KPMG Peat Marwick LLP,
certified public accountants, where she worked for over twenty years. Ms.
Paetzold received a B.A. in Mathematics from Montclair State University and is
a Certified Public Accountant.
<PAGE> 17
ITEM 2. PROPERTIES
Ecogen currently leases approximately 44,000 square feet of space
for its administrative offices and research and development operations in two
buildings located in the Bucks County Business Park, Langhorne, Pennsylvania.
The leases for these facilities expire on March 31, 2000 and Ecogen has renewal
options to March 31, 2005. Approximately 32,000 square feet of this space is
devoted to research and development facilities, including laboratories, an
insectary and two fermentation and formulation pilot plants. In addition,
Ecogen currently leases approximately 20,000 square feet of space in Billings,
Montana for its pheromone business, under a lease which expires December 31,
1996. The Company believes that its leased space is sufficient for current
needs.
ITEM 3. LEGAL PROCEEDINGS
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
<PAGE> 18
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
A. Market Information
The Company's Common Stock trades under the
NASDAQ symbol EECN and is included in the National Market System. The high and
low prices of the Company's Common Stock during the year ended October 31, 1995
and the ten month period ended October 31, 1994 adjusted retroactively for a
one-for-five reverse stock split on January 29, 1996 are as follows:
<TABLE>
<CAPTION>
---------------------------------------------------
1995 HIGH LOW
---------------------------------------------------
<S> <C> <C>
First Quarter 20 11 1/4
Second Quarter 18 3/4 8 7/16
Third Quarter 13 7/16 6 9/16
Fourth Quarter 9 11/16 5 15/16
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------
1994 HIGH LOW
--------------------------------------------------
<S> <C> <C>
First Quarter 41 1/4 30
Second Quarter 41 7/8 24 1/6
Third Quarter 38 1/8 15 5/8
Fourth Quarter through
October 31, 1994 24 3/8 18 3/4
</TABLE>
A. Holders
On December 11, 1995, there were approximately 1,295 stockholders
of record.
B. Dividends
No cash dividends have ever been paid on the Company's Common
Stock, and the Company does not intend to pay cash dividends in
the foreseeable future.
35
<PAGE> 19
ITEM 6. SELECTED FINANCIAL DATA
Year ended October 31, 1995, ten months ended October 31, 1994,
and years ended December 31, 1993, 1992 and 1991
(all amounts in thousands, except per share data)
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
<TABLE>
<CAPTION>
Year 10 Months
Ended Ended
October 31, October 31, Year Ended December 31,
1995 1994 (1) 1993 1992 (2) 1991(2)
---- -------- ---- -------- -------
<S> <C> <C> <C> <C> <C>
Revenues:
Product sales $9,135 $8,550 $7,151 $3,519 $1,368
Contract revenue 2,300 10,412 11,776 4,074 3,647
Gross margins 3,627 2,659 1,514 292 (39)
Expenses:
Research & development 8,951 9,278 12,096 8,345 6,408
Selling, general &
administrative 10,672 9,249 9,821 8,757 5,253
Special charges for
purchased technology 9,143 - 350 4,349 4,567
Net loss ($23,324) ($4,593) ($11,858) ($21,366) ($10,879)
Net loss per common
share ($4.34) ($1.24) ($3.39) ($6.30) ($4.00)
Weighted average common
shares outstanding (3) 5,373 3,715 3,495 3,385 2,710
======================================================================================================================
</TABLE>
CONSOLIDATED BALANCE SHEET DATA
<TABLE>
<CAPTION>
At October 31, At December 31,
1995 (4) 1995 1994 1993 1992 1991
-------- ---- ---- ---- ---- ----
Pro forma Actual
--------- ------
<S> <C> <C> <C> <C> <C> <C>
Cash, cash equivalents
and temporary
investments $19,275 $1,775 $8,828 $11,601 $17,470 $20,072
Total assets 29,871 12,371 19,471 21,277 25,356 25,092
Long-term debt 620 620 - - - -
Stockholders' equity 20,007 5,507 9,651 9,496 18,465 19,247
===================================================================================================================================
</TABLE>
No cash dividends have ever been paid on the Company's Common Stock, and the
Company does not intend to pay cash dividends in the foreseeable future.
(1) In December 1994, the Company changed from a calendar year end to a fiscal
year ended October 31. Accordingly, results of operations in 1994 represent
the ten month period ended October 31, 1994.
36
<PAGE> 20
(2) Effective December 31, 1991, the Company acquired Ecogen Israel,
specializing in the development of novel biofungicides. In March 1992, the
Company acquired a company in Australia involved in the research and
development of nematode technology. In September 1992, the Company acquired
certain assets of Scentry, a company that markets and develops pheromone
products. All acquisitions were accounted for as purchases with the operations
of the business acquired included in the consolidated financial statements from
the date of acquisition and a special charge to operations in 1991 and 1992 for
purchased technology.
(3) Adjusted retroactively to reflect the effects of a one-for-five reverse
split approved by shareholders on January 29, 1996.
(4) Reflects the Monsanto transaction as if such transaction occurred on
October 31, 1995.
37
<PAGE> 21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Ecogen Inc. is an agricultural biotechnology company
specializing in the development and marketing of quality biorational products
for the control of pests in agricultural and related markets. On December 28,
1994, the Company changed its fiscal year end from December 31 to October 31 so
that its fiscal year end would better conform to the agricultural growing
season in its primary markets. Accordingly, in the discussion below fiscal
1995 have been compared to a pro forma year ended October 31, 1994 and the ten
months ended October 31, 1994 has been compared with a pro forma ten-month
period ended October 31, 1993. The unaudited consolidated financial statements
for the year ended October 31, 1994 and the ten-month period ended October 31,
1993 are not presented separately herein. Further, on January 29, 1996, the
stockholders of the Company approved a one-for-five reverse stock split. All
references to common shares and per share amounts have been retroactively
adjusted to reflect the reverse stock split.
OVERVIEW
In fiscal 1995, product sales decreased 2% from $9.3 million
in the comparable twelve month period in 1994 to $9.1 million in 1995. Gross
margins improved from 31% in 1994 to 40% in in fiscal 1995. Net loss before
special charges increased from ($6.5) million in the comparable twelve month
period in 1994 to ($13.1) million in 1995 as a result of lower research
contract revenue offset in part by lower operating expenses and higher gross
margins. Contract revenues decreased $10.3 million during the year due
principally to lower research contract revenue from ETech. As a result of the
acquisition of ETech, the Company no longer records contract revenue from
ETech. The 1995 results include special charges of $10.2 million relating to
purchased technology from ETech, the shutdown of Ecogen Australia and other
severance costs. Net loss in fiscal 1995 was ($23.3) million or ($4.34 per
share) compared to ($6.8) million or ($1.84) per share in the same period in
1994.
The following is a summary of results as a percentage of sales, as well as the
percentage change in dollar amounts compared to the prior period:
<TABLE>
<CAPTION>
Year Ended October 31,
---------------------- Increase
1995 1994 (Decrease)
---- ---- ----------
<S> <C> <C> <C>
Product Sales 100% 100% (1.5%)
Gross Margins 40% 31% 26.0%
Research & Development Expenses 98% 129% (25.0%)
Selling & Marketing Expenses 58% 48% 18.5%
General & Administrative Expenses 59% 71% (17.6%)
</TABLE>
RESULTS OF OPERATIONS - YEAR ENDED OCTOBER 31, 1995 COMPARED TO UNAUDITED PRO
FORMA YEAR ENDED OCTOBER 31, 1994.
REVENUES
Total revenues decreased $10.9 million or 48% in fiscal 1995 compared to the
same period in 1994 principally due to lower research contract revenue. Product
sales in 1995 approximated the same level as the comparable period in 1994.
Sales of Bt products increased marginally in 1995 despite adverse weather
conditions in the Mississippi Delta, the Company's primary market for its Bt
product line. Sales of the Company's pheromone product line decreased 3%
primarily due to economic uncertainties in the Mexican market and inventory
carryover in the Pacific Northwest. Gross margins on product sales increased
to 40% in 1995 from 31% in the same period in 1994 in spite of the fact that
pheromone product sales, which have the highest gross margins decreased in
1995. The increase in gross margins in 1995 reflects the continuing impact of
improvements made to the Bt manufacturing process.
OPERATING COSTS
Research and development costs decreased $3.0 million or 25.0% in fiscal 1995
compared to the same period in 1994 due principally to scheduled reductions in
spending under ETech programs for which research effort had been accelerated in
1993 and 1994 as a result of the ETech financing. Research and development
expenses are expected to decrease further in 1996 primarily as a result of the
divestiture of Ecogen Europe, the closure of the Company's laboratory in
Germany and cost saving measures in the U.S. Selling and marketing expenses
increased $.8 million or
38
<PAGE> 22
18.5% as a result of costs associated with new product introductions. General
and administrative expenses decreased $1.2 million or 17.6% in fiscal 1995
compared to the same period in 1994 as a result of cost containment measures
taken in late 1994 and in 1995.
Total operating expenses were $29.8 million during fiscal 1995 compared to
$23.3 million in the same period in 1994. The increase in operating expenses
is due to special charges of $10.2 million in 1995. Operating expenses
exclusive of special charges decreased 14% from $22.9 million in fiscal 1994 to
$19.6 million in the comparable period in 1995.
Net loss for fiscal 1995 was ($23.3) million or ($4.34) per share compared to
($6.8) million or ($1.84) per share in the same period in 1994. The net loss
exclusive of special charges was ($13.1) million or ($2.45) per share in 1995
compared to ($6.5) million or ($1.75) per share in 1994. The increase in net
loss exclusive of special charges is due to the decrease in research contract
revenue partially offset by lower operating costs and higher gross margins.
SPECIAL CHARGES
The following represents a summary of special charges:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(in Thousands)
<S> <C> <C> <C>
Purchased Technology $9,143 - $350
Warrants issued for ETech
research agreement - - 1,598
Market repositioning charge - - 2,008
Restructuring Costs 1,042 - -
------ ------- -----
$10,185 - $3,956
====== ======= =====
</TABLE>
Restructuring costs include $.9 million of severance costs of which $.2 million
and $.2 million are payable in fiscal 1996 and 1997.
RESULTS OF OPERATIONS - TEN MONTHS ENDED OCTOBER 31, 1994 COMPARED TO UNAUDITED
PRO FORMA TEN MONTHS ENDED OCTOBER 31, 1993
In fiscal 1994, the Company attained record revenues of $19.8
million up 19% from $16.6 million in the similar ten-month period ended October
31, 1993. The Company also reduced its net loss by 52% to ($4.6) million from
($9.6) million in the 1993 comparative period. The 1993 period included
special charges consisting principally of $1.6 million relating to the value of
warrants issued in connection with the ETech financing and $2.0 million for
marketing repositioning charges relating to the Company's Bt product line. Net
loss per share decreased to ($1.25) per share in fiscal 1994, from ($2.75) per
share in the prior year's ten month period ended October 31, 1993.
REVENUES
Total revenues increased 19% in the ten months ended October
31, 1994 compared to the same period in 1993. Net product sales of $8.5
million increased 33% in the ten months ended October 31, 1994 compared to the
same period in 1993. The pheromone product line experienced a 58.8% increase
in sales while Bt products increased 23.7%. Sales of Bt products increased in
spite of the negative effect of adverse weather conditions and unexpectedly low
levels of insect pressure resulting in reduced applications of Bt products
throughout 1994. Contract revenue increased $815 thousand due primarily to
higher revenue earned on the Company's agreements with ETech and 3A. Interest
and other income increased 59% to $664 thousand, due to higher rates earned on
investments and favorable exchange differences.
39
<PAGE> 23
COSTS AND EXPENSES
Total costs and expenses were $24.4 million in fiscal 1994 and
$26.2 million in the corresponding period in 1993, a decrease of $1.8 million
or 7% on 19% higher revenues. The prior period includes a special charge of
$1.6 million relating to the value of the warrants issued in connection with
the ETech financing and a marketing charge of $2.0 million in connection with
the repositioning of the Bt product line. There were no special charges in
1994. Cost of goods sold increased $757 thousand due primarily to the higher
net product sales. Gross margins on product sales were 31% in fiscal 1994
compared to 20% in the corresponding period in 1993. The improvement in gross
margins resulted in large part from the Company's efforts initiated in 1994 to
reduce product costs. Total research and development expenses of $9.3 million
approximated the same levels incurred in 1993. Self-funded R&D expenses
decreased $600 thousand due primarily to the shifting of research efforts to
funded ETech and 3A projects. Selling, general and administrative expenses
increased $1.2 million due primarily to increased marketing and promotional
expenses.
SEASONALITY OF BUSINESS
The bulk of the Company's current products are presently
marketed for agricultural applications in the northern hemisphere, where the
growing season generally runs from spring until fall. Commercial introduction
of the Company's new products is contingent on, among other factors, completion
of field testing and receipt of required regulatory approvals. Unusual weather
conditions during field tests or failure to receive regulatory approvals prior
to the growing season may require additional field tests in subsequent growing
seasons, with resulting delays in product development and commercialization.
In addition, because of the seasonal nature of the Company's business, product
revenues are likely to be concentrated in the fiscal quarters prior to and
during a particular growing season and may result in substantial variations in
quarter-to-quarter financial results. Product sales from year-to-year are also
affected by unusual weather conditions, such as droughts, and the level of
insect infestation in grower areas.
INFLATION
To date and for the foreseeable future, inflation has not had
nor is it anticipated to have a significant impact on revenues or costs and
expenses of the Company, except to the extent of normal cost of living
adjustments related to personnel costs.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its working capital needs primarily
through private and public offerings of equity securities, research payments
and license fees from its research and development contract payments and
product sales.
At October 31, 1995, the Company had cash and cash equivalents
of $1.8 million, a net decrease of $7.0 million from October 31, 1994. During
1995, the Company received approximately $4.0 million from the ETech research
and development agreements and $7.8 million from the sale of equity securities
and had a net decrease in cash and cash equivalents of $3.3 million due to the
disposition of Ecogen Europe. Cash expenditures during the current period were
for operations, and purchases of $.9 million of equipment and leasehold
improvements.
Subsequent to October 31, 1995, the Company completed the
Monsanto transaction which resulted in an immediate cash infusion to the
Company of $18.0 million including $10 million from the sale of 953 thousand
shares of the Company's common stock. On a pro forma basis, assuming the
Monsanto transaction had closed on October 31, 1995, the Company had $19.3 in
cash and cash equivalents. Further, subsequent to October 31, 1995 the
Company sold 122,000 shares of Series C preferred stock at $25 per share in a
private placement to institutional investors for aggregate net proceeds of $2.8
million. The terms of the preferred stock are disclosed in note 8 of the notes
to the consolidated financial statements. In connection with the private
placement the Company issued warrants to purchase 77,877 shares of the
Company's common stock at $7.30 per share exercisable for five years.
40
<PAGE> 24
To date, the Company has not generated positive cash flow from
operations. The Company believes that its existing working capital including
funds received from Monsanto in January 1996 should be sufficient to meet its
capital and liquidity requirements for the immediate future. However, the
Company's working capital and working capital requirements are affected
by numerous factors and there is no assurance that such factors will
not have a negative impact on the Company's liquidity. Principal among these
are the success of its product commercialization and marketing efforts and the
efforts of its strategic partners in commercializing and selling products based
on the Company's technology, the technological advantages and pricing of the
Company's products, economic and environmental considerations which impact
agricultural crop production and the agricultural sector generally, competitive
conditions in the agricultural pest control market, and access to capital
markets that can provide the Company with the resources necessary to fund its
strategic priorities.
At October 31, 1995 the Company had commitments for capital expenditures of
$1.6 million. The Company has obtained a lease facility to finance such
equipment subject to a 15% deposit.
Through October 31, 1995, the Company had available Federal
net operating loss carryforwards of approximately $60.6 million which expire at
various times through the year 2010. In addition, the Company had research and
experimentation tax credits of approximately $2.4 million, which credits expire
at various times through the year 2010.
As a result of certain equity transactions, the Company
experienced ownership changes as defined by rules enacted with the Tax Reform
Act of 1986 (the "Act"). Accordingly, the Company's ability to use its net
operating loss and research and experimentation credit carryforwards is subject
to certain limitations as defined by the Act. The Company believes that such
limitations should not have a significant impact in 1996 or 1997 since
anticipated taxable profits, if any, will not exceed the amount of the
limitation. In addition, to the extent that the Company recognizes gains, if
any, on the disposition of assets held on the date of the ownership change, the
annual limitation is increased by the amount of the "built-in" gains
attributable to those assets. The built-in gain on a particular asset is the
excess of its fair market value over its cost basis on the date of the
ownership change.
OTHER ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY
Deferred contract revenue decreased $5.7 million in fiscal
1995 as a result of $2.0 million research contract revenue earned under the 3A
and AgrEvo research contracts during fiscal 1995 and the divestiture of Ecogen
Europe.
Other long-term liabilities increased $2.1 million in 1995
principally as a result of funds received from ETech minority shareholders
which are required to be recorded as a deferred liability under generally
acceptable accounting principles until such time as the minority interest in
ETech is acquired. The Company has no obligation to acquire such minority
interest.
Stockholders' equity decreased $4.1 million as a result of
1995 operating losses offset by equity financings in 1995.
In March, 1995, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-lived Assets and for Long-lived Assets
to be Disposed of", which is effective for the fiscal years beginning after
December 15, 1995. This standard is not expected to have a significant effect
on either the results of operations or financial position of the Company.
41
<PAGE> 25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14 for an Index to Financial Statements and Financial
Statement Schedules. Such Financial Statements and Schedules are incorporated
herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
1. The section labeled "Election of Directors" appearing
in the Proxy Statement is hereby incorporated herein by reference.
2. Information concerning the Company's Executive
Officers is set forth in Part I of this Form 10-K.
3. The section labeled "Election of Directors" appearing
in the Proxy Statement is hereby incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The section labeled "Executive Compensation" appearing in the
Proxy Statement is hereby incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The section labeled "Principal Stockholders" appearing in the
Proxy Statement is hereby incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The section labeled "Certain Transactions" appearing in the
Proxy Statement is hereby incorporated herein by reference.
42
<PAGE> 26
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
(a)(1) AND (2) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
SCHEDULES
The following consolidated financial statements of Ecogen Inc. and Subsidiaries
are included in Item 8:
<TABLE>
<CAPTION>
Page in
Form 10-K
---------
<S> <C>
Independent Auditors' Report F-1
Consolidated Balance Sheets - Actual October 31, 1995 and 1994 and F-2
Unaudited Pro Forma October 31, 1995
Consolidated Statements of Operations - Year Ended October 31, 1995, F-3
Ten Months Ended October 31, 1994 and Year Ended December 31, 1993
Consolidated Statements of Stockholders' Equity F-4
Year Ended October 31, 1995, Ten Months Ended October 31,
1994 and Year Ended December 31, 1993
Consolidated Statements of Cash Flows - Year Ended October 31, 1995,
Ten Months Ended October 31, 1994, and Year Ended December 31, 1993 F-5
Notes to Consolidated Financial Statements - October 31, 1995 and 1994 and
December 31, 1993 F-7
Financial Statement Schedule: Valuation and Qualifiying Accounts F-21
</TABLE>
All other schedules are omitted for the reasons that they are not
applicable or that equivalent information has been included in the consolidated
financial statements, and notes thereto, or elsewhere herein.
43
<PAGE> 27
(a)(3) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
3.1 Restated Certificate of Incorporation of Ecogen Inc., filed with
the Secretary of State of the State of Delaware on October 16,
1992. (Form 10-K for fiscal year ended December 31, 1992)*
3.8 By-laws of Ecogen Inc., as amended (Form S-1 Registration
Statement)*
4.2 Ecogen Inc. Stock Option Plan, as amended, (Form S-8, File No.
33-39687)*
4.3 Ecogen Inc. Stock Option Plan, as amended. (Form 10-K for fiscal
year ended December 31, 1992)*
4.4 Certificate of Designations, Rights and Preferences of Series B
Convertible Preferred Stock of Ecogen Inc. dated September 21,
1995.
