<PAGE> 1
As filed with the Securities and Exchange Commission on September 14, 1998
Registration No. 333-58535
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2 TO FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ECOGEN INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or Other Jurisdiction of Incorporation or Organization)
22-2487948
(I.R.S. Employer Identification Number)
2005 Cabot Boulevard West, Langhorne, Pennsylvania 19047, (215) 757-1590
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
Mary E. Paetzold Copies to:
Vice President and Chief Elizabeth A. Brower, Esq.
Financial Officer Paul, Hastings, Janofsky & Walker LLP
Ecogen Inc. 1055 Washington Boulevard
2005 Cabot Boulevard West Stamford, Connecticut 06901
Langhorne, Pennsylvania 19047 (203) 961-7400
(215) 757-1590
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: from time to
time, as determined by market conditions, after Registration Statement becomes
effective.
If the only securities being registered on this form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box.[ ]
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of Securities Amount to be Proposed Maximum Aggregate Price Proposed Maximum Aggregate Amount of Registration
to be Registered Registered Per Share (1) Offering Price(1) Fee
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value 1,600,000(2) $2.625 $4,200,000.00 $1,239.00(3)
</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee. Such estimate has been calculated in accordance with Rule
457(g) under the Securities Act of 1933, as amended (the "Securities Act") and
is based upon the average of the high and low prices per share of the
Registrant's Common Stock as reported by the National Association of Securities
Dealers Automated Quotation National Market System on June 30, 1998.
(2) Pursuant to Rule 416 under the Securities Act, there are also being
registered such indeterminate number of additional shares of Common Stock as may
be issuable to prevent dilution resulting from stock splits and certain stock
dividends.
(3) Includes $1,239.00 previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE> 3
SUBJECT TO COMPLETION, DATED SEPTEMBER 14, 1998
PROSPECTUS
ECOGEN INC.
1,600,000 SHARES OF COMMON STOCK
This Prospectus relates to the offering of up to an aggregate
of 1,600,000 shares (the "Shares") of Common Stock, $.01 par value ("Common
Stock"), of Ecogen Inc., a Delaware corporation ("Ecogen" or the "Company"),
which may be offered from time to time by the persons (the "Selling
Stockholders") named in this Prospectus under the caption "Selling
Stockholders."
On June 5, 1998, the Company sold 20,000 shares of its Series
1998-A Convertible Preferred Stock, $.01 par value (the "Series A Stock") and a
warrant (the "Warrant") to purchase 160,000 shares of Common Stock to one of the
Selling Stockholders (the "Preferred Holder") in a private transaction. Pursuant
to the terms of the Certificate of Designations, Preferences and Rights of the
Series 1998-A Convertible Preferred Stock (the "Series A Certificate") regarding
payment of dividends, the Company may, from time to time, issue additional
shares of Series A Stock (the "Dividend Shares") to the Preferred Holder in
payment of dividends on the Series A Stock. The Series A Stock is convertible,
at the option of the holder thereof, at a rate equal to the lesser of (a) 100%
of the average of the two lowest closing bid prices of the Common Stock during
the ten consecutive trading days prior to the applicable conversion date and (b)
$3.39375. As partial consideration for services rendered in connection with the
placement of the shares of Series A Stock to the Preferred Holder, the Company
also issued 24,000 shares of Common Stock to the other Selling Stockholder (the
"Common Holder").
The Shares being offered hereby by the Selling Stockholders
may be acquired from time to time, upon conversion of the Series A Stock or
exercise of the Warrant. The Shares
<PAGE> 4
include (a) the 160,000 shares of Common Stock issuable upon exercise of the
Warrant, (b) the 24,000 shares of Common Stock issued to the Common Holder, and
(c) 1,416,000 shares of Common Stock which may be issuable upon conversion of
the Series A Stock (including the Dividend Shares). The Warrant has a five year
term and an initial exercise price of $3.525 per share. The actual number of
shares of Common Stock issued or issuable upon conversion of the Series A Stock
or exercise of the Warrant is subject to adjustment depending on factors which
cannot be predicted by the Company at this time, including among others, (a) the
future market prices of the Common Stock, and (b) the payment of dividends on
the Series A Stock in additional shares of Series A Stock.