4.5 Certificate of Designations, Rights and Preferences of Series C
Convertible Preferred Stock of Ecogen Inc. dated December 6, 1995.
10.4 Restructure Agreement, dated August 3, 1990, between PruTech
Research and Development Partnership II and Ecogen Inc. (Form 8 to
Form 10-Q for fiscal quarter ended September 30, 1990)*
</TABLE>
* These items are hereby incorporated by reference from the exhibits of the
filing or report inidicated (except where noted, Commission File No.
1-9579, File no. 33-14119 in the case of the Form S-1 Registration
Statement and File No. 33-40319 in the case of the Form S-1 Registration
Statement filed on May 1, 1991, as amended) and are made part of this
Report.
<PAGE> 28
<TABLE>
<S> <C>
10.14 Form of Confidentiality Agreement between Ecogen Inc. and all
Ecogen Inc. employees (Form S-1 Registration Statement)*
10.18 Agreement for License or Sale of Technology, dated as of December
12, 1985, between PruTech Research and Development Partnership II
and Ecogen Inc. (Form S-1 Registration Statement)*
10.30 Lease Agreement, dated June 4, 1985, between Linpro Bucks County
II, Limited and Ecogen Inc. (Form S-1 Registration Statement)*
10.32 Lease Extension Agreement, dated January 13, 1988, between Mellon
Bank East, N.A. and Ecogen Inc. (Form 10-K for fiscal year ended
December 31, 1987)*
10.33 Lease Agreement, dated April 13, 1988, between Mellon Bank East,
N.A. and Ecogen Inc. (Form 10-K for fiscal year ended December 31,
1987)*
10.41 Form of Director Indemnification Agreement between Ecogen Inc. and
the members of the Board of Directors (Form 10-K for fiscal year
ended December 31, 1987)*
10.62 Distribution Agreement, dated March 26, 1991, by and between Ecogen
Inc. and Roussel Uclaf. (Form 10-K for fiscal year ended December
31, 1990)*
</TABLE>
* These items are hereby incorporated by reference from the exhibits of the
filing or report inidicated (except where noted, Commission File No.
1-9579, File no. 33-14119 in the case of the Form S-1 Registration
Statement and File No. 33-40319 in the case of the Form S-1 Registration
Statement filed on May 1, 1991, as amended) and are made part of this
Report.
<PAGE> 29
<TABLE>
<S> <C>
10.67 Bt Gene License Agreement between Ecogen Inc. and Pioneer Hi-Bred
International, Inc. dated April 11, 1991 (Form S-1 Registration
Statement filed on May 1, 1991, as amended).*
10.70 Registration Rights Agreement dated December 27, 1991, for the
benefit of Purchasers entering into a Subscription Agreement
pursuant to the Sales Agency Agreement between D. Blech & Company,
Incorporated and Ecogen Inc. dated December 16, 1991. (Form 10-K
for fiscal year ended December 31, 1991)*
10.71 Registration Rights Agreement dated January 17, 1992, for the
benefit of Purchasers entering into a Subscription Agreement
pursuant to the Sales Agency Agreement between Societe Generale
Securities Corporation and Ecogen Inc. dated January 6, 1992.
(Form 10-K for fiscal year ended December 31, 1991)*
10.72 Registration Rights Agreement dated January 31, 1992, for the
benefit of Purchasers entering into a Subscription Agreement dated
January 31, 1992. (Form 10-K for fiscal year ended December 31,
1991)*
10.73 Unit Purchase Option Agreement for the benefit of D. Blech & Co.
dated December 27, 1991, issued pursuant to a certain Sales Agency
Agreement dated as of December 16, 1991. (Form 10-K for fiscal
year ended December 31, 1991)*
10.74 Unit Purchase Option Agreement for the benefit of D. Blech & Co.
dated December 31, 1991, issued pursuant to a certain Sales Agency
Agreement dated as of December 16, 1991. (Form 10-K for fiscal
year ended December 31, 1991)*
10.75 Unit Purchase Option Agreement for the benefit of D. Blech & Co.
dated January 2, 1992, issued pursuant to a certain Sales Agency
Agreement dated as of December 16, 1991. (Form 10-K for fiscal
year ended December 31, 1991)*
10.76 Unit Purchase Option Agreement for the benefit of D. Blech & Co.
dated January 3, 1992, issued pursuant to a certain Sales Agency
Agreement dated as of December 16, 1991. (Form 10-K for fiscal
year ended December 31, 1991)*
10.77 Unit Purchase Option Agreement for the benefit of D. Blech & Co.
dated January 17, 1992, issued pursuant to a certain Sales Agency
Agreement dated as of January 6, 1992. (Form 10-K for fiscal year
ended December 31, 1991)*
10.78 Form of Warrant issued pursuant to the Sales Agency Agreement
between D. Blech & Company, Incorporated and Ecogen Inc. dated
December 16, 1991. (Form 10-K for fiscal year ended December 31,
1991)*
</TABLE>
* These items are hereby incorporated by reference from the exhibits of the
filing or report inidicated (except where noted, Commission File No.
1-9579, File no. 33-14119 in the case of the Form S-1 Registration
Statement and File No. 33-40319 in the case of the Form S-1 Registration
Statement filed on May 1, 1991, as amended) and are made part of this
Report.
<PAGE> 30
<TABLE>
<S> <C>
10.79 Form of Warrant issued pursuant to the Sales Agency Agreement
between Societe Generale Securities Corporation and Ecogen Inc.
dated January 6, 1992. (Form 10-K for fiscal year ended December
31, 1991)*
10.80 Form of Warrant issued pursuant to the Sales Agency Agreement
between Societe Generale Securities Corporation and Ecogen Inc.
dated January 6, 1992 and supplemented by letter dated January 31,
1992. (Form 10-K for fiscal year ended December 31, 1991)*
10.81 Sales Agency Agreement between D. Blech & Company Incorporated and
Ecogen Inc. dated as of December 16, 1991. (Form 10-K for fiscal
year ended December 31, 1991)*
10.86 Sales Agency Agreement among D. Blech & Company Incorporated,
Ecogen Technologies I Incorporated and Ecogen Inc. dated as of June
5, 1992. (Form 10-K for fiscal year ended December 31, 1992.)*
10.87 Form of Services Agreement among Ecogen Inc., Ecogen Technologies I
Incorporated and the Program Subsidiaries. (Form 10-K for fiscal
year ended December 31, 1992.)*
10.88 Form of Technology License Agreement between Ecogen-Bio Inc. and
certain Program Subsidiaries. (Form 10-K for fiscal year ended
December 31, 1992.)*
10.89 Form of Research and Development Agreement between Ecogen Inc. and
certain Program Subsidiaries. (Form 10-K for fiscal year ended
December 31, 1992.)*
10.90 Form of Marketing Option Agreement between Ecogen Inc. and certain
Program Subsidiaries. (Form 10-K for fiscal year ended December
31, 1992.)*
10.91 Form of Warrant issued pursuant to the Sales Agency Agreement
between D. Blech & Company, Incorporated, Ecogen Technologies and
Ecogen Inc. dated as of June 5, 1992. (Form 10-K for fiscal year
ended December 31, 1992.)*
10.94 Summary of Ecogen Inc. Deferred Compensation Plan. (Form 10-K for
fiscal year ended December 31, 1992.)*
</TABLE>
* These items are hereby incorporated by reference from the exhibits of the
filing or report inidicated (except where noted, Commission File No.
1-9579, File no. 33-14119 in the case of the Form S-1 Registration
Statement and File No. 33-40319 in the case of the Form S-1 Registration
Statement filed on May 1, 1991, as amended) and are made part of this
Report.
<PAGE> 31
<TABLE>
<S> <C>
10.95 Lease Extension Agreement and Second Lease Extension Agreement,
each between Advent Realty Limited Partnership and Ecogen Inc. and
each dated March 31, 1992. (Form 10-K for fiscal year ended
December 31, 1992.)*
10.96 Form of Severance Compensation Agreement entered into by the
Company and each of the various vice presidents of the Company.
(Form 10-Q for fiscal quarter ended June 30, 1993.)*
10.97 Form of Officer Indemnification Agreement entered into by the
Company and each executive officer of the Company. (Form 10-Q for
fiscal quarter ended June 30, 1993.)*
10.99 Amendment to the Agreement for License or Sale of Technology
between the Company and PruTech Research and Development
Partnership II, dated July 21, 1993. (Form 10-Q for fiscal quarter
ended June 30, 1993.)*
10.101 Employment and Consulting Agreement by and between Ecogen Inc. and
John E. Davies, dated as of January 1, 1994. (Form 10-K for fiscal
year ended December 31, 1993.)*
10.102 Employment Agreement by and between Ecogen Inc. and James P.
Reilly, Jr. dated as of January 1, 1994. (Form 10-K for fiscal
year ended December 31, 1993.)*
10.105 Supply Agreement between the Company and biosys, dated as of June
1, 1994. (Form 10-Q for fiscal quarter ended June 30, 1994.)*
10.106 Sales Agency Agreement between the Company and D. Blech & Company,
Incorporated dated as of July 8, 1994. (Form 10-Q for fiscal
quarter ended September 30, 1994.)*
10.107 Warrant Agreement Amendment between the Company and David Blech
dated as of August 19, 1994. (Form 10-Q for fiscal quarter ended
September 30, 1994.)*
</TABLE>
* These items are hereby incorporated by reference from the exhibits of the
filing or report inidicated (except where noted, Commission File No.
1-9579, File no. 33-14119 in the case of the Form S-1 Registration
Statement and File No. 33-40319 in the case of the Form S-1 Registration
Statement filed on May 1, 1991, as amended) and are made part of this
Report.
<PAGE> 32
<TABLE>
<S> <C>
10.116 Phantom Stock Agreement between the Company and James P. Reilly,
Jr. dated as of November 17, 1994. (Form 10-K for fiscal year ended
October 31, 1994.)*
10.117 Letter Agreement between the Company and John E. Davies dated
November 29, 1994. (Form 10-K for fiscal year ended October 31,
1994.)*
10.118 Employment and Consulting Agreement between the Company and Bruce
C. Carlton dated as of February 22, 1995. (Form 10-Q for fiscal
quarter ended April 30, 1995.)*
10.119 Form of Incentive Stock Option Agreement, as amended. (Form 10-K
for fiscal year ended October 31, 1994.)*
10.120 Master Settlement Agreement among the Company Ecogen Europe S.r.l.
and 3A Parco Technologico Agroalimentare dated October 23, 1995.
21. List of Subsidiaries
24. Consent of KPMG Peat Marwick LLP
25. Powers of attorney executed by certain officers of the Company and
the individual members of the Board of Directors authorizing
certain officers of the Company to file amendments to the Company's
annual report on Form 10-K are located on the signature page to
such Form 10-K.
27. Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K.
Not applicable.
* These items are hereby incorporated by reference from the exhibits
of the filing or report inidicated (except where noted, Commission File
No. 1-9579, File no. 33-14119 in the case of the Form S-1 Registration
Statement and File No. 33-40319 in the case of the Form S-1 Registration
Statement filed on May 1, 1991, as amended) and are made part of this
Report.
<PAGE> 33
Independent Auditors' Report
The Board of Directors and Stockholders
Ecogen Inc.:
We have audited the consolidated financial statements of Ecogen Inc. and
subsidiaries as listed in the accompanying index in Item 14. In connection
with our audits of the consolidated financial statements, we also have audited
the financial statement schedule as listed in the accompanying index in Item
14. These consolidated financial statements and financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Ecogen Inc. and
subsidiaries as of October 31, 1995 and 1994, and the results of their
operations and their cash flows for the year ended October 31, 1995, the ten
months ended October 31, 1994 and the year ended December 31, 1993, in
conformity with generally accepted accounting principles. Also in our opinion,
the related financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
KPMG Peat Marwick LLP
Short Hills, New Jersey
January 24, 1996, except as
to note 17, which is as
of January 29, 1996
<PAGE> 34
ECOGEN INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
UNAUDITED ACTUAL
PROFORMA -----------------------------
ASSETS OCTOBER 31, OCTOBER 31, OCTOBER 31,
------ 1995 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $19,275,213 $1,775,213 $8,094,075
Temporary investments - - 734,285
Contract and trade receivables, less allowance for doubtful
accounts of $80,000 in 1995 and $90,000 in 1994 733,146 733,146 1,111,490
Inventory 6,345,452 6,345,452 6,595,953
Prepaid expenses and other current assets 145,770 145,770 642,881
------------- ------------- -------------
Total current assets 26,499,581 8,999,581 17,178,684
------------- ------------- -------------
Plant and equipment, net 2,768,318 2,768,318 1,931,786
Intangible and other assets, net 603,600 603,600 360,598
------------- ------------- -------------
$29,871,499 $12,371,499 $19,471,068
============= ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable and accrued expenses 4,077,095 4,077,095 4,041,215
Deferred contract revenue 3,043,550 43,550 5,779,059
------------- ------------- -------------
Total current liabilities 7,120,645 4,120,645 9,820,274
------------- ------------- -------------
Long-term debt 619,978 619,978 -
Other long-term obligations 2,123,489 2,123,489 -
Stockholders' equity:
Preferred stock, par value $.01 per share; authorized 7,500,000 shares
Series A convertible preferred stock - 540,000 shares authorized;
none and 260,000 shares issued and outstanding in 1995 and 1994,
respectively (liquidation value $10 per share) - - 2,600
Series B convertible preferred stock - 350,000 shares authorized;
35,000 and none shares issued and outstanding in 1995 and 1994,
respectively (liquidation value $20 per share) 350 350 -
Common stock, par value $.01 per share; authorized 42,000,000 shares;
issued pro forma - 6,921,939 shares, actual - 5,978,542 and
4,256,767 in 1995 and 1994, respectively 69,219 59,785 212,838
Additional paid-in capital 114,834,010 105,343,444 86,033,915
Accumulated deficit (93,878,279) (98,878,279) (75,554,683)
Foreign currency translation adjustment 270,867 270,867 244,904
Treasury stock, at cost ( 36,156 shares in 1995 and 1994 ) (1,288,780) (1,288,780) (1,288,780)
Total stockholders' equity 20,007,387 5,507,387 9,650,794
Commitments and contingencies
------------- ------------- -------------
$29,871,499 $12,371,499 $19,471,068
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 35
ECOGEN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
TEN MONTHS
YEAR ENDED ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, DECEMBER 31,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Revenues:
Product sales, net $9,135,203 $8,549,523 $7,151,455
Contract revenue 2,299,822 10,412,213 11,775,892
License income - 200,000 205,000
Interest and other income 555,935 663,612 519,472
--------------- -------------- --------------
Total revenues 11,990,960 19,825,348 19,651,819
--------------- -------------- --------------
Costs and expenses, including related
party amounts of $1,122,877, $1,086,886
and $1,487,693:
Cost of products sold 5,507,641 5,890,670 5,636,993
Research and development:
Funded by third parties 1,673,617 5,985,066 6,762,878
Self funded 7,277,224 3,292,939 5,332,940
Selling, general and administrative 10,671,572 9,249,277 9,821,243
Special charges 10,184,502 - 3,956,075
--------------- -------------- --------------
Total costs and expenses 35,314,556 24,417,952 31,510,129
--------------- -------------- --------------
NET LOSS ($23,323,596) ($4,592,604) (11,858,310)
=============== ============== ==============
NET LOSS PER COMMON SHARE ($4.34) ($1.24) ($3.39)
=============== ============== ==============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 5,373,000 3,715,000 3,495,000
=============== ============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 36
ECOGEN INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEAR ENDED OCTOBER 31, 1995, TEN MONTHS ENDED OCTOBER 31, 1994 AND YEAR ENDED
DECEMBER 31, 1993
<TABLE>
<CAPTION>
CONVERTIBLE ADDITIONAL
PREFERRED COMMON PAID-IN ACCUMULATED
STOCK STOCK CAPITAL DEFICIT
----- ----- ------- -------
<S> <C> <C> <C> <C>
BALANCE JANUARY 1, 1993 $5,000 $173,400 $78,890,154 ($59,103,769)
Issuance of 182,600 warrants in connection
with research agreement - - 1,597,750 -
Issuance of 43,218 shares of common stock in
connection with license and research agreements - 2,161 1,120,484 -
Issuance of 38,034 shares of common stock
upon exercise of stock options and warrants - 1,902 137,069 -
Conversion of 240,000 shares of Series A
preferred stock to common stock (2,400) 2,400 - -
Foreign currency translation - - - -
Net loss - - - (11,858,310)
---------- ---------- ------------- --------------
BALANCE DECEMBER 31, 1993 $2,600 $179,863 $81,745,457 ($70,962,079)
Issuance of 494,773 shares of common stock
upon exercise of stock options and warrants - 24,738 4,051 -
Issuance of 10,000 shares of common stock
in connection with consulting agreement - 500 248,875 -
Private placement of 70,000 shares of common
stock, net of issuance costs - 3,500 1,828,928 -
Private placement of 83,640 shares of common
stock and 83,640 warrants, net of issuance costs - 4,182 2,437,621 -
Issuance of 9,594 shares of common
stock in connection with license agreement - 480 191,408 -
Cancelled subscription of 8,500 shares of
common stock - (425) (422,425) -
Foreign currency translation - - - -
Net loss - - - (4,592,604)
---------- ---------- ------------- --------------
BALANCE OCTOBER 31, 1994 $2,600 $212,838 $86,033,915 ($75,554,683)
Issuance of 822,240 shares of common
stock in connection with ETech exchange offer - 41,112 11,264,687 -
Issuance of 129,015 shares of common stock
upon exercise of stock options and warrants - 6,451 1,240,139 -
Issuance of 723,750 shares of common stock
in connection with private placements, net - 36,187 5,794,931 -
Issuance of 5,517 shares of common stock
in connection with a research agreement - 275 96,279 -
Conversion of 260,000 shares of Series A
preferred stock to common stock (2,600) 2,600 - -
Issuance of 35,000 shares of Series B convertible
preferred stock in connection with a private placement, net 350 - 673,815 -
One-for-five reverse stock split - (239,678) 239,678 -
Foreign currency translation - - - -
Net loss - - - (23,323,596)
---------- ---------- ------------- --------------
BALANCE OCTOBER 31, 1995 $350 $59,785 $105,343,444 ($98,878,279)
========== ========== ============= ==============
<CAPTION>
EQUITY TREASURY
ADJUSTMENT SUB- STOCK
FOREIGN CURRENCY SCRIPTIONS AT
TRANSLATION RECEIVABLE COST TOTAL
----------- ---------- ---- -----
<S> <C> <C> <C> <C>
Balance January 1, 1993 $212,119 ($422,850) ($1,288,780) $18,465,274
Issuance of 182,600 warrants in connection
with research agreement - - - 1,597,750
Issuance of 43,218 shares of common stock in
connection with license and research agreements - - - 1,122,645
Issuance of 38,034 shares of common stock
upon exercise of stock options and warrants - - - 138,971
Conversion of 240,000 shares of Series A
preferred stock to common stock - - - -
Foreign currency translation 29,504 - 29,504
Net loss - - - (11,858,310)
---------- ----------- -------------- -------------
Balance December 31, 1993 $241,623 ($422,850) ($1,288,780) $9,495,834
Issuance of 494,773 shares of common stock
upon exercise of stock options and warrants - - 28,789
Issuance of 10,000 shares of common stock
in connection with consulting agreement - - - 249,375
Private placement of 70,000 shares of common
stock, net of issuance costs - - - 1,832,428
Private placement of 83,640 shares of common
stock and 83,640 warrants, net of issuance costs - - - 2,441,803
Issuance of 9,594 shares of common
stock in connection with license agreement - - - 191,888
Cancelled subscription of 8,500 shares of
common stock - 422,850 -
Foreign currency translation 3,281 - - 3,281
Net loss - - - (4,592,604)
---------- ----------- -------------- -------------
Balance October 31, 1994 $244,904 $0 ($1,288,780) $9,650,794
Issuance of 822,240 shares of common
stock in connection with ETech exchange offer - - 11,305,799
Issuance of 129,015 shares of common stock
upon exercise of stock options and warrants - - 1,246,590
Issuance of 723,750 shares of common stock
in connection with private placements, net - - 5,831,118
Issuance of 5,517 shares of common stock
in connection with a research agreement - - 96,554
Conversion of 260,000 shares of Series A
preferred stock to common stock - - -
Issuance of 35,000 shares of Series B convertible
preferred stock in connection with a private placement, net - - 674,165
One-for-five reverse stock split - - -
Foreign currency translation 25,963 - 25,963
Net loss - - (23,323,596)
---------- ----------- -------------- -------------
Balance October 31, 1995 $270,867 $0 ($1,288,780) $5,507,387
========== =========== ============== =============
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE> 37
ECOGEN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
TEN MONTHS
YEAR ENDED ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, DECEMBER 31,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ($23,323,596) ($4,592,604) ($11,858,310)
Adjustments to reconcile net loss to net
cash used in operating activities:
Noncash portion of special charges 9,717,737 1,597,750
Depreciation and amortization expense 613,965 423,300 874,178
Foreign currency transaction (gain) loss 16,940 (33,452) 56,673
Changes in operating assets and liabilities,
net of effects from acquisitions/dispositions:
(Increase) decrease in inventory 250,501 (2,982,188) 24,691
(Increase) decrease in contract
and trade receivables, net 476,136 (86,206) 139,151
(Increase) decrease in contract receivable
from Ecogen Technologies I Incorporated - 2,253,872 (1,945,604)
(Increase) decrease in prepaid expenses
and other current assets (344,130) (117,648) 205,429
(Increase) decrease in intangible
and other assets (189,564) 7,850 (7,454)
Increase in accounts payable and
accrued expenses 382,756 344,727 853,606
Increase (decrease) in deferred contract
revenue (2,255,508) (2,900,646) 5,365,089
--------------- ------------- -------------
Net cash used in operating activities (14,654,763) (7,682,995) (4,694,801)
--------------- ------------- -------------
Cash flows from investing activities:
Proceeds from maturities of temporary
investments 734,285 1,522,056 15,626,144
Purchase of temporary investments - (1,456,341) (4,842,439)
Purchase of plant and equipment (930,852) (446,291) (1,170,122)
Net cash change from disposition (3,270,274) - -
--------------- ------------- -------------
Net cash provided by (used in) investing activities (3,466,841) (380,576) 9,613,583
--------------- ------------- -------------
Cash flows from financing activities:
Proceeds from sale of common stock, warrants
and convertible preferred stock, net of
issuance costs 7,751,873 4,303,020 138,971
Proceeds from issuance of long term debt 154,000 - -
Cash received from ETech investors 4,015,732 - -
--------------- ------------- -------------
Net cash provided by financing activities 11,921,605 4,303,020 138,971
--------------- ------------- -------------
</TABLE>
F-5 (Continued)
<PAGE> 38
ECOGEN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
<TABLE>
<CAPTION>
TEN MONTH
YEAR ENDED ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, DECEMBER 31,
1995 1994 1993
<S> <C> <C> <C>
Effect of foreign exchange rate changes on cash (138,863) $1,053,898 ($143,195)
------------- ------------ ------------
Net increase (decrease) in cash and cash equivalents (6,338,862) (2,706,653) 4,914,558
Cash and cash equivalents, beginning of period 8,094,075 10,800,728 5,886,170
------------- ------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $1,775,213 $8,094,075 $10,800,728
============= ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $7,859 $8,178 $8,221
Income taxes - - -
</TABLE>
NONCASH INVESTING AND FINANCING ACTIVITIES:
In 1995 debt totalling approximately $466,000 was incurred by the Company
for the acquisition of production equipment.
In 1994, the Company issued 489,706 shares of common stock in connection
with the exercise of warrants on a net issuance method in which 389,706
shares of common stock were surrendered.
In 1995, 1994 and 1993, the Company issued 5,517, 9,594 and 43,218 shares of
common stock, respectively, in connection with a research and development
and cross-licensing agreement with CSIRO.
In 1994, the Company issued 10,000 shares of common stock in connection with
a consulting agreement.
In 1994, subscriptions receivable aggregating $422,850 were eliminated
against paid-in capital as the underlined shares or retired upon foreclosure.
In 1993, the Company issued common stock to satisfy a $997,500 obligation to
issue common stock outstanding as of December 31, 1992, in connection with a
research and development agreement with 3A.
In 1995 and 1993, holders of the Company's Series A convertible preferred
stock converted 260,000 and 240,000 shares of preferred stock, respectively,
to shares of common stock.
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 39
ECOGEN INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1995 and 1994 and December 31, 1993
(1) Summary of Significant Accounting Policies
Organization and Business Activities:
The consolidated financial statements include the accounts of Ecogen
Inc. ("Ecogen or the Company") and its wholly-owned and majority-owned
subsidiaries. All intercompany accounts and transactions have been
eliminated in consolidation. During fiscal 1995, Ecogen acquired an
approximately 70% interest in Ecogen Technologies I, Inc. (ETech)
(see note 6).
The Company is a biotechnology company specializing in the development
and marketing of environmentally compatible products for the control
of pests in agricultural and related markets. The Company has not yet
achieved profitable operations and there is no assurance that
profitable operations, if achieved could be sustained on
a continuing basis. Further, the Company's future operations are
dependent on the success of the Company's commercialization efforts
and market acceptance of the Company's products.
Fiscal year end:
In December 1994, the Company changed its year end from a calendar
year end to a fiscal year ending October 31. Accordingly, the
accompanying consolidated financial statements include a balance sheet
at October 31, 1995 and 1994 and statements of operations, cash flows
and stockholders' equity for the year ended October 31, 1995, for the
ten months ended October 31, 1994 and for the year ended December 31,
1993.
Inventory:
Inventory is stated at the lower of cost, as determined by the average
cost method, or net realizable value.
Plant and equipment:
Plant and equipment are recorded at cost. Depreciation is computed by
utilizing an accelerated method over the estimated useful lives of the
related assets which range from three to ten years. Amortization of
leasehold improvements is computed using the straight-line method over
the lesser of the estimated useful lives of the improvements or the
remaining lease term.
Research and development:
All research and development costs are charged to operations as
incurred.
Revenue recognition:
Revenue from research and development contracts is recognized in
accordance with the terms of the respective contracts. Revenue from
certain contracts is recognized on a pro-rata basis over the life of
the contract. Related contract costs are generally incurred ratably
over the contract term. Revenue from achievement of milestone events
is recognized when all parties concur that the scientific results
and/or milestones stipulated in the agreement have been met. Revenue
from time and materials contracts is recognized in the period in which
the related services have been rendered and costs incurred by the
Company. Revenue recognized in the accompanying consolidated
statements of operations is not subject to repayment. Revenue
received that is related to future performance under such contracts is
deferred and recognized as revenue when earned.
Revenues from product sales are recognized upon shipment and passage of
title to the customer.
F-7
<PAGE> 40
ECOGEN INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
1) Summary of Significant Accounting Policies, cont.
Concentration of credit risk:
The Company's product sales are made primarily to distributors of
agricultural products located predominantly in North America. The
Company does not generally require collateral or other security to
ensure collection of trade receivables, except for certain
international sales, where letters of credit are generally obtained.
Intangible and other assets:
Intangible and other assets include purchased proprietary technology,
patents, license fees and cost in excess of net assets acquired.
Amounts capitalized are amortized over their estimated useful lives
which range from 2.5 years to 15 years. Technology acquired that is
still in the research and development stage is charged to operations.
Amortization expense on intangible assets amounted to $135,631 in
1995, $118,761 in fiscal 1994, and $165,239 in 1993.
Cash and cash equivalents:
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid temporary investments purchased with an
original maturity of three months or less to be cash equivalents.
Cash equivalents consist primarily of U.S. Government obligations,
commercial paper and foreign money market accounts and are carried at
cost which approximates market value.
Temporary investments:
Temporary investments consist of U.S. Government obligations and
commercial paper with original maturities greater than three months
and are carried at cost which approximates market value. The Company
adopted Statement of Financial Accounting Standards No. 115 (FAS 115),
"Accounting for Certain Investments in Debt and Equity Securities", as
of January 1, 1994. Adoption of FAS 115 had no material impact on the
Company's consolidated financial position or results of operations.
Net loss per common share:
Net loss per common share is computed using the weighted average
number of shares outstanding during the period. Common stock
equivalents are not included in the computation of weighted average
shares outstanding since the effect would be anti-dilutive.
Foreign currency translation:
Substantially all assets and liabilities of the Company's foreign
subsidiaries are translated at year-end exchange rates while related
income and expenses are translated at rates which approximate the
exchange rates prevailing during the year. The resulting adjustments
are accumulated as a separate component of stockholders' equity.
Foreign currency transaction gains (losses) are charged to operations
as incurred and amounted to ($16,940) in 1995, $33,452 in fiscal 1994,
($56,673) in 1993.
Income Taxes:
The Company accounts for income taxes under Financial Accounting
Standards No. 109 (FAS 109) "Accounting for Income Taxes". Under the
asset and liability method of FAS 109, deferred tax assets and
liabilities are recognized for the estimated future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases and the benefits arising from the realization of operating loss
and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates in effect for the year in which those
temporary differences are expected to be recovered or settled. A
valuation allowance is provided when it is more likely than not that
some portion or all of the deferred tax assets will not be realized.
Under FAS 109, the effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that
includes the enactment date of the tax rate change.
F-8
<PAGE> 41
ECOGEN INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
1) Summary of Significant Accounting Policies, cont.
Reclassification:
Certain amounts contained in the 1994 and 1993 consolidated financial
statements have been reclassified to conform to the 1995 presentation.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
(2) Inventory
Inventory consists of the following components as of October 31, 1995
and 1994:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Raw materials and packing supplies $ 1,782,565 $1,417,276
Work in process 2,323,434 1,391,912
Finished goods 2,239,453 3,786,765
------------ ----------
$ 6,345,452 $6,595,953
------------ ----------
</TABLE>
(3) Plant and Equipment
Plant and equipment consist of the following components as of October
31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Manufacturing and laboratory equipment $4,048,146 $3,612,386
Office furniture and equipment 865,215 972,747
Leasehold improvements 2,109,154 2,128,637
Construction in progress 910,482 -
------- ---------
7,932,997 6,713,770
Less accumulated depreciation
and amortization (5,164,679) (4,781,984)
----------- -----------
$2,768,318 $1,931,786
=========== ===========
</TABLE>
(4) Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following
components as of October 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Trade accounts payable $ 2,560,696 $ 1,605,750
License fees 200,000 200,000
Payroll costs 503,488 851,818
Professional fees 172,888 219,689
Other 640,023 1,163,958
------- ---------
$ 4,077,095 $ 4,041,215
========== ==========
</TABLE>
F-9
<PAGE> 42
ECOGEN INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(5) Long-term Debt
During 1995 the Company received approval from the Israeli government
to provide financing for 70% of the cost of scale-up of a
manufacturing facility in Israel and certain working capital and
research and development financing for a three-year period up to a
maximum loan balance of $1.6 million. The equipment loan component of
$.5 million will be payable over a 7 year period, with the first two
years being interest only at a rate of 5.625% (linked to the Israeli
CPI index) and the working capital financing of $1.1 million will be
payable over five years with the first three years being interest
only. The interest rate on the working capital loan is Israeli prime
(currently 15%) +3.275%. The program also includes a grant of $.3
million. The Israeli government will guarantee 85% of the amount
financed. To date, the Company has borrowed approximately $154,000 on
the Israeli line of credit. Principal payments of approximately
$78,000 and $76,000 are due in 1999 and 2000 respectively.
Further, the Company obtained a $2.0 million line of credit to be used
for leasing of production equipment. To date, the Company has
borrowed approximately $466,000 under the line of credit. The Company
is required to pay interest only until all of the equipment is ready
for use at which time the notes will be converted to a capital lease
obligation. The Company expects the lease to be in place in early
1996, and the lease facility will require a 15% security deposit.
(6) Ecogen Technologies I Incorporated
In 1992 and 1993, Ecogen Technologies I Incorporated, a corporation
organized by, but not at that time affiliated with, the Company,
completed a private placement of 300 units for $10,000 per Unit
(ETech Units), each consisting of four shares of common stock of ETech
and 2,000 warrants expiring June 1998, each to purchase one share of
common stock of the Company at a per share purchase price of $43.75.
Purchasers of the ETech Units paid 20% of the purchase price for the
ETech Units at the time of closing, with the balance of the purchase
price payable in three installments over a two-year period. The
placement agent for the ETech financing received commissions amounting
to $2,322,750 from this private placement and was issued warrants to
purchase 60,000 shares of the Company's common stock at $43.75 per
share. The fair value, as determined by an independent investment
banker, of the warrants issued to ETech investors and the placement
agent was charged to operations as part of the special charge for
warrants issued for research.
During 1995, the Company acquired approximately 70% of the outstanding
stock of ETech pursuant to which the Company issued 822,240 shares of
its common stock having a market value of approximately $11.3 million.
The acquisition of approximately 70% of ETech was accounted for under
the purchase method of accounting and in fiscal 1995 the Company
recorded approximately $9.1 million as a special charge to operations
for the value of in-process research and development acquired from
ETech. Market feasibility and acceptance has not yet been established
with respect to the ETech research programs and there is no assurance
that the Company will be successful in its commercialization efforts.
Effective October 1, 1994, the Company discontinued recording contract
revenue and management fees under the ETech agreements because it was
the Company's intention to initiate an exchange offer for 20% or more
of the ETech shares. Subsequent to October 1, 1994, ETech collected
from investors participating in the Exchange Offer and remitted to the
Company approximately $3.0 million of payments under the ETech
Investor Notes. As a result of the acquisition, effective January 1,
1995, ETech's consolidated financial statements are consolidated with
those of the Company resulting in the Company recording 100% of the
research and development expenses of ETech programs and reflecting any
payments from ETech investors, subsequent to the Exchange Offer, as a
long-term obligation. At October 31, 1995 approximately $1.6 million
had been recorded as a long-term obligation for cash received from
ETech investors not electing to exchange their ETech shares for the
Company's shares. The Company assumed the obligation to fund the
final installment ($1.6 million) for those units participating in the
exchange.
F-10
<PAGE> 43
ECOGEN INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(6) Ecogen Technologies I Incorporated, cont.
ETech was formed to initiate or accelerate research and development of
certain products using technology exclusively licensed or sublicensed
by the Company to subsidiaries of ETech. Pursuant to research and
development agreements between Ecogen and each of the subsidiaries of
ETech, Ecogen is conducting research, development and testing on the
technology licensed to the subsidiaries of ETech in exchange for
receiving reimbursement from ETech equal to Ecogen's development
costs, as defined, plus a research management fee equal to 3.89% of
such costs. Further, pursuant to a services agreement ETech pays the
Company a management fee equal to 5.75% of ETech's program
subsidiaries' fully burdened costs. It is anticipated that the work
Ecogen is performing will utilize substantially all of the net
proceeds from the sale of the ETech Units. During 1993, the Company
earned contract revenue and management fees of $8,118,000 and
$717,000, respectively from ETech. During fiscal 1994, the Company
earned contract revenue and management fees of $6,844,000 and
$731,000, respectively.
The following unaudited pro forma results of operations for the years
ended October 31, 1995 and 1994 give effect to the acquisition of
ETech as though it had occurred on November 1, 1993 instead of
December 31, 1994, the effective date of the transaction. The
unaudited pro forma results include adjustments to eliminate contract
revenue and management fees from Etech and to include all operating
expenses of Etech as if Etech was a consolidated subsidiary on
November 1, 1993. The following unaudited pro forma results of
operations do not include the 1995 nonrecurring charge to operations
of approximately $9.1 million ($1.85 per share) for the purchased
technology.
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Total revenues $ 11,990,960 $ 14,450,330
Net loss (14,403,539) (15,491,340)
Net loss per share ($2.70) ($4 .15)
======= ========
</TABLE>
The unaudited pro forma results of operations are not necessarily
indicative of the actual results of operations that would have
occurred had the acquisition been made on November 1, 1993, or the
results which may occur in the future.
(7) Research, Development and License Agreements
During 1991 and 1992 the Company, through Ecogen Europe S.r.l. (Ecogen
Europe), a majority owned subsidiary of Ecogen Inc., entered into two
long-term research and development agreements with 3A S.r.l. (3A), an
Italian corporation. Ecogen Europe was owned 75% by the Company and
25% by 3A. On October 23, 1995 the Company terminated its European
research and development agreements with 3A. As part of the
transaction, Ecogen transferred its ownership interest in Ecogen
Europe to 3A and Ecogen Europe changed its name to Bio Integrated
Technology S.r.l. (BIT).
As a result of the deal, Ecogen is released from the obligation to
provide $5.6 million of funding to Ecogen Europe. Further, as part of
the transaction, the Company received cash of approximately $1.0
million and 683,202 of its common shares that had been held by Ecogen
Europe. The Company licensed to BIT the Company's existing nematode
technology for use solely in Europe, Africa and the Middle East ("BIT
Territory") and agreed to provide BIT with improvements to certain of
its nematode formulation technology. BIT licensed to the Company
nematode technology for use outside of BIT's Territory. The Company
also licensed to BIT certain of its existing Bt technology principally
12 non-commercialized strains and process and formulation technology
solely for use in BIT's Territory. The Company will also pay BIT
until the year 2002 a royalty on net sales in BIT's Territory of
certain biofungicide products. The Company recorded a gain of
approximately $.2 million on the transaction.
F-11
<PAGE> 44
ECOGEN INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(7) Research, Development and License Agreements, cont.
The following unaudited pro forma results of operations for the years
ended October 31, 1995 and 1994 give effect to the acquisition of
ETech (note 6) and the disposition of the Company's interest in Ecogen
Europe as though it had occurred on November 1, 1993. The unaudited
pro forma results include adjustments to eliminate Ecogen Europe's
operations including principally contract revenue interest income and
research and development expense as if Ecogen Europe was not a
consolidated subsidiary on November 1, 1993. The unaudited pro forma
results of operations do not include the 1995 non recurring gain of
approximately $.2 million ($.04 per share) recorded on the Ecogen
Europe transaction and $9.1 million for purchased technology for
ETech.
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Total Revenues $10,180,250 $11,107,242
Net loss (14,348,494) (14,107,077)
Net loss per share ($2.67) ($3.80)
</TABLE>
The unaudited pro forma results of operations are not necessarily
indicative of the actual results of operations that would have
occurred had the acquisition/disposition been made on November 1,
1993, or the results which may occur in the future.
In connection with one of the 3A research agreements, the Company had
a consulting agreement with a corporation whose president was a
director of Ecogen Europe and a former director of the Company. Under
this agreement, the Company was obligated to issue 10,000 unregistered
shares of common stock as a stock award. The estimated fair value of
this stock of $249,375 was recorded as a research agreement expense.
Such shares of common stock were issued in 1994. The Company also paid
consulting fees to this individual aggregating $75,000 and $100,000 in
fiscal 1994 and 1993, respectively.
Further, in 1994 the Company paid 3A, $132,000 for management fees and
facilities costs in Italy.
(8) Preferred Stock
Series A Convertible Preferred Stock
During 1995 and 1993, holders converted 260,000 and 240,000 shares
respectively, of the Series A convertible preferred stock to common
stock in accordance with its terms.
Series B Convertible Preferred Stock
In September 1995, the Company raised $.7 million net of expenses from
two institutional investors in exchange for 35,000 shares of 8% Series
B Convertible Preferred Stock (the "Series B Preferred Stock").