The Shares may, without limitation, be offered for sale from
time to time by the Selling Stockholders in brokerage transactions at prevailing
market prices, in transactions at negotiated prices or otherwise. No
representation is made that any Shares will or will not be offered for sale. The
Company will not receive any proceeds from the sale of the Shares. All costs,
expenses and fees incurred in connection with the registration of the Shares,
estimated to be approximately $20,000, are being borne by the Company, but all
selling and other expenses incurred by the Selling Stockholders will be borne by
such Selling Stockholders. See "Plan of Distribution."
The Selling Stockholders, and the brokers through whom sales
of the Shares are made, may be deemed to be "underwriters" within the meaning of
Section 2(11) of the Securities Act of 1933, as amended (the "Securities Act").
In addition, any profits realized by the Selling Stockholders or such brokers on
the sale of the Shares may be deemed to be underwriting commissions.
The Common Stock is traded in the NASDAQ National Market
System under the symbol EECN. On August 28, 1998, the last sale price per share
of the Common Stock, as reported on the NASDAQ National Market System, was
$1.1875.
THE OFFERING INVOLVES A HIGH DEGREE OF RISK. FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN
THE SHARES, SEE "RISK FACTORS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The date of this Prospectus is______ __, 1998.
<PAGE> 5
AVAILABLE INFORMATION
Ecogen is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports and other information with the SEC. Copies
of reports, proxy statements and other information filed by the Company with the
SEC can be inspected and copied at the SEC's public reference facilities at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and, upon request, may be
made available at the SEC's regional offices at 7 World Trade Center, Suite
1300, New York, New York 10048, at 73 Tremont Street, Suite 600, Boston,
Massachusetts 02108-3912, and at The Curtis Center, Suite 1005 E., 601 Walnut
Street, Philadelphia, Pennsylvania 19106-3322. In addition, the SEC maintains a
Web-site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the SEC and the
address of such site is http://www.sec.gov.
The Company's Common Stock is traded on the NASDAQ National
Market System. Copies of reports, proxy statements and other information
concerning the Company can also be inspected at the offices of the National
Association of Securities Dealers, Inc., located at 1735 K Street, N.W.,
Washington, D.C. 20006.
The Company also has filed with the SEC a Registration
Statement on Form S-3 (together with all amendments and exhibits thereto, the
"Registration Statement") under the Securities Act) with respect to the Shares
offered hereby. This Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules thereto. For
further information with respect to the Company and the offering, reference is
made to such Registration Statement, exhibits and schedules, which may be
inspected without charge at the SEC's office in Washington, D.C., and copies of
all or any part thereof may be obtained from such office after payment of fees
prescribed by the SEC.
TABLE OF CONTENTS
Page
AVAILABLE INFORMATION........................................................3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE..............................4
THE COMPANY..................................................................5
RISK FACTORS.................................................................5
FORWARD LOOKING STATEMENTS...................................................8
SELLING STOCKHOLDERS.........................................................9
PLAN OF DISTRIBUTION........................................................10
DESCRIPTION OF SECURITIES...................................................11
TRANSFER AGENT AND REGISTRAR................................................11
EXPERTS.....................................................................11
LEGAL MATTERS...............................................................11
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<PAGE> 6
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the SEC are
incorporated herein by reference:
(a) The Company's Form 10-K Annual Report for the fiscal year
ended October 31, 1997, filed pursuant to Section 13 or 15(d) of the Exchange
Act.
(b) The Company's Form 10-Q Quarterly Reports for the fiscal
quarters ended January 31, 1998, April 30, 1998 and July 31, 1998, filed
pursuant to Section 13 or 15(d) of the Exchange Act.
(c) The Company's Form 8-K Current Report dated May 15, 1998,
filed pursuant to Section 13 or 15(d) of the Exchange Act.
(d) The Company's Form 8-K Current Report dated September 2,
1998, filed pursuant to Section 13 or 15 (d) of the Exchange Act.
(e) The description of the Company's Common Stock contained in
the Company's registration statement on Form 8-A (File No. 1-9579) filed under
the Exchange Act, including any amendments or reports filed for the purpose of
updating such description.