Dividends are payable annually in either cash, shares of Series B
Preferred Stock or shares of the Company's common stock at the
discretion of the Company. Each share of Series B Preferred Stock
entitles the holder, to one vote on all matters presented to the
Company's stockholders for a vote. At the election of the holder, the
Series B Preferred Stock may be converted at various dates to shares
of the Company's common stock, subject to adjustments for stock splits
and adjustments, at predetermined discounts from the average market
price per share over a five day trading period preceding the date of
conversion. At any time after September 8, 1996, the Company may
elect to convert the shares to common stock. Any time after September
15, 1997, the Company may redeem the Series B Preferred Stock at a
predetermined premium to the original issuance price. In the event of
liquidation the holders of the Series B Preferred Stock have the right
to $20.00 per share plus all accrued and unpaid dividends. Subsequent
to October 31, 1995, 17,499 shares of the Company's the Series B
Preferred Stock were converted into 68,856 shares of the Company's
common stock.
F-12
<PAGE> 45
ECOGEN INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(8) Preferred Stock, cont.
Series C Convertible Preferred Stock
In November 1995, the Company raised $2.8 million net of expenses,
from institutional investors in exchange for 122,000 shares of 8%
Series C Convertible Preferred Stock (the "Series C Preferred Stock").
Dividends are payable annually or at the time of redemption or
conversion in cash, shares of the Company's common stock or shares of
Series C Preferred Stock at the discretion of the Company. The Series
C Preferred holders have certain limited voting rights. At the
election of the holders, pursuant to a predetermined schedule, the
Series C Preferred Stock may be converted to shares of the Company's
common stock, subject to adjustments for stock splits and adjustments,
at predetermined discounts from the average market price per share on
the date of conversion. At any time after June 1, 1997, the Company
may elect to convert the shares to common stock. At any time after
June 11, 1997, the Company may redeem the Series C Preferred Stock at
a predetermined premium to the original issuance price. In the event
of liquidation the holders of the Series C Preferred Stock have the
right to $25.00 per share plus all accrued and unpaid dividends.
(9) Common Stock
During 1994, the Company raised an aggregate of $1.8 million net of
issuance costs from two institutional investors in exchange for 70,000
shares of the Company's common stock. In connection with the
transaction, five year warrants to purchase 7,000 shares of the
Company's common stock at $29.00 per share were issued.
In 1994, the Company also completed a private placement consisting of
83,640 shares of common stock and 83,640 warrants, each to purchase
one share of common stock at an exercise price of $43.75 per share
until January 1998. The Company raised an aggregate of $1.8 million
net of issuance costs from this private placement. In connection with
the private placement, the placement agent was granted unit purchase
options to purchase 8,364 shares of common stock at $35 per share, and
8,364 warrants to purchase one share of common stock at $43.75 per
share, expiring in 1998.
During 1995, the Company raised an aggregate of $7.1 million, net of
issuance costs in private placements to institutional investors in
exchange for 723,750 shares of the Company's common stock.
(10) Warrants and Other Options
As of October 31, 1995, the Company had the following warrants and
options outstanding and exercisable (excluding stock options issued
under the Company's stock option plan - see note 11):
<TABLE>
<CAPTION>
Price
range per Expiration
Shares Share/unit Dates
------ ---------- -----
<S> <C> <C> <C>
Warrants 1,228,630 $15.00 - 70.00 1995 - 2000
Unit purchase options 66,528 $50.00 1995 - 1998
Other options 132,610 $11.70 - 63.00 1998 - 2003
-------
1,427,768
=========
</TABLE>
F-13
<PAGE> 46
ECOGEN INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(10) Warrants and Other Options, cont.
Subsequent to October 31, 1995, 375,190 warrants at exercise prices
from $38.25 to $70.00 expired, and 16,899 unit purchase options at an
exercise price of $50.00 expired. Further, subsequent to October 31,
1995, the Company issued 75,077 five year warrants to purchase shares
of the Company's common stock at $7.30 per share to the placement
agents in connection with the private placement of the Company's
securities.
(11) Stock Option Plan
The Company has a stock option plan (Option Plan) under which the
number of shares of common stock which may be granted under the Option
Plan can not exceed 800,000 shares. The Option Plan permits the
granting of both incentive stock options and nonstatutory stock
options. The option price of the shares for incentive stock options
cannot be less than the fair market value of such stock at the grant
date. Options are exercisable over a period determined by the Board
of Directors, but not longer than ten years after the grant date.
The status of the Option Plan for the year ended October 31, 1995 and
the ten months ended October 31, 1994 and the year ended December 31,
1993 is as follows:
<TABLE>
<CAPTION>
Options Outstanding
-----------------------------
Price range
Shares per share
------ ---------
<S> <C> <C>
Balance January 1, 1993 361,615 $ 6.30 - $65.90
Granted 160,809 $33.15 - $40.55
Exercised (6,998) $11.70 - $17.45
Canceled (17,806) $11.70 - $53.05
--------
Balance December 31, 1993 497,620 $ 6.30 - $65.90
Granted 49,840 $32.25 - $36.30
Exercised (5,067) $ 6.30 - $35.20
Canceled (20,976) $11.70 - $65.90
--------
Balance October 31, 1994 521,417 $ 6.30 - $65.90
Granted 408,919 $ 6.88 - $32.88
Exercised (8,437) $ 7.34 - $12.56
Canceled (420,439) $ 7.34 - $65.90
--------
Balance October 31, 1995 501,460 $ 7.34 - $65.90
======= ===============
Options exercisable at
October 31, 1995 350,454 $ 6.30 - $53.55
======= ===============
</TABLE>
Subsequent to October 31, 1995, 197,360 stock options were granted at
an exercise price ranging from $5.94 to $7.19 per share and 19,215
options were canceled at exercise prices ranging from $6.30 to $53.55.
In addition, during fiscal 1995, employees were given the right to
exchange 290,079 options at exercise prices from $32.30 to $65.88 for
new options at an exercise price of $10.94, the fair market value at
the grant date for the exchange right. The new options are not
exercisable until the later of November 13, 1995 or the exercisable
date of the option exchanged. Accordingly, options to purchase
290,079 shares were canceled and an equal number of new options were
issued, which is reflected in the table above.
F-14
<PAGE> 47
ECOGEN INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(12) Geographic Area and Related Information
The Company's operations consist primarily of the research,
development and marketing of biopesticide and related products, which
constitutes one industry segment. Information with respect to the
Company's operations by geographic area for fiscal year ended October
31, 1995, ten months ended October 31, 1994 and calendar 1993
is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Revenues:
United States:
Unaffiliated customers $ 9,940,018 $ 15,744,243 $ 15,501,472
Transfers to other
geographic areas 826,537 1,253,064 2,610,313
------- ---------
10,766,555 16,997,307 18,111,785
----------- ---------- ----------
Europe:
Unaffiliated customers 1,810,710 2,728,301 1,929,332
Transfers to other
geographic areas - - 180,000
1,810,710 2,728,301 2,109,332
--------- --------- ---------
Other:
Unaffiliated customers 240,232 1,352,804 2,221,015
Eliminations and adjustments (826,537) (1,253,064) (2,790,313)
-------- ---------- ----------
Total revenues $11,990,960 $ 19,825,348 $19,651,819
========== ========== ===========
Operating income (loss):
United States $ (20,843,428) $ (4,931,039) $ (11,546,760)
Europe (291,721) 140,772 168,853
Other (1,361,910) (630,144) (333,492)
Eliminations and adjustments (826,537) 827,807 (146,911)
-------- ------- --------
Total operating loss $(23,323,596) $(4,592,604) $(11,858,310)
============ =========== ============
Identifiable assets:
United States $ 17,707,976 $ 16,907,573 $ 17,926,598
Europe - 7,159,233 6,703,095
Other 482,590 836,529 925,671
Eliminations and adjustments (5,819,067) (5,432,267) (4,278,049)
----------- --------- ---------
Total identifiable assets $12,371,499 $19,471,068 $21,277,315
=========== =========== ===========
</TABLE>
Of the $9,940,018, $15,744,243 and $15,501,472 United States revenue
from unaffiliated customers in 1995, 1994 and 1993 respectively,
$1,433,084, $2,179,315 and $3,481,787 were export revenue from the
following geographic areas:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Europe $954,398 $1,571,809 $2,397,820
Other 478,686 607,506 1,083,967
------- ------- ---------
$1,433,084 $2,179,315 $3,481,787
=========== ========== ==========
</TABLE>
F-15
<PAGE> 48
ECOGEN INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(13) Income Taxes
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities as of
October 31, 1995 and 1994 are presented below:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Deferred tax assets:
Purchased research, development and
investment in affiliated companies $10,380,000 $ 6,579,000
Net operating loss carryforwards 20,608,000 17,286,000
Research experimentation credit
carryforward 2,414,000 2,164,000
Other 1,166,000 835,000
--------- -------
Total gross deferred tax assets 34,568,000 26,864,000
Less valuation allowance 34,337,000 26,636,000
---------- ----------
Net deferred tax assets 231,000 228,000
======= =======
Deferred tax liabilities:
Furniture, equipment, and leasehold
improvements, principally due to
differences in depreciations (231,000) (228,000)
-------- ---------
Total gross deferred tax
liabilities (231,000) (228,000)
-------- -------
Net deferred taxes - -
======== ========
</TABLE>
At October 31, 1995, the Company has net operating loss carryforwards
for Federal income tax purposes of approximately $60,612,000 which are
available to offset future Federal taxable income, if any, through
2010. The Company also has research and experimentation tax credit
carryforwards for Federal income tax purposes of approximately
$2,414,000 which are available to reduce future Federal income taxes,
if any through 2010. The Company's ability to use such net operating
loss and research and experimental credit carryforwards is subject to
certain limitations due to ownership changes, as defined by rules
enacted with the Tax Reform Act of 1986.
(14) Commitments and Other Matters
Leases:
The Company leases its facilities and certain equipment and
automobiles under various noncancellable operating leases. Rental
expense charged to operations aggregated approximately $816,000,
$721,000 and $639,000, for the year ended October 31, 1995, for
the ten months ended October 31, 1994 and for the year ended
December 31, 1993, respectively.
Minimum lease payments under noncancelable leases for the years
subsequent to October 31, 1995 are as follows:
<TABLE>
<CAPTION>
Operating
Leases
------
<S> <C>
1996 $ 447,000
1997 407,000
1998 353,000
1999 341,000
2000 140,000
-------
Total minimum lease payments $1,688,000
==========
</TABLE>
F-16
<PAGE> 49
ECOGEN INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(14) Commitments and Other Matters, cont.
Special Charges:
Special charges consist of the following:
<TABLE>
<CAPTION>
Year Ended Year Ended
October 31, December 31,
1995 1993
---- ----
<S> <C> <C>
Purchased technology 9,143,002 350,000
Restructuring costs 1,041,500 -
Warrants issued for research - 1,597,750
Bt repositioning charge - 2,008,325
---------- ---------
10,184,502 3,956,075
========== =========
</TABLE>
In 1995 the Company recorded a special charge for purchased technology
resulting from the acquisition of a majority interest in ETech. Also
in 1995, restructuring costs represent amounts incurred in connection
with the shut down of Ecogen Australia and personnel reductions at
the Company, including agreements with a former officer and director
of the Company, and a former officer and current director. Included in
severance costs are $364,500, $174,500 and $174,500 which will be due
in 1996, 1997 and 1998, respectively. Such amounts are included in
accounts payable and accrued expenses and other long-term obligations
on the accompanying consolidated balance sheet at October 31, 1995.
During 1993, the Company incurred a special marketing charge amounting
to $2,008,325 in connection with the repositioning of its Bt product
line, and recorded a special charge of $1,597,750 for the cost of
warrants issued in connection with the ETech research and development
agreement.
Other:
Sales derived from one customer aggregated 15% of total revenues in
1995. Sales derived from another customer aggregated 10% of total
revenues in 1994. Contract revenues derived from one entity
aggregated 35% and 41% of total revenues in 1994 and 1993,
respectively. Contract revenues derived from another entity
aggregated 11% of total revenues in 1995 and 1993, respectively.
(15) Profit Sharing 401(k) Plan
Effective January 1, 1988, the Company established a 401(k) Profit
Sharing Plan (the 401(k) Plan) which covers substantially all
employees. All eligible employees may elect to contribute a portion
of their wages to the 401(k) Plan, subject to certain limitations. The
Company contributes 50% of the employees' contributions, subject to a
maximum equal to 6% of the employees compensation. The matching
Company contribution vests over a five-year period. The Company
contributed approximately $126,000, $127,000, and $136,000 to the
401(k) Plan in 1995, fiscal 1994 and 1993, respectively.
(16) Related Party Transactions
A Director, elected subsequent to October 31, 1995, is a partner of a
law firm that has acted as legal counsel to the Company. The Company
paid fees of $668,234, $566,550 and $674,374 to this law firm during
fiscal 1995, ten months ended October 31, 1994 and year ended 1993,
respectively.
F-17
<PAGE> 50
ECOGEN INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(16) Related Party Transactions, cont.
The Company has engaged an advertising agency, whose principal is the
son of the Company's former Chairman and a Company director. Fees to
this agency aggregated approximately $932,000, $621,000 and $909,970
in fiscal 1995, the months ended October 31, 1994 and calendar 1993,
respectively.
In 1994 and 1993, the Company had a consulting agreement with a
company that is affiliated with a former director of Ecogen and Ecogen
Europe for administration services provided to Ecogen Europe. Fees
paid under this agreement aggregated $60,000 in 1994 and 1993.
Management believes that all transactions with related parties were
conducted on an arm's-length basis.
(17) Subsequent Events
Monsanto Transaction
On January 24, 1996 the Company entered into an agreement with
Monsanto Company (Monsanto) for an equity investment, purchase of
technology and joint research and development arrangement
relating to the Company's proprietary Bacillus thuringiensis (Bt)
technology for in plant applications (collectively, the "Monsanto
Transaction"). The transaction includes the acquisition by
Monsanto of certain rights inthe Company's Bt technology for an
aggregate purchase price of $5.0 million in cash which will be
recorded as other revenue in the first quarter of 1996, the sale
by the Company to Monsanto of 943,396 shares of Common Stock at
$10.60 per share for an aggregate purchase price of $10.0
million in cash (the Common Stock Sale), and a four year research
and development collaboration arrangement with Monsanto for the
further development of the Company's Bt gene library for a
minimum of $10.0 million, of which $3.0 million was paid in
advance and recorded as deferred contract revenue. Such contract
revenue will be recorded as earned under the terms of the
agreement.
Under the terms of the agreement, Monsanto purchased $10 million
of the Company's Common Stock at $10.60 per share of which $7.3
million was received on January 24, 1996 and $2.7 million was
received on January 29, 1996. As part of the agreement,
Monsanto has agreed to maintain its ownership position during
the term of the research and development agreement and Monsanto
is prohibited, during the first three years following the
closing, from acquiring more than 25% of the Company's voting
stock without the Company's consent. Monsanto was granted
certain demand and piggyback registration rights with respect
to its shares. In addition, Monsanto has a right of first
refusal to purchase securities of the Company so as to maintain
its ownership percentage in the Company.
Reverse Stock Split
On January 29, 1996 the shareholders approved an amendment to
the Company's Restated Certificate of Incorporation (the
"Amendment") which effected a one-for-five reverse split (the
"Reverse Split") of the Company's outstanding shares of common
stock. All references to numbers of shares, weighted averages
shares and loss per share amounts except shares authorized, have
been retroactively restated to give effect to the stock split.
F-18
<PAGE> 51
ECOGEN INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(17) Subsequent Events, cont.
Unaudited Pro Forma Consolidated Balance Sheet
The unaudited pro forma consolidated balance sheet presented is
based upon the Company's historical consolidated balance sheet at
October 31, 1995 after giving effect to the $17.5 million of
cash received net of transaction costs, of which $3.0 million is
deferred contract revenue. The historical accumulated deficit
at October 31, 1995 includes an adjustment of $5.0 million of
other income associated with the transaction which will be
recorded in the first quarter of 1996. The unaudited pro forma
consolidated balance sheet should be read in conjunction with
the Company's historical consolidated financial statements and
accompanying notes thereto.
F-19
<PAGE> 52
Schedule VIII
ECOGEN INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEAR ENDED OCTOBER 31, 1995, TEN MONTHS ENDED OCTOBER 31, 1994 AND YEAR ENDED
DECEMBER 31, 1993
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
Additions Deductions
Balance at Charged to Charged to Balance at
Beginning Costs and Other End of
of Period Expenses Accounts Period
<S> <C> <C> <C> <C> <C>
1995:
Allowance for doubtful accounts $ 90,000 - - 10,000 80,000
Reserve for inventory obsolescence 332,941 575,000 - 212,121 695,820
=============== ======== ============ ========= =========
1994:
Allowance for doubtful accounts 90,000 - - - 90,000
Reserve for inventory obsolescence 470,000 150,000 - 287,059 332,941
=============== ======== ============ ========= =========
1993:
Allowance for doubtful accounts - 90,000 - - 90,000
Reserve for inventory obsolescence 7,025 462,975 - - 470,000
=============== ======== ============ ========= =========
</TABLE>
F-20
<PAGE> 53
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
ECOGEN INC.
By: /s/ Mary Paetzold
Mary Paetzold
Vice President and
Chief Financial Officer
Dated: January 29, 1996
<PAGE> 54
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints James P. Reilly, Jr. and Mary
Paetzold, or any of them, his attorney-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any amendments to this
Annual Report, and to file the same, with exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed by the following persons in the capacities
indicated as of the 29th day of January, 1996.
<TABLE>
<CAPTION>
Signature Title
- --------- -----
<S> <C> <C>
/s/ James P. Reilly, Jr. Chairman, Chief Executive Officer January 29, 1996
- ------------------------ and Director (Principal Executive
James P. Reilly, Jr. Officer)
/s/ Mary E. Paetzold Vice President and Chief Financial January 29, 1996
- --------------------- Officer (Principal Financial and
Mary E. Paetzold Accounting Officer)
/s/ Patrick Owen Burns Director January 29, 1996
- ----------------------
Patrick Owen Burns
/s/ John E. Davies Director January 29, 1996
- ------------------
John E. Davies
/s/ Jack D. Early Director January 29, 1996
- -----------------
Jack D. Early
/s/ Esteban A. Ferrer, Esquire Director January 29, 1996
- ------------------------------
Esteban A. Ferrer, Esquire
/s/ Lowell N. Lewis Director January 29, 1996
- -------------------
Lowell N. Lewis
</TABLE>
<PAGE> 1
EXHIBIT 4.4
(CONFORMED)
ECOGEN INC.
Certificate of Designations, Rights
and Preferences of Series B
Convertible Preferred Stock of ECOGEN INC.
Ecogen Inc., a Delaware corporation (hereinafter called the "Company"),
pursuant to the provisions of Section 151 of the General Corporation Law of the
State of Delaware, does hereby make this Certificate of Designations, Rights
and Preferences and does hereby state and certify that pursuant to the
authority expressly vested in the Board of Directors of the Company by the
Amended and Restated Certificate of Incorporation, the Board of Directors duly
adopted the following resolutions, which resolutions remain in full force and
effect as of the date hereof:
RESOLVED, that, pursuant to Article Fourth of the Amended and Restated
Certificate of Incorporation (which authorized 7,500,000 shares of Preferred
Stock, $.01 par value, of which no shares of preferred stock are currently
issued and outstanding), the Board of Directors hereby authorizes the issuance
of, and fixes the designation and preferences and relative, participating,
optional and other special rights, and qualifications, limitations and
restrictions, of a series of Preferred Stock consisting of 350,000 shares to be
designated Series B Convertible Preferred Stock (the "Series B Preferred
Stock").
RESOLVED, that each share of Series B Preferred Stock shall rank equally
in all respects and shall be subject to the following provisions:
1. Definitions. For purposes hereof the following definitions shall
apply:
"Board" shall mean the Board of Directors of the Company.
"Commitment Date" shall mean the date immediately prior to the date of
original issuance of the Series B Preferred Stock.
"Common Stock" shall mean the Common Stock, par value $.01, of the
Company.
"Company" shall mean this corporation.
"Company Conversion Date" shall have the meaning set forth in Paragraph
7(c).
<PAGE> 2
"Company Conversion Date Market Price" shall mean an amount that is equal
to 75% of the average Market Price for Shares of Common Stock on each of the
five trading days immediately preceding the Company Conversion Date.
"Designated Price" shall mean $20.00 plus all accrued and unpaid
dividends, subject to adjustment from time to time as set forth in Section 9
hereof.
"Holder Conversion Date" shall have the meaning set forth in Paragraph
6(c).
"Holder Conversion Date Market Price" shall mean an amount that is equal
to 80% of the average Market Price for Shares of Common Stock on each of the
five trading days immediately preceding the Holder Conversion Date.
"Junior Stock" shall mean the Common Stock and all other shares of the
Company's capital stock, whether presently outstanding or hereafter issued,
other than the Series B Preferred Stock; provided, however, the Company may
from time to time, without the consent of the holders of the outstanding shares
of Series B Preferred Stock, issue additional series of its presently
authorized and unissued Preferred Stock which rank pari passu in any or all
respects with the Series B. Preferred Stock.
"Market Price for Shares of Common Stock" shall mean the price of one
share of Common Stock determined as follows:
(i) So long as the Common Stock is traded on the NASDAQ Stock
Market, the last reported bid price at the close of business on the date of
valuation;
(ii) If the Common Stock is no longer traded on the NASDAQ Stock
Market but is traded on a national securities exchange, the last sale price on
such exchange at the close of business on the date of valuation; and
(iii) If neither clause (i) or (ii) above applies, the market value
as determine by the Board in good faith taking into consideration, among other
factors, the earnings history, book value and prospects for the Company, and
the prices at which shares of Common Stock recently have been traded. Such
determination shall be conclusive and binding on all persons.
"Original Issuance Market Price" shall mean an amount equal to the Market
Price for Shares of Common Stock on the Commitment Date.
2
<PAGE> 3
"Redemption Date" shall have the meaning set forth in Paragraph 8(c).
"Redemption Date Market Price" shall mean an amount that is equal to the
Market Price for Shares of Common Stock on the trading day immediately
preceding the Redemption Date.
"Series B Preferred Stock" shall mean the Series B Convertible Preferred
Stock of the Company, par value $.01 per share.
2. Dividends. The holders of the then outstanding Series B Preferred
Stock shall be entitled to receive, when and as declared by the Board, and out
of any funds legally available therefore, cumulative dividends at the annual
rate of $1.60 per share. Dividends shall be payable, at the sole discretion of
the Company, in either cash or shares of Common Stock or combination of cash
and shares of Common Stock (i) annually on October 31 of each year or (ii) at
the time of the Conversion or Redemption (as provided herein) of the shares of
the Series B Preferred Stock upon which the dividend is to be paid. If the
Company makes any dividend payment in Common Stock, each share of Common Stock
shall be valued for this purpose at the Market Price for Shares of Common Stock
on the date such dividend is declared or, if the Common Stock is not issued
within ten days after the date of declaration, on the last trading date
preceding the date such Common Stock is issued. Dividends on the Series B
Preferred Stock shall accumulate and accrue from the date of its original issue
and shall accrue from day to day thereafter, whether or not earned or declared.
Unless full dividends on the Series B Preferred Stock for all past dividend
periods and the then current dividend period shall have been paid or declared
and a sum sufficient for the payment thereof set apart, no dividend whatsoever
(other than a dividend payable solely in Common Stock) shall be paid or
declared, and no distribution shall be made, on any Junior Stock. The Series B
Preferred Stock shall have no right to participate in dividends paid on Junior
Stock.
3. Liquidation Rights of Series B Preferred Stock.
(a) Preference. In the event of any liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary, or a sale or other
disposition of all or substantially all of the assets of the Company which
shall be deemed to be a liquidation, dissolution or winding up of the Company,
the holders of the Series B Preferred Stock then outstanding shall be entitled
to be paid out of the assets of the Company available for distribution to its
shareholders, whether such assets are capital, surplus, or earnings, before any
payment or declaration and setting apart for payment of any amount shall be
made in respect of
3
<PAGE> 4
the Junior Stock, an amount equal to the Designated Price, and no more. If
upon any liquidation, dissolution, or winding up of the Company, whether
voluntary or involuntary, the assets to be distributed to the holders of the
Series B Preferred Stock shall be insufficient to permit the payment to such
shareholders of the full preferential amounts aforesaid, then all of the assets
of the Company to be distributed shall be distributed ratably to the holders of
the Series B Preferred Stock on the basis of the number of shares of Series B
Preferred Stock held. The Company shall promptly mail written notice of such
liquidation, dissolution or winding up, but in any event such notice shall not
be less than five days prior to the payment date stated therein, to each record
holder of the Series B Preferred Stock.
(b) Remaining Assets. After the payment or distribution to the
holders of the Series B Preferred Stock of the full preferential amounts
aforesaid, the holders of the Junior Stock then outstanding shall be entitled
to receive all remaining assets of the Company to be distributed.
4. Merger, Consolidation. If at any time there occurs any consolidation
or merger of the Company with or into any other corporation or other entity or
person (whether or not the Company is the surviving corporation), or any other
corporate reorganization or transaction or series of related transactions in
which in excess of 50% of the Company's voting power is transferred, the
holders of the Series B Preferred Stock then outstanding shall participate in
any such transaction as a class with common stockholders on the same basis as
if the Preferred Stock had been converted at the Company's election one day
prior to the close of such transaction.
5. Voting Rights.
(a) Series B Preferred Stock. Each holder of shares of Series B
Preferred Stock shall be entitled to one vote for each share thereof held and
shall be entitled to vote on all matters presented to the Company's
stockholders for a vote.
(b) Common Stock. Each holder of shares of Common Stock shall be
entitled to one vote for each share thereof held. Except as otherwise
expressly provided herein or as required by law, the holders of Series B
Preferred Stock and the holders of Common Stock shall vote together and not as
separate classes.
4
<PAGE> 5
6. Conversion at the Option of the Holder. The holders of Series B
Preferred Stock shall have the following conversion rights.
(a) Holder's Right to Convert. Each share of Series B Preferred
Stock shall be convertible, at the option of the holder thereof, into fully
paid and nonassable shares of Common Stock, subject to the following
limitations: (i) A holder who was issued shares of Series B Preferred Stock
directly from the Company may convert (x) up to one third of such shares
between 45-89 days from the date of original issuance of the Series B Preferred
Stock (the "Closing Date"), (y) up to an aggregate of two thirds of such shares
between 90 and 134 days from the Closing Date and (z) all of such shares 135
days from the Closing Date and thereafter; and (ii) A holder who obtained
shares other than from an issuance directly by the Company may convert such
shares in whole or in part based on the restrictions that attached to such
shares at the time of purchase based on subprovisions (x), (y) and (z) above.
(b) Conversion Price for Holder Converted Shares. The Series B
Preferred Stock that is converted into shares of Common Stock at the option of
the holder shall be convertible into the number of shares of Common Stock which
results from dividing the Designated Price in effect at the time of conversion
by the lesser of (i) the Original Issuance Market Price, and (ii) the Holder
Conversion Date Market Price.
(c) Mechanics of Conversion. Each holder of Series B Preferred
Stock who desires to convert the same into shares of Common Stock shall
surrender the certificate or certificates therefor, duly endorsed, at the
principal corporate office of the Company, and shall give written notice to the
Company at such office that such holder elects to convert the same and shall
state therein the number of shares of Series B Preferred Stock being converted.
Thereupon the Company (to the extent the Company has authorized and unissued
shares of Common Stock that have not been otherwise reserved) shall promptly
issue and deliver to such holder a certificate or certificates for the number
of shares of Common Stock to which such holder is entitled. Such conversion
shall be deemed to have been made immediately prior to the close of business on
the date of such surrender of the certificate representing the shares of Series
B Preferred Stock to be converted (the "Holder Conversion Date").
7. Conversion at the Option of the Company. The Company shall have the
following conversion rights.
(a) Company's Right to Convert. Any and all of the shares of Series
B Preferred Stock shall be convertible,
5
<PAGE> 6
at the option of the Company, into fully paid and nonassesable shares of Common
Stock at any time after September 8, 1996.
(b) Conversion Price for Company Converted Shares. The Series B
Preferred Stock that is converted into shares of Common Stock at the option of
the Company shall be convertible into the number of shares of Common Stock
which results from dividing the Designated Price in effect at the time of
conversion by the lesser of (i) the Original Issuance Market Price, and (ii)
the Company Conversion Date Market Price.
(c) Mechanics of Company Conversion. In the event the Company
determines to convert some or all of the Series B Preferred Stock, the Company
shall send by certified mail notice of such determination to the record holders
of all of the Shares to be converted. The notice shall provide that the
conversion shall occur on a date (the "Company Conversion Date") that is at
least 45 days after the date such notice was sent by certified mail to the
applicable record holders. The holders of the Shares being converted may, at
the holder's option, convert their Shares in accordance with Section 6 hereof
at any time prior to the Company Conversion Date. On the Company Conversion
Date the subject shares of Series B Preferred Stock shall be converted
automatically into shares of Common Stock without any further action by the
holders of such shares and whether or not the certificates representing such
shares are surrendered to the Company; provided, however, that the Company
shall not be obligated to issue certificates evidencing the shares of Common
Stock issuable upon such conversion unless the certificates evidencing such
shares of Series B Preferred Stock are either delivered to the Company, or the
holder notifies the Company that such certificates have been lost, stolen or
destroyed and executes an agreement satisfactory to the Company to indemnify
the Company from any loss incurred by it in connection with such certificates.
Upon the occurrence of such conversion by the Company of the Series B Preferred
Stock, the holders of Series B Preferred Stock shall surrender the certificates
representing such shares at the principal office of the Company. Thereupon,
there shall be issued and delivered to such holder promptly at such office and
in its name and shown on such surrendered certificate or certificates, a
certificate or certificates for the number of shares of Common Stock into which
the shares of Series B Preferred Stock surrendered were convertible on the
Company Conversion Date.
8. Redemption. The Company shall have the following redemption rights.
6
<PAGE> 7
(a) Company's Right to Redeem. Any and all of the shares of Series
B Preferred Stock shall be redeemable at the option of the Company at any time
after September 15, 1997, for cash consideration to be paid by the Company to
the holder of the redeemed shares of Series B Preferred Stock.
(b) Redemption Price. The redemption price per share of Series B
Preferred Stock shall be calculated by multiplying the Designated Price by the
greater of (i) 120%, and (ii) a fraction the numerator of which shall be the
Redemption Date Market Price and the denominator of which shall be an amount
equal to the lesser of (x) the Original Issuance Market Price for such shares
and (y) the Holder Conversion Date Market Price that would have been in effect
had the applicable holder chosen to convert on the Redemption Date.
(c) Mechanics of Redemption. In the event the Company determines to
redeem some or all of the Series B Preferred Stock, the Company shall send by
certified mail notice of such determination to the record holders of all of the
shares to be redeemed. The notice shall provide that the redemption shall
occur on a date (the "Redemption Date") that is at least 45 days after the date
such notice was sent by certified mail to the applicable record holders. The
holders of the shares being redeemed may convert their shares in accordance
with Section 6 hereof at any time prior to the Redemption Date. On the
Redemption Date the subject shares of Series B Preferred Stock shall be
redeemed automatically without any further action by the holders of such shares
and whether or not the certificates representing such shares are surrendered to
the Company; provided, however, that the Company shall not be obligated to
issue the cash consideration due to the holder upon redemption unless the
certificates evidencing such shares of Series B Preferred Stock are either
delivered to the Company or the holder notifies the Company that such
certificates have been lost, stolen or destroyed and executes an agreement
satisfactory to the Company to indemnify the Company from any loss incurred by
it in connection with such certificate. Upon the occurrence of such redemption
by the Company of the Series B Preferred Stock, the holders of such Series B
Preferred Stock shall surrender the certificates representing such shares at
the principal office of the Company. Thereupon, there shall be promptly issued
and delivered to such holder a check payable to the name as shown on such
surrendered certificate in the amount of the redemption price as calculated as
set forth in Paragraph 8(b).
7
<PAGE> 8
9. Adjustments; Reorganizations.
(a) Adjustment for Stock Splits and Combinations. If the Company at
any time or from time to time after the Commitment Date effects a subdivision
of the outstanding Common Stock, the Designated Price and the Original Issuance
Market Price in effect immediately before such subdivision shall be
proportionately decreased, and conversely, if the Company at any time or from
time to time, after the Commitment Date combines the outstanding shares of
Common Stock into a smaller number of shares, the Designated Price and the
Original Issuance Market Price in effect immediately before the combination
shall be proportionately increased. Any adjustment under this Paragraph 9(a)
shall become effective at the close of business on the date the subdivision or
combination becomes effective.
(b) Adjustment for Certain Dividends and Distributions. If the
Company at any time or from time to time after the Commitment Date makes, or
fixes a record date for the determination of holders of Common Stock entitled
to receive, a dividend or other distribution payable in additional shares of
Common Stock, then and in each such event the Designated Price then in effect
shall be decreased as of the time of such issuance or, in the event such record
date is fixed, as of the close of business on such record date, by multiplying
the Designated Price then in effect by a fraction (1) the numerator of which is
the total number of shares of Common Stock issued and outstanding immediately
prior to the time of such issuance of the close of business on such record
date, and (2) the denominator of which shall be the total number of shares of
Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date plus the number of shares
of Common Stock issuable in payment of such dividend or distribution; provided,
however, that if such record date is fixed and such dividend is not fully paid
or if such distribution is not fully made on the date fixed therefor, the
Designated Price shall be recomputed accordingly as of the close of business on
such record date and thereafter the Designated Price shall be adjusted pursuant
to this Paragraph 9(b) as of the time of actual payment of such dividends or
distributions.
(c) Adjustment for Other Dividends and Distributions. In the event
the Company at any time or from time to time after the Commitment Date makes,
or fixes a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in securities of
the Company other than shares of Common Stock, then and in each such event
provision shall be made so that the holders of Series B Preferred Stock shall
receive upon conversion thereof, in addition to the number of shares of Common
Stock receivable thereupon, the amount
8
<PAGE> 9
of securities of he Company which they would have received had their Series B
Preferred Stock been converted into Common Stock on the date of such event and
had they thereafter, during the period from the date of such event to and
including the conversion date, retained such securities receivable by them as
aforesaid during such period, subject to all other adjustments called for
during such period under this Section 9 with respect to the rights of the
holders of the Series B Preferred Stock.
(d) Adjustment for Reclassification, Exchange and Substitution. In
the event that at any time or from time to time after the Commitment Date, the
Common Stock issuable upon the conversion of the Series B Preferred Stock is
changed into the same or a different number of shares of any class or classes
of stock, whether by recapitalization, reclassification or otherwise (other
than a subdivision or combination of shares or stock dividend or reorganization
provided for elsewhere in this Section 9, or a merger, or consolidation,
provided for in Section 4), then and in any event each holder of Series B
Preferred Stock shall have the right thereafter to convert such Stock into the
kind and amount of stock and other securities and property receivable upon such
recapitalization, reclassification or other change, by holders of the maximum
number of shares of Common Stock in which such shares of Series B Preferred
Stock could have been converted immediately prior to such recapitalization,
reclassification or change, all subject to further adjustment as provided
herein.
(e) Reorganizations. If at any time or from time to time after the
Commitment Date there is a capital reorganization of the Common Stock (other
than a recapitalization, subdivision, combination, reclassification or exchange
of shares provided for elsewhere in this Section 9) then, as a part of such
reorganization, provision shall be made so that the holders of the Series B
Preferred Stock shall thereafter be entitled to receive upon conversion of the
Series B Preferred Stock the number of shares of stock or other securities or
property to which a holder of the maximum number of shares of Common Stock
deliverable upon conversion would have been entitled on such capital
reorganization. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 9 with respect to the rights of
the holders of the Series B Preferred Stock after the reorganization to the end
that the provisions of this Section 9 (including adjustment of the Designated
Price then in effect and the number of shares purchasable upon conversion of
the Series B Preferred Stock) shall be applicable after that event and be as
nearly equivalent as may be practicable.
10. Fractional Shares. No fractional shares of Common Stock or scrip
representing fractional shares of Common
9
<PAGE> 10
Stock shall be issuable hereunder. The number of shares of Common Stock that
are issuable hereunder shall be rounded up to the nearest whole share.
11. Reservation of Stock Issuable Upon Conversion. The Company shall at
all times reserve and keep available out of its authorized but unissued shares
of Common Stock, solely for the purpose of effecting the conversion of the
shares of the Series B Preferred Stock, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of the
outstanding shares of the Series B Preferred Stock that then may be converted
by a holder into shares of Common Stock; and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all then outstanding shares of the Series B Preferred
Stock, the Company will take such corporate action as may, in the opinion of
its counsel, be reasonably necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be reasonably
sufficient for such purpose.
12. No Reissuance of Series B Preferred Stock. No share or shares of
Series B Preferred Stock acquired by the Company by reason of redemption,
purchase, conversion or otherwise shall be reissued as Series B Preferred
Stock, and all such shares shall be retired and shall return to the status of
authorized, unissued and undesignated shares of Preferred Stock.
13. Amendment and Waiver of Series B Preferred Stock. No amendment to or
waiver of the terms relating to the Series B Preferred Stock may be affected
unless the Company has obtained the favorable vote or the prior written consent
of the holders of 66-2/3% of the Series B Preferred Stock then outstanding.
10
<PAGE> 11
IN WITNESS WHEREOF, Ecogen Inc. has caused this Certificate of
Designation, Rights and Preferences to be signed by John E. Davies, as Chairman
of the Board and attested by Richard A. Deak, as Secretary, this 21st day of
September, 1995.
ECOGEN INC.
By: /s/ John E. Davies
------------------------
Name: John E. Davies
Title: Chairman of the
Board
ATTEST:
/s/ Richard A. Deak
- --------------------------
Name: Richard A. Deak
Title: Secretary
11
<PAGE> 1
EXHIBIT 4.5
ECOGEN INC.
Certificate of Designations, Rights
and Preferences of Series C
Convertible Preferred Stock of ECOGEN INC.
Ecogen Inc., a Delaware corporation (hereinafter called the
"Company"), pursuant to the provisions of Section 151 of the General
Corporation Law of the State of Delaware, does hereby make this Certificate of
Designations, Rights and Preferences and does hereby state and certify that
pursuant to the authority expressly vested in the Board of Directors of the
Company by the Amended and Restated Certificate of Incorporation, the Board of
Directors duly adopted the following resolutions, which resolutions remain in
full force and effect as of the date hereof:
RESOLVED, that, pursuant to Article Fourth of the Amended and Restated
Certificate of Incorporation (which authorized 7,500,000 shares of Preferred
Stock, $.01 par value, of which 29,167 shares of Series B Convertible Preferred
Stock are currently issued and outstanding), the Board of Directors hereby
authorizes the issuance of, and fixes the designation and preferences and
relative, participating, optional and other special rights, and qualifications,
limitations and restrictions, of a series of Preferred Stock consisting of
160,000 shares to be designated Series C Convertible Preferred Stock (the
"Series C Preferred Stock").
RESOLVED, that each share of Series C Preferred Stock shall rank
equally in all respects and shall be subject to the following provisions:
1. Definitions. For purposes hereof the following definitions shall
apply:
"Board" shall mean the Board of Directors of the Company.
"Closing Date" shall mean the date of original issuance of the Series
C Preferred Stock.
"Common Stock" shall mean the Common Stock, par value $.01, of the
Company.
"Company" shall mean this corporation.
"Company Conversion Date" shall have the meaning set forth in
Paragraph 7(c).
"Company Conversion Date Market Price" shall mean an amount that is
equal to 75% of the average of the Market Price
<PAGE> 2
for Shares of Common Stock on each of the five trading days immediately
preceding the Company Conversion Date.
"Conversion Date Market Price" shall mean an amount that is equal to
80% of the average of the Market Price for Shares of Common Stock on each of
the five trading days immediately preceding the Holder Conversion Date, subject
to adjustment from time to time as set forth in Section 9 hereof.