All reports and other documents subsequently filed by the
Company pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act,
after the date of this Prospectus and prior to the filing of a post-effective
amendment which indicates that all securities offered hereby have been sold or
which deregisters all securities then remaining unsold, shall be deemed to be
incorporated by reference herein and to be a part hereof from the date of the
filing of such reports and documents. Any statement contained in any document
incorporated by reference shall be deemed to be modified or superseded for
purposes of this Prospectus to the extent that a statement contained herein or
in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement.
The Company hereby undertakes to provide without charge to
each person, including any beneficial owner, to whom a prospectus is delivered,
upon the written or oral request of such person a copy of any and all of the
information that has been incorporated by reference in this Prospectus (not
including exhibits to the information that is incorporated by reference unless
such exhibits are specifically incorporated by reference into the information
that this Prospectus incorporates). Such request should be addressed to: Ecogen
Inc., 2005 Cabot Boulevard West, Langhorne, Pennsylvania 19047, Attention: Mary
E. Paetzold, Vice President and Chief Financial Officer.
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<PAGE> 7
THE COMPANY
Ecogen, 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 biological fungicide products for the control of powdery mildew and
post-harvest rot disease. In addition, Ecogen is developing for introduction
into certain niche markets insecticidal nematode (microscopic roundworm)
products 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 EPA approvals to sell Bt
insecticides incorporating a recombinant Bt strain.
Ecogen's principal executive offices are located at 2005 Cabot
Boulevard West, Langhorne, Pennsylvania 19047. Its telephone number is (215)
757-1590.
RISK FACTORS
AN INVESTMENT IN THE SHARES OFFERED HEREBY INVOLVES A HIGH
DEGREE OF RISK AND SHOULD NOT BE MADE BY PERSONS WHO CANNOT AFFORD THE LOSS OF
THEIR ENTIRE INVESTMENT. IN CONNECTION WITH THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, THE COMPANY IS HEREBY
IDENTIFYING IMPORTANT FACTORS THAT COULD CAUSE THE COMPANY'S ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THOSE PROJECTED IN FORWARD-LOOKING STATEMENTS OF THE
COMPANY. THE COMPANY ADVISES PROSPECTIVE INVESTORS NOT TO PLACE UNDUE RELIANCE
ON ANY SUCH FORWARD-LOOKING STATEMENTS IN LIGHT OF THE RISKS AND UNCERTAINTIES
TO WHICH THEY ARE SUBJECT. IN EVALUATING THE COMPANY AND ITS BUSINESS,
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS IN
ADDITION TO THE OTHER INFORMATION INCLUDED HEREIN.
LIQUIDITY AND LONG-TERM CAPITAL NEEDS. To date, the Company
has not generated positive cash flow from operations. Since the Company's
inception in 1983, the Company has financed its working capital needs primarily
through equity securities, revenues from research and development agreements and
product sales. 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 factors 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 agricultural pest control market, and access to
capital markets that can provide the Company with the resources necessary to
fund its strategic priorities. The Company may need additional financing to
support current levels of product development and commercialization. There is no
assurance that such financing will be available on terms acceptable to the
Company or at all. Over the long-term, the Company's liquidity is dependent on
market acceptance of its products and technology.
EARLY STAGE OF PRODUCT SALES. Ecogen is in its early years of
significant commercial sales of a line of biorational products for the control
of pests in agricultural and related markets. Currently, Ecogen's
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<PAGE> 8
primary products include a line of biological insect control products and
biofungicide products. There can be no assurance that Ecogen's existing or
future products will be commercially accepted.
LACK OF OPERATING PROFITS. Ecogen has incurred net losses
since its inception. Historically, Ecogen's working capital has been maintained
primarily through sales of capital stock and not through operations. To date,
Ecogen has not generated profits or positive cash flow from operations. There
can be no assurance that Ecogen will achieve operating profits or will generate
a positive cash flow. No assurance exists that the Company will be able to
market its products at prices and in quantities that will enable the Company to
achieve profitability.
DIVIDENDS. The Company has never paid a dividend on its Common
Stock and does not anticipate paying dividends on the Common Stock in the
foreseeable future. The Company currently intends to retain earnings, if any,
for use in its business. There can be no assurance that the Company will ever
pay dividends on its Common Stock.