"Conversion Default" shall have the meaning set forth in Paragraph
11(b).
"Conversion Notice" shall have the meaning set forth in Paragraph
6(c).
"Conversion Rate" shall have the meaning set forth in Paragraph 6(b).
"Designated Price" shall mean $25.00 plus all accrued and unpaid
dividends.
"Holder Conversion Date" shall have the meaning set forth in Paragraph
6(c).
"Junior Stock" shall mean the Common Stock and all other shares of
the Company's capital stock, whether presently outstanding or hereafter issued,
other than the Series C Preferred Stock; provided, however, the Company may
from time to time, without the consent of the holders of the outstanding shares
of Series C Preferred Stock, issue additional series of its presently
authorized and unissued Preferred Stock which rank pari passu to or do not have
preference over the Series C Preferred Stock in dividends, distribution upon
liquidation or other respects.
"Market Price for Shares of Common Stock" shall mean the price of one
share of Common Stock determined as follows:
(i) If the Common Stock is listed on NASDAQ, the last
reported bid price on the date of valuation;
(ii) If the Common Stock is listed on a national securities
exchange, the last bid price on such exchange on the date of valuation;
(iii) If neither (i) nor (ii) apply but the Common Stock is
quoted in the over-the-counter market on the pink sheets or bulletin board, the
mean between the last reported "bid" and "asked" prices thereof on the date of
valuation; and
(iv) If neither clause (i), (ii) or (iii) above applies, the
market value as determined by a nationally
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<PAGE> 3
recognized investment banking firm or other nationally recognized financial
advisor retained by the Company for such purpose, taking into consideration,
among other factors, the earnings history, book value and prospects for the
Company, and the prices at which shares of Common Stock recently have been
traded. Such determination shall be conclusive and binding on all persons.
"Original Issuance Market Price" shall mean an amount equal to the
Market Price for Shares of Common Stock on the Closing Date.
"Post-Conversion Default" shall have the meaning set forth in
Paragraph 11(b).
"Redemption Date" shall have the meaning set forth in Paragraph 8(c).
"Redemption Date Market Price" shall mean an amount that is equal to
the Market Price for Shares of Common Stock on the trading day immediately
preceding the Redemption Date.
"Series C Preferred Stock" shall mean the Series C Convertible
Preferred Stock of the Company, par value $.01 per share.
2. Dividends. Subject to Paragraph 11(b) hereof, the holders of the
then outstanding Series C Preferred Stock shall be entitled to receive
cumulative dividends at the annual rate of 8% (or $2.00) per share, payable in
shares of Common Stock at the time of Conversion (as provided in Paragraph 6
and 7 hereof) or in cash at the time of Redemption (as provided in Paragraph 8
hereof) of the shares of the Series C Preferred Stock upon which the dividend
is to be paid. Dividends on the Series C Preferred Stock shall accumulate and
accrue from the date of its original issue and shall accrue from day to day
thereafter, whether or not earned or declared. The Series C Preferred Stock
shall have no right to participate in dividends paid on Junior Stock.
3. Liquidation Rights of Series C Preferred Stock.
(a) Preference. In the event of any liquidation, dissolution
or winding up of the Company, whether voluntary or involuntary, or a sale or
other disposition of all or substantially all of the assets of the Company
which shall be deemed to be a liquidation, dissolution or winding up of the
Company, the holders of the Series C Preferred Stock then outstanding shall be
entitled to be paid out of the assets of the Company available for distribution
to its stockholders, whether such assets are capital, surplus, or earnings,
before any payment or declaration and setting apart for payment of any amount
shall be made in respect of any Junior Stock, an amount equal to the Designated
Price, and no more. If upon any actual or deemed
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<PAGE> 4
liquidation, dissolution, or winding up of the Company, whether voluntary or
involuntary, the assets to be distributed to the holders of the Series C
Preferred Stock shall be insufficient to permit the payment to such
stockholders of the full preferential amounts aforesaid, then all of the assets
of the Company to be distributed shall be distributed ratably to the holders of
the Series C Preferred Stock and to any holders of any series of Preferred
Stock that ranks pari passu with the Series C Preferred Stock, on the basis of
the number of shares of Preferred Stock held. The Company shall promptly mail
written notice of such liquidation, dissolution or winding up (with a copy sent
by facsimile), but in any event such notice shall not be given less than five
days prior to the payment date stated therein to each record holder of the
Series C Preferred Stock.
(b) Remaining Assets. After the payment or distribution to
the holders of the Series C Preferred Stock of the full preferential amounts
aforesaid, the holders of the Junior Stock then outstanding shall be entitled
to receive all remaining assets of the Company to be distributed.
4. Merger, Consolidation. If at any time there occurs any
consolidation or merger of the Company with or into any other corporation or
other entity or person (whether or not the Company is the surviving
corporation), or any other corporate reorganization or transaction or series of
related transactions in which in excess of 50% of the Company's voting power is
transferred, the holders of the Series C Preferred Stock then outstanding shall
participate in any such transaction as a class with common stockholders on the
same basis as if the Preferred Stock had been converted at the Company's
election one day prior to the close of such transaction.
5. Voting Rights. The holders of the Series C Preferred Stock will
not have any voting rights except as set forth below or as otherwise from time
to time required by law.
The affirmative approval (by vote or written consent as permitted by
applicable law) of the holders of at least 66 2/3% of the outstanding shares of
the Series C Preferred Stock, voting separately as a class, will be required
for (i) any amendment, alteration or repeal of the Company's Amended and
Restated Certificate of Incorporation (including any Certificate of
Designations, Rights and Preferences) if the amendment, alteration or repeal
adversely affects the powers, preferences or rights of the Series C Preferred
Stock (including, without limitation, by creating any class or series of equity
securities having a preference over the Series C Preferred Stock with respect
to dividends, distribution upon liquidation or in any other respect), or (ii)
any amendment to or waiver of the terms of the Series C Preferred Stock.
- 4 -
<PAGE> 5
To the extent that under Delaware law the vote of the holders of the
Series C Preferred Stock, voting separately as a class, is required to
authorize a given action of the Company, the affirmative approval (by vote or
written consent as permitted by applicable law) of the holders of a majority of
the outstanding shares of the Series C Preferred Stock shall constitute the
approval of such action by the class. To the extent that under Delaware law
the holders of the Series C Preferred Stock are entitled to vote on a matter
with holders of the Common Stock, voting together as one class, each share of
Series C Preferred Stock shall be entitled to one vote for each share thereof
held. Holders of the Series C Preferred Stock shall be entitled to notice of
all shareholder meetings or written consents with respect to which they would
be entitled to vote, which notice will be provided pursuant to the Company's
by-laws and applicable statutes.
6. Conversion at the Option of the Holder. The holders of Series C
Preferred Stock shall have the following conversion rights.
(a) Holder's Right to Convert. Each share of Series C
Preferred Stock shall be convertible, at the option of the holder thereof, into
fully paid and nonassessable shares of Common Stock, subject to the following
limitations: (i) A holder who was issued shares of Series C Preferred Stock
directly from the Company may convert (x) up to one third of such shares at any
time on or after the 45th day after the Closing Date, (y) up to an additional
one third of such shares at any time on or after the 76th day following the
Closing Date, and (z) all of such shares at any time on or after the 106th day
following the Closing Date; and (ii) Any transfer of shares of Series C
Preferred Stock by the person to whom such shares were originally issued within
105 days of the Closing Date shall be registered by the Company on its books
and records only upon designation by the transferor of the dates of
convertibility of the shares being transferred in accordance with the foregoing
limitations and any transferee and subsequent transferee of such shares shall
be bound by such conversion restrictions.
(b) Conversion Price for Holder Converted Shares. Each share
of Series C Preferred Stock that is converted into shares of Common Stock at
the option of the holder shall be convertible into the number of shares of
Common Stock which results from application of the following formula:
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<PAGE> 6
[ (.08) (N/365) (25)] + 25
the lesser of (i) the Original
Issuance Market Price and
(ii) the Conversion Date Market Price
N = the number of days between the Closing Date and the Holder
Conversion Date
The number of shares of Common Stock into which each share of Series C
Preferred Stock may be converted pursuant to either this paragraph or Paragraph
7 hereof is hereafter referred to as the "Conversion Rate" for such series.
(c) Mechanics of Conversion. In order to convert Series
C Preferred Stock into full shares of Common Stock, the holder shall surrender
the certificate or certificates therefor, duly endorsed, by either overnight
courier or 2-day courier, to the principal office of the Company or of any
transfer agent for the Series C Preferred Stock, and shall give written notice
(the "Conversion Notice") to the Company at such office that he elects to
convert the number of shares specified therein (with an advance copy of the
certificate(s) and the notice confirmed by facsimile), which such notice and
election shall be irrevocable by the holder; provided, however, that the
Company shall not be obligated to issue certificates evidencing the shares of
the Common Stock issuable upon such conversion unless either the certificates
evidencing the shares of Series C Preferred Stock are delivered to the Company
or its transfer agent as provided above, or the holder notifies the Company
that such certificates have been lost, stolen or destroyed and promptly
executes an agreement satisfactory to the Company to indemnify the Company from
any loss incurred by it in connection with such certificates.
The Company shall use its best efforts to issue and deliver within
three business days after delivery to the Company of such certificates, or
after receipt of such agreement and indemnification, to such holder of Series C
Preferred Stock at the address of the holder on the stock books of the Company,
a certificate or certificates for the number of shares of Common Stock to which
he shall be entitled as aforesaid, together with a calculation of the
Conversion Rate. The date on which the Conversion Notice is given (the "Holder
Conversion Date") shall be deemed to be the date the Company received by
facsimile the Conversion Notice, provided that the original shares of Series C
Preferred Stock to be converted, or the aforesaid notice of lost, stolen or
destroyed certificates, are received by the Company or any transfer agent for
the Series C Preferred Stock within five business days thereafter, and the
person or persons entitled to receive the shares of Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock on such date. If the original
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<PAGE> 7
shares of Series C Preferred Stock to be converted, or the aforesaid notice of
lost, stolen or destroyed certificates, are not received by the Company or any
transfer agent for the Series C Preferred Stock Preferred Stock Agent within
five business days after the Holder Conversion Date, the Conversion Notice
shall become null and void.
7. Conversion at the Option of the Company. The Company shall have
the following conversion rights.
(a) Company's Right to Convert. All (but not less than all)
of the shares of Series C Preferred Stock shall be convertible, at the option
of the Company, into fully paid and nonassessable shares of Common Stock at any
time after June 1, 1997.
(b) Conversion Price for Company Converted Shares. The
Series C Preferred Stock that is converted into shares of Common Stock at the
option of the Company shall be convertible into the number of shares of Common
Stock which results from application of the following formula:
[ (.08) (N/365) (25)] + 25
the lesser of (i) the Original
Issuance Market Price and
(ii) the Company Conversion Date Market Price
N = the number of days between the Closing Date and
the Company Conversion Date
(c) Mechanics of Company Conversion. In the event the
Company determines to convert all of the Series C Preferred Stock, the Company
shall send by either overnight courier or 2-day courier (with a copy sent by
facsimile) notice of such determination to the record holders of all of the
Series C Preferred Stock. The notice shall provide that the conversion shall
occur on a date (the "Company Conversion Date") that is at least 60 days after
the date such notice was sent by confirmed facsimile to each record holder.
Such holders of Series C Preferred Stock may, at the holder's option, convert
his shares in accordance with Section 6 hereof at any time prior to the Company
Conversion Date. On the Company Conversion Date the shares of Series C
Preferred Stock shall be converted automatically into shares of Common Stock
without any further action by the holders of such shares and whether or not the
certificates representing such shares are surrendered to the Company, and such
persons shall be treated for all purposes as the record holders of such shares
of Common Stock on such date; provided, however, that the Company shall not be
obligated to issue to a holder of shares of Series C Preferred Stock
certificates evidencing the shares of Common Stock issuable upon conversion
unless the certificates evidencing such shares of
- 7 -
<PAGE> 8
Series C Preferred Stock are either delivered to the principal office of the
Company or of any transfer agent for the Series C Preferred Stock, or the
holder notifies the Company that such certificates have been lost, stolen or
destroyed and executes an agreement satisfactory to the Company to indemnify
the Company from any loss incurred by it in connection with such certificates.
The Company shall use its best efforts to issue and deliver within three
business days after the Company Conversion Date and delivery to the Company of
such certificates, or after receipt of such agreement and indemnification, to
such holder of Series C Preferred Stock at the address of the holder on the
stock books of the Company, a certificate or certificate for the number of
shares of Common Stock to which he shall be entitled as aforesaid.
8. Redemption. The Company shall have the following redemption
rights.
(a) Company's Right to Redeem. All (but not less than all)
of the shares of Series C Preferred Stock shall be redeemable at the option of
the Company at any time after June 1, 1997, for cash consideration to be paid
by the Company to the holder of the redeemed shares of Series C Preferred
Stock.
(b) Redemption Price. The redemption price per share of
Series C Preferred Stock shall be the greater of (i) 120% of the Designated
Price (less any accrued and unpaid dividends) and (ii) the product of the
Designated Price and a fraction the numerator of which shall be the Redemption
Date Market Price and the denominator of which shall be an amount equal to the
lesser of (x) the Original Issuance Market Price and (y) the Company Conversion
Date Market Price that would have been in effect had the Company Conversion
Date occurred on the Redemption Date.
(c) Mechanics of Redemption. In the event the Company
determines to redeem all of the Series C Preferred Stock, the Company shall
send by either overnight courier or 2-day courier (with a copy sent by
facsimile) notice of such determination to the record holders of all of the
Series C Preferred Stock. The notice shall provide that the redemption shall
occur on a date (the "Redemption Date") that is at least 60 days after the date
such notice was sent by confirmed facsimile to such record holders. Each
holder may, at the holder's option, convert his shares in accordance with
Section 6 hereof at any time prior to the Redemption Date. On the Redemption
Date the shares of Series C Preferred Stock shall be redeemed automatically
without any further action by the holders of such shares and whether or not the
certificates representing such shares are surrendered to the Company; provided,
however, that the Company shall not be obligated to pay the cash consideration
due to a holder of Series C Preferred Stock upon redemption
- 8 -
<PAGE> 9
unless the certificates evidencing such shares of Series C Preferred Stock are
either delivered to the principal office of the Company or any transfer agent
for the Series C Preferred Stock or the holder notifies the Company or any
transfer agent for the Series C Preferred Stock that such certificates have
been lost, stolen or destroyed and executes an agreement satisfactory to the
Company to indemnify the Company from any loss incurred by it in connection
with such certificate. Thereupon, there shall be promptly issued and delivered
to such holder, within three business days after the Redemption Date and
delivery to the Company of such certificates, or after receipt of such
agreement and identification, at the address of such holder on the stock books
of the Company, a check payable to the name as shown on such surrendered
certificate in the amount of the redemption price as calculated as set forth in
Paragraph 8(b).
9. Adjustments; Reorganizations.
(a) Adjustment for Stock Splits and Combinations. If the
Company at any time or from time to time after the Closing Date effects a
subdivision of the outstanding Common Stock, the Original Issuance Market Price
in effect immediately before such subdivision shall be proportionately
decreased, and conversely, if the Company at any time or from time to time
after the Closing Date combines the outstanding shares of Common Stock into a
smaller number of shares (i.e., by reverse stock split or otherwise), the
Original Issuance Market Price in effect immediately before the combination
shall be proportionately increased. Any adjustment under this Paragraph 9(a)
shall become effective at the close of business on the date the subdivision or
combination becomes effective.
(b) Adjustment for Certain Dividends and Distributions. If
the Company at any time or from time to time after the Closing Date makes, or
fixes a record date for the determination of holders of Common Stock entitled
to receive, a dividend or other distribution payable in additional shares of
Common Stock, then and in each such event the Original Issuance Market Price
then in effect shall be decreased as of the time of such issuance or, in the
event such record date is fixed, as of the close of business on such record
date, by multiplying the Original Issuance Market Price then in effect by a
fraction (1) the numerator of which is the total number of shares of Common
Stock issued and outstanding immediately prior to the time of such issuance or
the close of business on such record date, and (2) the denominator of which
shall be the total number of shares of Common Stock issued and outstanding
immediately prior to the time of such issuance or the close of business on such
record date plus the number of shares of Common Stock issuable in payment of
such dividend or distribution; provided, however, that if such record date is
fixed and such dividend is not fully paid or if such distribution is not fully
made on the date fixed
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<PAGE> 10
therefor, the Original Issuance Market Price shall be recomputed accordingly as
of the close of business on such record date and thereafter shall be adjusted
pursuant to this Paragraph 9(b) as of the time of actual payment of such
dividends or distributions to reflect the actual number of shares issued in
such dividend or distribution.
(c) Adjustment for Other Dividends and Distributions. In the
event the Company at any time or from time to time after the Closing Date
makes, or fixes a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in securities of
the Company other than shares of Common Stock, then and in each such event
provision shall be made so that the holders of Series C Preferred Stock shall
receive upon conversion thereof pursuant to either Paragraph 6 or Paragraph 7
hereof, in addition to the number of shares of Common Stock receivable
thereupon, the amount of such other securities of the Company to which a holder
on the relevant record or payment date, as applicable, of the number of shares
of Common Stock so receivable upon conversion would have been entitled, plus
any dividends or other distributions which would have been received with
respect to such securities had such holder thereafter, during the period from
the date of such event to and including the Holder Conversion Date or Company
Conversion Date, as applicable, retained such securities, subject to all other
adjustments called for during such period under this Section 9 with respect to
the rights of the holders of the Series C Preferred Stock.
(d) Adjustment for Reclassification, Exchange and
Substitution. In the event that at any time or from time to time after the
Closing Date, the Common Stock issuable upon the conversion of the Series C
Preferred Stock is changed into the same or a different number of shares of any
class or classes of stock, whether by recapitalization, reclassification or
otherwise (other than a subdivision or combination of shares or stock dividend
or reorganization provided for elsewhere in this Section 9, or a merger, or
consolidation, provided for in Section 4), then and in each such event each
holder of Series C Preferred Stock shall have the right thereafter to convert
such stock into the kind of stock receivable upon such recapitalization,
reclassification or other change by holders of shares of Common Stock, all
subject to further adjustment as provided herein. In such event, the formulae
set forth herein for conversion and redemption shall be equitably adjusted to
reflect such change in number of shares or, if shares of a new class of stock
are issued, to reflect the market price of the class or classes of stock
(applying the same factors used in determining the Market Price for Shares of
Common Stock) issued in connection with the above described transaction.
(e) Reorganizations. If at any time or from time
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<PAGE> 11
to time after the Closing Date there is a capital reorganization of the Common
Stock (other than a recapitalization, subdivision, combination,
reclassification or exchange of shares provided for elsewhere in this Section
9) then, as a part of such reorganization, provision shall be made so that the
holders of the Series C Preferred Stock shall thereafter be entitled to receive
upon conversion of the Series C Preferred Stock the number of shares of stock
or other securities or property to which a holder of the number of shares of
Common Stock deliverable upon conversion would have been entitled on such
capital reorganization. In any such case, appropriate adjustment shall be made
in the application of the provisions of this Section 9 with respect to the
rights of the holders of the Series C Preferred Stock after the reorganization
to the end that the provisions of this Section 9 (including adjustment of the
Original Issuance Market Price then in effect and the number of shares issuable
upon conversion of the Series C Preferred Stock) shall be applicable after that
event and be as nearly equivalent as may be practicable, including, by way of
illustration and not limitation, by equitably adjusting the formulae set forth
herein for conversion and redemption to reflect the market price of the
securities or property (applying the same factors used in determining the
Market Price for Shares of Common Stock) issued in connection with the above
described transaction.
10. Fractional Shares. No fractional shares of Common Stock or scrip
representing fractional shares of Common Stock shall be issuable hereunder.
The number of shares of Common Stock that are issuable upon any conversion
shall be rounded up or down to the nearest whole share.
11. Reservation of Stock Issuable Upon Conversion.
(a) Reservation Requirement. A special meeting of the
Company's stockholders shall be called and held as promptly as practical after
the date of this Certificate to effect a change in the Company's authorized
Common Stock to allow for the reservation of a sufficient number of shares of
Common Stock for the purpose of enabling the Company to satisfy any obligation
to issue shares of its Common Stock upon conversion of the Series C Preferred
Stock pursuant hereto. After the date of such meeting (if the Company's
stockholders approve the aforementioned change), the Company shall reserve and
keep available at all times, free of preemptive rights shares of Common Stock
for the purpose of enabling the Company to satisfy any obligation to issue
shares of its Common Stock upon conversion of the Series C Preferred Stock
pursuant hereto.
(b) Default. If the Company does not have a sufficient
number of shares of Common Stock available to satisfy the Company's obligations
to a holder of Series C Preferred Stock upon receipt of a Conversion Notice,
all dividends (including
- 11 -
<PAGE> 12
dividends otherwise payable through the issuance of Common Stock upon
conversion of the Series C Preferred Stock and by application of the formulae
set forth in Paragraphs 6 and 7 hereof) with respect to the Class C Preferred
Stock as to which conversion is not perfected by the Company through the
delivery of certificates representing the shares of Common Stock issuable upon
such conversion (a "Conversion Default") shall thereupon begin to accrue in
cash and such incremental cash dividends shall be payable on the ninetieth
(90th) day following the Company's receipt of the applicable Conversion Notice
and each subsequent 90th day thereafter so long as such Class C Preferred Stock
remain outstanding. The rate of dividends on the Class C Preferred Stock shall
be increased by two percent (2%) commencing on the first day of the thirty (30)
day period (or part thereof) following a Conversion Default; an additional two
percent (2%) commencing on the first day of each of the second and third such
thirty (30) day periods (or part thereof); and an additional one percent (1%)
on the first day of each consecutive thirty (30) day period (or part thereof)
thereafter until such securities have been duly converted or redeemed as herein
provided. Any such cash dividends which are not paid when due shall accrue
interest until paid at the rate from time to time applicable to dividends on
the Class C Preferred Stock as to which the Conversion Default has occurred.
Notwithstanding the foregoing, a holder of the Class C Preferred Stock as to
which there has been a Conversion Default may waive any payment of cash
dividends or interest thereon (whether on the date required for periodic
payments thereof or in connection with a redemption), in whole or in part, and
in lieu thereof receive shares of Common Stock (in a number of shares
determined by application of the formulae specified in Paragraph 6(b) hereof
with the amount of the waived dividend or interest payment as the numerator and
the date of delivery of notice of such waiver to the Company as the Holder
Conversion Date). From and after the ninetieth day following a Conversion
Default (which for all purposes shall be deemed to have occurred upon the
Company's receipt of the applicable Conversion Notice), the holder of the Class
C Preferred Stock as to which such Conversion Default has occurred shall have
the right to demand immediate redemption in cash of such Class C Preferred
Stock at a redemption price (A) determined in accordance with Paragraph 8(b)
hereof adjusted to reflect the changes in the dividend rate from time to time
effected pursuant to this Paragraph, (B) reduced by any dividends theretofore
received by such holder in cash, and (C) increased by the amount of any
interest on overdue cash dividends from the date of the Conversion Default
through the date of redemption, which dividends (and any interest with respect
thereto) shall continue to accrue until the redemption price and all accrued
and unpaid dividends and interest have been paid in full to such holder;
provided, however, that no notice of redemption may be delivered by a holder
subsequent to receipt by such holder of notice from the Company (sent by
overnight or 2-day courier with a copy sent by facsimile) of availability of
- 12 -
<PAGE> 13
sufficient shares of Common Stock to perfect conversion (a "Post-Default
Conversion") of all the Class C Preferred Stock of such holder as to which a
Conversion Default has occurred; provided further that such right shall be
reinstated if the Company shall thereafter fail to perfect such Post-Default
Conversion by delivery of Common Stock certificates in accordance with the
applicable provisions of Paragraph 6(b) hereof and payment of all accrued and
unpaid cash dividends and interest with respect thereto within five business
days of delivery of the notice of Post-Default Conversion. Notwithstanding the
provisions of Paragraph 6(b), upon a Post-Default Conversion, each share of
Series C Preferred Stock that is converted into shares of Common Stock shall be
convertible into the number of shares of Common Stock which results from
dividing the numerator of the formula set forth therein (as adjusted to reflect
the changes in dividend rate applicable from time to time and the exclusion of
any period of time during which dividends have been or will be paid in cash,
all as provided in this Paragraph) in effect at the time of conversion by the
lesser of (i) the Original Issuance Market Price and (ii) the Conversion Date
Market Price on (A) the Holder Conversion Date or (B) the date the Company
issued the notice of Post-Default Conversion. The application of the
provisions of this Paragraph 11(b) shall constitute the sole and exclusive
rights and remedies of holders of Series C Preferred Stock with respect to a
Conversion Default.
12. No Reissuance of Series C Preferred Stock. No share or shares of
Series C Preferred Stock acquired by the Company by reason of redemption,
purchase, conversion or otherwise shall be reissued as Series C Preferred
Stock, and all such shares shall be retired and shall return to the status of
authorized, unissued and undesignated shares of Preferred Stock.
13. No Impairment. The Company shall not intentionally take any
action which would impair the rights and privileges of the shares of Series C
Preferred Stock set forth herein.
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<PAGE> 14
IN WITNESS WHEREOF, Ecogen Inc. has caused this Certificate of
Designations, Rights and Preferences to be signed by James P. Reilly, Jr., as
Chairman of the Board and attested by Richard A. Deak, as Secretary, this ___
day of December, 1995.
ECOGEN INC.
By: /s/ JAMES P. REILLY, JR.
---------------------------
Name: James P. Reilly, Jr.
Title: Chairman of the
Board
ATTEST:
/s/ RICHARD A. DEAK
- -------------------------
Name: Richard A. Deak
Title: Secretary
- 14 -
<PAGE> 1
EXHIBIT 10.120(CONFORMED)
MASTER SETTLEMENT AGREEMENT
THIS MASTER SETTLEMENT AGREEMENT is dated as of October 23, 1995, by and among
Ecogen Inc., a Delaware corporation with its principal place of business at
2005 Cabot Boulevard West, Langhorne, Pennsylvania USA, Fiscal Code no.
94036540543 ("Ecogen"), Ecogen Europe S.r.l., an Italian corporation with
registered offices in Frazione Pantalla 06050 Todi (Perugia) Italy, Fiscal Code
no. 01890370545 (the "Company"), and 3A Parco Tecnologico Agroalimentare
dell'Umbria S.c.r.l., an Italian corporation with registered offices in
Frazione Pantalla, 06050 Todi (Perugia) Italy, Fiscal Code no. 01770460549
("3A").
RECITALS
A. On January 25, 1991, 3A and Ecogen entered into a Research and
Development Agreement.
B. On March 20, 1991, 3A and Ecogen incorporated the Company of which 3A
and Ecogen now own 25% and 75% of the Company's corporate capital respectively.
C. On December 1, 1992, the Company assumed certain obligations
contemplated by the 1991 R&D Agreement through a Research and Development
Assumption Agreement, thereby becoming a party to the 1991 R&D Agreement.
D. On September 17, 1992, 3A, Ecogen and the Company entered into another
research and development contract, entitled Research, Development and
Commercialization Agreement.
E. 3A and Ecogen have engaged in discussions regarding, among other
things, their respective obligations under the 1991 R&D Agreement and the 1992
R&D Agreement. On April 11, 1995, 3A obtained from the Perugia Court three
separate garnishments against Ecogen and the Company, which were executed on
the assets of Ecogen and the Company located in Italy.
F. 3A, Ecogen and the Company now desire to settle their disputes by
entering into this Master Settlement Agreement.
NOW, THEREFORE, in consideration of the mutual premises and covenants herein
contained and intending to be legally bound, the parties hereto agree as
follows.
<PAGE> 2
ARTICLE I
DEFINITIONS
1.1 Certain Definitions. As used herein, and unless otherwise defined
herein, the following terms shall have the following meanings:
"Action" shall mean any actual or threatened action, suit,
arbitration, inquiry, proceeding or investigation by or before any court,
arbitrator, governmental or other regulatory or administrative agency or
commission.
"Ancillary Agreements" shall mean the Biofungicide Royalty Agreement,
the Bt License Agreement, and the Nematode License Agreement.
"Biofungicide Royalty Agreement" shall mean the Biofungicide Royalty
Agreement dated as of the Closing Date, and entered into between Ecogen and the
Company.
"Bt License Agreement" shall mean the Bt License Agreement dated as of
the Closing Date, and entered into between Ecogen and the Company.
"Closing" shall mean the consummation of the transactions contemplated
by the Master Settlement Agreement.
"Closing Date" shall mean the date on which the Closing occurs.
"Company Quota" shall mean the quotas of the Company that immediately
prior to the date of this Master Settlement Agreement were held in the name of
Ecogen.
"Company Quota Transfer Agreement" shall mean the agreement for the
transfer of the Company Quota from Ecogen to 3A and/or 3A's nominee, dated as
of the Closing Date.
"Covered Liabilities" shall mean any and all debts, losses,
liabilities, claims, damages, obligations (including, without limitation, those
owing out of any Action or any settlement, compromise or judgment of any
Action) and any reasonable out-of-pocket costs and expenses related thereto
(including, without limitation, reasonable attorneys fees and expenses incurred
in defending any Action).
<PAGE> 3
"Ecogen Affiliate" shall mean any corporation, partnership or other
entity, that directly, or indirectly through one or more intermediaries,
controls or is controlled by or is under common control with Ecogen.
"Ecogen Attorneys" shall mean Studio Avvocati Associati Via degli
Scipioni 288, Rome.
"Ecogen Appointed Directors" shall mean Mr. John E. Davies, Mr. James
P. Reilly, Jr. and Ms. Mary E. Paetzold.
"Ecogen Items" shall mean the AQ10a Patent Registration File Docket
for France and all other documents relating to AQ10a in the possession of the
Company.
"Ecogen Marks" shall mean the following names, marks, logos, trade
names and trademarks of Ecogen: AddQ, Aspire, Attract 'N Kill, AQ10, Bee-Scent,
Bio-Tac, Cartoon Design of Bee Running, Chokegard, Condor, Cruiser, Crymax,
CryStar, Cutlass, Dagger, Ecogen, Ecotech, ETech, Foil, Jackpot, Lepinox,
Multigard, N-Trap, NoMate, Otinem, Rapax, Raven, Scentry, Tra-Kill, and such
other marks used by Ecogen to designate its products or services.
"Eureka" shall mean Eureka Ltd., the Company's outside accounting firm
with registered offices in Milan at Via Corridoni 8.
"Garnishments" shall mean the garnishments issued by the Perugia Court
on or about April 11, 1995 that were executed against the assets of Ecogen and
the Company in Italy.
"Garnishment Removal Documents" shall mean the documents required to
revoke the Garnishments.
"Master Settlement Agreement" shall mean this Master Settlement
Agreement dated as of the Closing Date.
"Nematode License Agreement" shall mean the Nematode License Agreement
dated as of the Closing Date, entered into between Ecogen and the Company.
"Obligations" shall mean any claims, losses, damages, liabilities,
obligations, demands, judgments, suits, actions, causes of action, debts,
covenants, contracts, agreements, promises.
"1992 R&D Agreement" shall mean the Research, Development and
Commercialization Agreement dated September 17, 1992 among Ecogen, the Company
and 3A.
<PAGE> 4
"1991 R&D Agreement" shall mean the Research and Development Agreement
dated January 25, 1991 between Ecogen and 3A.
"Stock Subscription Agreement" shall mean the Stock Subscription
Agreement between Ecogen and the Company dated as of March 16, 1995.
"3A Appointed Directors" shall mean Mr. Dorio Mutti and Mr. Francesco
Mandarini.
"3A Quota" shall mean the quota in 3A that immediately prior to the
date of the Master Settlement Agreement was held by Ecogen.
"3A Quota Transfer Agreement" shall mean the agreement for the
transfer of the 3A Quota from Ecogen to a 3A's nominee dated as of the Closing
Date.
"Various Agreements" shall mean the contracts, agreements,
undertakings, obligations and commitments identified in Schedule 1.1 (a)
hereto.
"Verification of Destruction shall mean the Verification of
DestructionO in the form of Exhibit A hereto.
ARTICLE II
TRANSFER OF QUOTAS; TERMINATION OF AGREEMENTS; RELEASE OF OBLIGATIONS
2.1 Transfers of Quotas.
(a) Subject to the terms and conditions contained herein, Ecogen, at the
Closing, shall transfer to 3A and/or to 3AGs nominee, and 3A or its nominee
shall accept and acquire from Ecogen, all of Ecogen's right, title and interest
in and to the Company Quota.
(b) Subject to the terms and conditions contained herein, Ecogen, at the
Closing, shall transfer to 3AGs nominee, and 3A shall cause its nominee to
accept and acquire from Ecogen, all of Ecogen's right, title and interest in
and to the 3A Quota.
2.2 Termination of Agreements. As of the Closing Date, each of the Various
Agreements is terminated in its entirety and is without any further legal or
other effect whatsoever.
2.3 Release of Obligations.
(a) Release by Ecogen. As of the Closing Date, Ecogen and the Ecogen
Affiliates do hereby release and discharge 3A,
<PAGE> 5
the Company, each of their successors, assignees and current (as of the date of
this Master Settlement Agreement) directors, officers and employees (to the
extent such directors, officers or employees were acting in their capacity as
director, officer or employee of 3A or the Company) (collectively, the "Parties
Released by Ecogen and the Ecogen Affiliates") from any and all Obligations
whatsoever which Ecogen and the Ecogen Affiliates ever had, now have or
hereafter can, shall or may have for, upon or by reason of any matter, cause,
cause of action or thing whatsoever, against any or all of the Parties Released
by Ecogen and the Ecogen Affiliates, directly or indirectly arising from,
relating to, or in connection with, the Various Agreements, or the activities
of Ecogen, 3A or the Company.
(b) Release by 3A and the Company. As of the Closing Date, 3A and the
Company do jointly and severally release and discharge Ecogen, the Ecogen
Affiliates, each of its and their successors, assignees and current (as of the
date of this Master Settlement Agreement) directors, officers and employees,
including but not limited to Dr. Richard Daoust (to the extent such directors,
officers or employees were acting in their capacity as director, officer or
employee of Ecogen or the Company) (collectively the "Parties Released by 3A
and the Company"), from any and all Obligations whatsoever which 3A and/or the
Company ever had, now have or hereafter can, shall or may have for, upon or by
reason of, any matter, cause, cause of action or thing whatsoever, against any
or all of the Parties Released by 3A and the Company, directly or indirectly
arising from, relating to or in connection with the Various Agreements, or the
activities of 3A, Ecogen, or the Company.
2.4 Cancellation of Stock Subscription Agreement. As of the Closing Date,
the Stock Subscription Agreement shall be deemed cancelled and without any
legal effect whatsoever. Any and all shares of Ecogen common stock that have
been, are to be, or that should have been issued to the Company in connection
with the Stock Subscription Agreement shall be deemed cancelled and any
certificates representing such shares shall be returned to Ecogen at the
Closing. As of the Closing, the Company shall have no rights to such shares and
shall have no rights under or with respect to the Stock Subscription Agreement.
2.5 Closing Transactions. In addition to the transactions described in
this Article II, the parties shall effect at the Closing the transactions and
other matters described in Article III hereof.
ARTICLE III
THE CLOSING
<PAGE> 6
3.1 Closing Date. The Closing of the transactions contemplated by this
Master Settlement Agreement shall take place immediately after the execution
and delivery of this Master Settlement Agreement at the offices of Studio
Legale Scassellati - Sforzolini, in Perugia, Italy (or at such other place and
time as the parties may agree), at 8:00 a.m. on the date of this Master
Settlement Agreement. On such occasion, the Company shall deliver to Ecogen the
Ecogen items.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ECOGEN
Ecogen represents and warrants to 3A as follows, with the full knowledge that
3A, in agreeing to consummate the transactions contemplated by this Master
Settlement Agreement and by the Ancillary Agreements, has relied upon such
representations and warranties:
4.1 Corporate Organization. Ecogen is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
4.2 Power and Authorization. Ecogen and the individual signing this Master
Settlement Agreement and the Ancillary Agreements have full corporate power and
authority to enter into this Master Settlement Agreement and the Ancillary
Agreements and to carry out the transactions contemplated hereby and thereby.
The execution, delivery and performance by Ecogen of this Master Settlement
Agreement and the Ancillary Agreements have been duly authorized by all
necessary corporate action. This Master Settlement Agreement and the Ancillary
Agreements at the Closing are duly executed and delivered by Ecogen and, when
executed and delivered by the other parties thereto, will constitute the legal,
valid and binding obligations of Ecogen, enforceable against Ecogen in
accordance with their respective terms, except as enforcement may be limited by
bankruptcy, insolvency, moratorium, reorganization or other similar laws
relating to or affecting the enforcement of creditors' rights generally, and
except that the availability of specific performance, injunctive relief or
other equitable remedies is subject to the discretion of the court before which
any proceeding therefor may be brought.
4.3 No Violation. Neither the execution and delivery of this Master
Settlement Agreement and the Ancillary Agreements by Ecogen, nor the
consummation of the transactions contemplated hereby and thereby violate any
provision of the certificate of incorporation or by-laws of Ecogen or any
applicable statute or law or any judgment, decree, order, regulation or rule of
any court or governmental authority, nor does it constitute or cause a
<PAGE> 7
default in any Material Contract, Material Document, material permit or
license to which Ecogen is a party or by which it is bound or give any person
grounds to cause, with or without notice, the passage of time or both, the
maturing or the acceleration of any Material Obligation, or give any person
grounds to terminate any Material Contract or Material Document to which Ecogen
is a party or by which it is bound. For the purposes of this Section 4.3,
OMaterial ObligationO, OMaterial ContractO or OMaterial Document" shall mean
any obligation, contract or document to which Ecogen is a party, requiring a
payment to or by Ecogen of more than US $ 100,000.
4.4 Consents and Approvals. No consent, permit, approval or authorization
of, or declaration to, any governmental or regulatory authority is required in
connection with the execution, delivery and performance of this Master
Settlement Agreement and the Ancillary Agreements by Ecogen and the
consummation by Ecogen of the transactions contemplated hereby and thereby.
4.5 Material Contracts. None of the Ecogen Appointed Directors has entered
into any Material Contract which is not reflected in the balance sheet and/or
official corporate books or records of the Company or which is not known or
knowable to 3A, Eureka and/or to one or more of the 3A Appointed Directors. Dr.
Richard Daoust, former General Manager of the Company, has not entered into any
Material Contract which is outside of the ordinary course of business of the
Company, which is not reflected in the balance sheet and/or corporate books or
records of the Company or which is not known or knowable to 3A, Eureka and/or
to one or more of the 3A Appointed Directors. For the purpose of this Section
4.5, "Material Contract" shall mean any contract to which the Company is a
party that obligates the Company to pay to a third party after the Closing Date
more than US $ 20,000.
4.6 No Material Litigation. To the actual knowledge of Dr. Richard Daoust
and the Ecogen Appointed Directors, there is no Material Litigation to which
the Company is a party, other than the Garnishments, and other than those
litigations known or knowable to 3A, Eureka and/or one or more of the 3A
Appointed Directors. For the purpose of this Section 4.6, "Material Litigation"
shall mean any lawsuit to which the Company is a party that would reasonably be
expected to result in a judgment against the Company in excess of US $ 20,000.
4.7 NO OTHER REPRESENTATIONS. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH
HEREIN OR IN THE ANCILLARY AGREEMENTS, ECOGEN MAKES NO REPRESENTATION OF
WARRANTY OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION
ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, OR ANY
OTHER REPRESENTATION OR WARRANTY WHATSOEVER.
<PAGE> 8
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF 3A
3A represents and warrants to Ecogen as follows, with the full knowledge that
Ecogen in agreeing to consummate the transactions contemplated by this Master
Settlement Agreement and by the Ancillary Agreements has relied upon such
representations and warranties:
5.1 Corporate Organization. 3A is a corporation duly organized, validly
existing and in good standing under the laws of Italy.
5.2 Power and Authorization. 3A and the individual signing this Master
Settlement Agreement and the Ancillary Agreements have full corporate power and
authority to enter into this Master Settlement Agreement and the Ancillary
Agreements and to carry out the transactions contemplated hereby and thereby.
The Company has full corporate power and authority to enter into this Master
Settlement Agreement and the Ancillary Agreements and to carry out the
transactions contemplated hereby and thereby. The execution, delivery and
performance by 3A of this Master Settlement Agreement and the Ancillary
Agreements have been duly authorized by all necessary corporate actions. This
Master Settlement Agreement and the Ancillary Agreements at the Closing are,
duly executed and delivered by 3A and, when executed and delivered by the other
parties thereto, will constitute the legal, valid and binding obligations of
3A, enforceable against 3A in accordance with their respective terms, except as
enforcement may be limited by bankruptcy, insolvency, moratorium,
reorganization or other similar laws relating to or affecting the enforcement
of creditors' rights generally, and except that the availability of specific
performance, injunctive relief or other remedies is subject to the discretion
of the court before which any proceeding therefor may be brought.
5.3 No Violation. Neither the execution and delivery of this Master
Settlement Agreement and the Ancillary Agreements by 3A , nor the consummation
by 3A of the transactions contemplated hereby and thereby will violate any
provision of the charter of 3A or any applicable statute or law or any
judgment, decree, order, regulation or rule of any court or governmental
authority.
5.4 Material Contracts. None of the 3A Appointed Directors has
entered into a Material Contract which is not reflected in the balance sheet
and/or official corporate books or records of the Company and which is not
known or knowable to Ecogen and/or to one or more of the Ecogen Appointed
Directors. For the purpose of this Section 5.4, "Material Contract" shall mean
any contract to which the Company is a
<PAGE> 9
party that obligates the Company to spend more than US $ 20,000.
5.5 No Material Litigation. To the actual knowledge of the 3A Appointed
Directors, there is no Material Litigation to which the Company is a party,
other than the Garnishments, and other than those litigations known or knowable
to Ecogen and/or one or more of the Ecogen Appointed Directors. For the purpose
of this Section 5.5, "Material Litigation" shall mean any lawsuit to which the
Company is a party that would reasonably be expected to result in a judgment
against the Company in excess of US $ 20,000.
5.6 Consents and Approvals. All consents, permits, approvals or
authorizations of, or declarations to, any governmental or regulatory authority
required in connection with the execution, delivery and performance of this
Master Settlement Agreement and the Ancillary Agreements by 3A and the
consummation of the transactions contemplated hereby and thereby have been duly
obtained and/or completed.
5.7 NO OTHER REPRESENTATIONS. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH
HEREIN OR IN THE ANCILLARY AGREEMENTS, 3A MAKES NO REPRESENTATION OR WARRANTY
OF ANY KIND, EITHER EXPRESS OR IMPLIED INCLUDING WITHOUT LIMITATION ANY
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR ANY OTHER
REPRESENTATION OR WARRANTY WHATSOEVER.
ARTICLE VI
COVENANTS OF ECOGEN
6.1 Temporary Technical Assistance. At the written request of the Company
from time to time, Ecogen shall make available to the Company for up to five
days (which days shall be consecutive working days) at the CompanyGs premises
in each calendar month, in accordance with a schedule to be mutually agreed by
Ecogen and the Company, the services of a scientist to be mutually agreed by
Ecogen and the Company (the "Ecogen Scientist") for the purpose of assisting
the Company with respect to the operation of the Company's laboratory. Ecogen
shall provide the Ecogen Scientist to the Company pursuant to this Section 6.1
at no charge to the Company; provided, however, the Company shall promptly
reimburse Ecogen for all reasonable out-of-pocket expenses incurred by Ecogen
or the Ecogen Scientist in connection with the fulfilment of Ecogen's
obligation under this Section 6.1 including, but not limited to, business-class
airfare, ground transportation, meals and lodging. The Company shall make
available to such Ecogen Scientist customary office and office support services
including, but not limited to, telephone, fax, and secretarial services.
Ecogen shall make the Ecogen Scientist available to the
<PAGE> 10
Company according to the terms and conditions set forth in this Section 6.1
until December 31, 1995.
ARTICLE VII
COVENANTS OF 3A AND THE COMPANY
7.1 Use of Ecogen Trademarks. On the Closing Date, 3A and Ecogen shall
hold a Special Quotaholders' Meeting of the Company so as to effect the change
of name of the Company to another name not containing any Ecogen Mark or the
word "Ecogen" or other similar word or expression. 3A and the Company
acknowledge that from and after the Closing, Ecogen shall have the absolute and
exclusive proprietary right to all names, marks, trade names and trademarks
incorporating "Ecogen" or any Ecogen Mark by itself or in combination with any
other name. As of the Closing Date, 3A and the Company shall, and shall cause
their directors, officers, employees and agents to cease and refrain from using
(i) any name, mark, logo, trade name or trademark that uses, incorporates or is
substantially similar to (whether in English or Italian) "Ecogen" or any Ecogen
Mark whether by itself or in combination with any other name, and (ii) any
signs, stationary, literature, promotional materials and other items or
materials that use or incorporate "Ecogen" or any Ecogen Mark by itself or in
combination with any other name. As of the Closing Date, 3A and the Company
shall remove, take down and cease using or displaying any signs or other
indicia of the name "Ecogen Europe".
7.2 Removal of Garnishments. On the Closing Date, 3A shall file with the
Perugia Court the Garnishment Removal Document and shall dismiss the relevant
suits and remove the Garnishments. Ecogen shall cause Ecogen's Attorneys to
co-operate in obtaining the removal of such Garnishments. 3A, Ecogen and the
Company shall execute the relevant documents, if any.
7.3 Verification of Destruction. Within 30 days after the Closing Date,
the Company shall destroy the items listed in the Verification of Destruction
and the Company shall deliver to Ecogen the Verification of Destruction, in the
form attached as Exhibit A hereto, signed on behalf of the Company by the
person supervising and witnessing such Destruction.
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification by Ecogen. From and after the Closing Date, Ecogen
shall indemnify and hold harmless 3A and the Company from and against any and
all Covered Liabilities incurred by or asserted against 3A or the Company
arising
<PAGE> 11
from any breach of any representation or warranty or of any covenant made by
or on behalf of Ecogen under this Master Settlement Agreement.
8.2 Indemnification by 3A and the Company. From and after the Closing
Date, 3A and the Company shall jointly and severally indemnify and hold
harmless Ecogen and the Ecogen Affiliates from and against all Covered
Liabilities incurred by or asserted against Ecogen and/or the Ecogen Affiliates
arising from any breach of any representation or warranty or of any covenant
made by or on behalf of 3A and/or the Company under this Master Settlement
Agreement.
8.3 Third Party Claims against 3A and/or the Company.
8.3.1 A claim by an entity or person not a party to this Master Settlement
Agreement against 3A and/or the Company, as to which 3A and/or the Company
intend to seek indemnity from Ecogen shall be subject to this Section 8.3.
8.3.2 With respect to any such claim, 3A and/or the Company shall promptly
notify Ecogen in writing of any such claim setting forth such claim in
reasonable detail; provided that failure to provide such prompt notice shall
not constitute a defense to a claim for indemnification hereunder except and
only to the extent that the failure to give such prompt notice shall adversely
affect the rights of Ecogen to defend such claim.
8.3.3 Ecogen shall have thirty (30) days after receipt of such notice to
undertake, through counsel of its own choosing, reasonably acceptable to 3A
and/or the Company, and at its own expense, the settlement or defense thereof,
and 3A and/or the Company shall co-operate with it in connection therewith. If
Ecogen does not notify 3A and/or the Company within thirty (30) days (or a
shorter period of time if circumstances so require for 3A and/or the Company to
undertake a satisfactory defense) after receipt of 3A's and/or the Company's
notice of a claim of indemnity hereunder that it elects to undertake the
defense thereof, 3A and/or the Company shall have the right to contest, settle
or compromise the claim, but shall not thereby waive any right to indemnity
therefor pursuant to this Master Settlement Agreement.
8.3.4 3A and/or the Company shall not pay or settle any claim which is or
may be contested by Ecogen, except in those cases in which payment is
immediately required under the laws applicable from time to time or in the case
described in Section 8.3.3 above. In such cases, 3A and/or the Company shall
promptly inform Ecogen of such payment or
<PAGE> 12
settlement, but they shall not so waive the right to be indemnified hereunder.
8.3.5 Ecogen shall not without the written consent of 3A or the Company
enter into any settlement or consent to any judgment or order which imposes any
obligation on 3A and/or the Company other than an obligation to pay money for
which 3A and/or the Company is indemnified hereunder.
8.4. Third Party Claims against Ecogen and/or an Ecogen Affiliate.
8.4.1 A claim by an entity or person not a party to this Master Settlement
Agreement against Ecogen and/or an Ecogen Affiliate, as to which Ecogen and/or
an Ecogen Affiliate intends to seek indemnity from 3A and/or the Company shall
be subject to this Section 8.4.
8.4.2 With respect to any such claim, Ecogen and/or an Ecogen Affiliate
shall promptly notify 3A and/or the Company in writing of any such claim
setting forth such claim in reasonable detail; provided that failure to provide
such prompt notice shall not constitute a defense to a claim for
indemnification hereunder except and only to the extent that the failure to
give such prompt notice shall adversely affect the rights of 3A and/or the
Company to defend such claim.
8.4.3 3A and/or the Company shall have thirty (30) days after receipt of
such notice to undertake, through counsel of their own choosing, reasonably
acceptable to Ecogen and/or an Ecogen Affiliate, and at their own expense, the
settlement or defense thereof, and Ecogen and/or an Ecogen Affiliate shall
co-operate with it in connection therewith. If 3A and/or the Company do not
notify Ecogen and/or an Ecogen Affiliate within thirty (30) days (or a shorter
period of time if circumstances so require for Ecogen and/or an Ecogen
Affiliate to undertake a satisfactory defense) after receipt of Ecogen's and/or
an Ecogen Affiliate's notice of a claim of indemnity hereunder that it elects
to undertake the defense thereof, Ecogen and/or an Ecogen Affiliate shall have
the right to contest, settle or compromise the claim but shall not thereby
waive any right to indemnity therefor pursuant to this Master Settlement
Agreement.
8.4.4 Ecogen and/or an Ecogen Affiliate shall not pay or settle any claim
which is or may be contested by 3A and/or the Company, except in those cases in
which payment is immediately required under the laws applicable from time to
time or in the case described in Section 8.4.3 above. In such cases, Ecogen
and/or an Ecogen Affiliate shall promptly inform 3A and/or the Company of such
payment or settlement,
<PAGE> 13
but they shall not so waive the right to be indemnified hereunder.
8.4.5 3A and/or the Company shall not without the written consent of Ecogen
and/or an Ecogen Affiliate enter into any settlement or consent to any judgment
or order which imposes any obligation on Ecogen and/or an Ecogen Affiliate
other than an obligation to pay money for which Ecogen and/or an Ecogen
Affiliate are indemnified hereunder.
ARTICLE IX
MISCELLANEOUS
9.1 Amendment. This Agreement may be amended only by a writing signed by
each of the parties hereto.
9.2 Waiver, Etc. Compliance with any provision hereof may be waived only
in writing signed by the party against which such waiver is to be enforced, and
no partial or single exercise of any right hereunder, shall operate as a
waiver, or otherwise affect such exercise or any other exercise, of that or of
any other right, it being understood that all such rights and all remedies
therefor are intended to be cumulative and not exclusive.
9.3 Successors and Assignees. This Agreement shall be binding upon and
shall inure to the benefit of the parties and their respective successors and
assignees; provided, however, no party hereto may assign its rights or delegate
its duties hereunder without the express written consent of the other parties.
Any assignment without such consent shall be void.
9.4 Expenses. Each party shall be responsible for all of its own fees,
costs and expenses incurred in connection with the negotiation, execution and
implementation of the Master Settlement Agreement and the transactions
contemplated thereby.
9.5 Notices. All notices and other communications required or permitted
hereunder shall be in writing and shall be deemed to have been duly given when
delivered by hand or by an internationally recognized express delivery service
or when transmitted via fax (provided confirmation receipt is received):
(a) If to Ecogen to:
Ecogen Inc.
2005 Cabot Boulevard West
Langhorne, Pennsylvania USA 19047
Fax #: +1-215-757.41.56
Attention: President
<PAGE> 14
With a simultaneous copy to:
Baker & McKenzie
Via degli Scipioni, 288, 00192 Rome, Italy
Fax #: +39-6-3202502
Attention: Mr. G. Franco Macconi
Mr. Raffaele Giarda
Mr. Stefano Ciullo
or to such other person or address as Ecogen shall have previously notified the
party giving such notice in writing;
(b) if to 3A:
3A - Parco Tecnologico Agroalimentare
dell'Umbria S.c.r.l.
Frazione Pantalla, 06050 Todi (Perugia)
Italy
Fax #: +75-8957257
Attention: President;
With a simultaneous copy to:
Studio Legale Scassellati-Sforzolini
Piazza Piccinino 13, Perugia, Italy
Fax #: +39-75-5728398
Attention: Mr. Stefano Mazzi
or to such other person or address as 3A or the Company shall have previously
notified the party giving such notice in writing;
(c) if to the Company:
Bio Integrated Technology S.r.l.,
Frazione Pantalla, 06050 Todi (Perugia) Italy
Fax #: ______________
Attention: President
With a simultaneous copy to:
Studio Legale Scassellati-Sforzolini
Piazza Piccinino 13, Perugia, Italy
Attention: Mr. Stefano Mazzi
or to such other person or address as 3A or the Company shall have previously
notified the party giving such notice in writing.
<PAGE> 15
9.6 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.7 Entire Agreement. This Master Settlement Agreement (together with the
Ancillary Agreements, the Exhibits hereto and thereto, the Schedules hereto and
thereto and the documents and instruments executed and delivered at Closing in
connection thereto) embodies the entire agreement and understanding of the
parties hereto and supersedes any prior understandings and agreements with
respect to the subject matter hereof. The parties hereto represent and warrant
to each other that as of the date hereof there are no oral agreements between
them with respect to the subject matter hereof.
9.8 Language. This Master Settlement Agreement is executed in both the
Italian and the English languages. In case of inconsistency between the two
versions, the Italian language shall prevail. The English version is
acknowledged by the parties hereto as the official and definitive English
translation.
9.9 Settlement of Disputes and Governing Law.
9.9.1 Any controversy, dispute or claim between Ecogen, on the one hand, and
3A and/or the Company on the other hand, arising out of, or relating to, this
Master Settlement Agreement, or the breach or alleged breach thereof or
affecting this Master Settlement Agreement in any way, whether in contract, in
tort or otherwise shall be amicably settled by the parties.
9.9.2 If the dispute is not resolved within 20 days following such amicable
attempt, the dispute shall be settled by a panel of three arbitrators to be
appointed as follows: one by Ecogen, the other by the Company and 3A jointly,
and the third to be selected by the two arbitrators so named. The party
commencing arbitration shall first appoint its arbitrator. If (i) the second
arbitrator is not appointed within 15 days from the date in which the party
commencing arbitration has notified the name of its own arbitrator to the other
party and/or (ii) the two arbitrators do not agree upon a third arbitrator
within 15 days from the date in which the name of the second arbitrator was
notified to the other party, then the second and/or the third arbitrator(s)
shall be appointed by the President of the Court of Arbitration of the
International Chamber of Commerce of Paris.
9.9.3 The venue of the arbitration shall be Paris, the arbitrators shall
decide the dispute according to Italian substantive law, and they shall conduct
the arbitration
<PAGE> 16
proceedings in the English language, according to the procedural Rules of
Arbitration of the International Chamber of Commerce of Paris, as amended in
1988.
9.9.4 The fees due to the arbitrators and to attorneys and the cost of the
International Chamber of Commerce shall be allocated by the panel of
arbitrators in the arbitration award.
9.9.5 The decision of the arbitrators shall be binding upon the parties and
judgment to render the award enforceable may be entered in any court having
appropriate jurisdiction. Notwithstanding the foregoing, each party shall be
entitled to apply for any applicable urgency remedies, including but not
limited to injunctive relief, temporary restraining orders and garnishments,
before the competent courts of any applicable jurisdiction.
IN WITNESS WHEREOF, the parties hereto have caused this Master Settlement
Agreement to be executed as of the date first above written.
<TABLE>
<S> <C>
ECOGEN INC. 3A PARCO TECNOLOGICO
AGROALIMENTARE
dellGUMBRIA S.c.r.l.
By: /s/ JOHN E. DAVIES By: /s/ DORIO MUTTI
------------------- -------------------
Name: John E. Davies Name: Dorio Mutti
------------------- -------------------
Title: Title:
------------------- -------------------
ECOGEN EUROPE S.r.l.
By: /s/ JOHN E. DAVIES By: /s/ DORIO MUTTI
------------------- -------------------
Name: John E. Davies Name: Dorio Mutti
------------------- -------------------
Title: Title:
------------------- -------------------
</TABLE>
<PAGE> 1
EXHIBIT 21
List of Subsidiaries
<TABLE>
<CAPTION>
STATE OR OTHER JURISDICTION OF
NAME INCORPORATION OR ORGANIZATION
<S> <C>
Ecogen-Australia Pty Ltd. Australia
Ecogen-BIO Inc. Delaware
Ecogen-Jerusalem Inc. Delaware
Ecogen-Israel Inc. Delaware
Ecogen Technologies I Incorporated Delaware
Ecogen-BIO Germany GmbH Germany
Ecogen Biotechnologies Israel Ltd. Israel
Ecogen Israel International Inc. Delaware
</TABLE>
<PAGE> 1
EXHIBIT 24
Independent Auditors' Consent
The Board of Directors
Ecogen Inc.:
We consent to the incorporation by reference in the registration statement (No.
33-23767) on Form S-8/S-3, registration statements (No. 33-39687, No. 33-50478
and No. 33-70538) on Form S-8, and registration statements (No. 33-87510, No.
33-45975, No. 33-48020 and No. 33-71854) on Form S-3, of Ecogen Inc. of our
report dated January 24, 1996, except as to the second paragraph of note 17,
which is as of January 29, 1996, relating to the consolidated balance sheets of
Ecogen Inc. and subsidiaries as of October 31, 1995 and 1994, and the related
consolidated statements of operations, stockholders' equity, and cash flows and
related schedule for the year ended October 31, 1995, the ten months ended
October 31, 1994 and the year ended December 31, 1993, which report appears in
the October 31, 1995 annual report on Form 10-K of Ecogen Inc.
KPMG Peat Marwick LLP
Short Hills, New Jersey
January 29, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<CASH> 1,775,213
<SECURITIES> 0
<RECEIVABLES> 813,146
<ALLOWANCES> (80,000)
<INVENTORY> 6,345,452
<CURRENT-ASSETS> 8,999,581
<PP&E> 7,932,997
<DEPRECIATION> (5,164,679)
<TOTAL-ASSETS> 12,371,499
<CURRENT-LIABILITIES> 4,120,645
<BONDS> 0
0
350
<COMMON> 59,785
<OTHER-SE> 5,447,252
<TOTAL-LIABILITY-AND-EQUITY> 12,731,499
<SALES> 9,135,203
<TOTAL-REVENUES> 11,990,960
<CGS> 5,507,641
<TOTAL-COSTS> 25,118,054
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (23,323,596)
<INCOME-TAX> 0
<INCOME-CONTINUING> (23,323,596)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (23,323,596)
<EPS-PRIMARY> (4.34)
<EPS-DILUTED> (4.34)
</TABLE>