MANUFACTURING RISKS. A key to Ecogen's achieving its product
sales objectives is Ecogen's ability to mass produce its biorational products in
a timely and cost-effective manner. In order for Ecogen's product sales to be
profitable, Ecogen must be able to scale-up its production to meet anticipated
needs and no assurance exists that Ecogen will be able to scale-up its
production on commercially reasonable terms or at all. Ecogen's production plans
call for reliance upon third parties for most of its product manufacturing,
formulation and packaging requirements. Although Ecogen believes that such third
parties have sufficient operating capacity to satisfy Ecogen's product
manufacturing needs, the failure of any such party to provide products to Ecogen
under its product manufacturing arrangement could have a material and adverse
effect on Ecogen's ability to meet the demand for its product.
DEPENDENCE ON KEY PERSONNEL. Ecogen's future success is
dependent upon the efforts and abilities of its employees. Ecogen has assembled
a highly qualified technical staff, many of whom have considerable prior
experience with bioinsecticides. The loss of certain key employees could
materially and adversely affect Ecogen's business. Ecogen's success will depend
on its ability to retain key employees and, if any depart, to replace them with
personnel of comparable scientific and management capability.
COMPETITION AND TECHNOLOGY. The markets in which Ecogen
operates are highly competitive. 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,
Novartis and Dow AgroSciences, 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 products compete with certain transgenic seed
and plant products that have insecticidal capabilities. No assurance exists that
the competitive pressure will not result in a reduction in prices of the
Company's products which could adversely affect the Company's profitability. The
agricultural pesticide industry is undergoing, and is expected to continue to
undergo, rapid and significant technological change. Ecogen expects competition
to intensify as technical advances in the field are made and become more widely
known. There can be no assurance that developments by others will not render
Ecogen's products or technology obsolete or noncompetitive.
SEASONALITY. The bulk of the Company's products are 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. Field testing,
regulatory approval and commercial introduction of
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<PAGE> 9
Ecogen's products not yet registered with the EPA must occur at certain times
before or during the growing season. Unusual weather conditions during field
tests or the failure to receive regulatory approval prior to the growing season
may require additional field tests to be conducted in subsequent growing
seasons, with resulting delays in new product development and commercialization.
In addition, because of the seasonal nature of its business, Ecogen'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.
GOVERNMENTAL REGULATION. Pesticides are subject to rigorous
testing and approval processes by the EPA and similar regulatory authorities in
certain states and in other countries. The process of obtaining these approvals
can be time-consuming and costly. There can be no assurance that such approvals
will be granted on a timely basis, if at all. Delays in obtaining necessary
product registrations could have a significant impact upon Ecogen's revenues and
competitive position in the way of delayed product sales and lost market
opportunities. Additionally, while the EPA has in place a registration procedure
for biopesticides that is less burdensome in comparison to the registration
procedures for synthetic chemical pesticides, there can be no assurance that
additional requirements will not be added by the EPA which could make the
procedure more time-consuming and costly or that a particular product developed
in the future will qualify for registration as a biopesticide. There is no
assurance that any registrations that have been granted will not be revoked or
that, if the Company applies for any additional registrations or approvals, they
will be issued.
PROPRIETARY TECHNOLOGY AND TRADE SECRETS. Although Ecogen has
issued and pending patents with respect to certain of its technologies, there
can be no assurance that any additional patents will be issued or that any
issued patents will provide adequate protection for Ecogen's products or
processes. Although Ecogen pursues a policy of seeking patent protection, both
in the United States and abroad, for its novel micro-organisms and related
biopesticide compositions of matter and processes, 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,
Ecogen also relies upon unpatented proprietary technology and trade secrets. All
Ecogen employees and consultants sign confidentiality agreements under which
they agree not to use or disclose Ecogen's confidential information as long as
that information remains proprietary or, in some cases, for fixed time periods.
There can be no assurance that others have not developed or will not
independently develop such proprietary technology or substantially equivalent
information and techniques or that secrecy will not be breached. Ecogen's
ability to compete will depend, in part, on maintaining the proprietary nature
of its technology.
Ecogen is aware that substantial research efforts in
biotechnology are taking place at universities, government laboratories and
public 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
costs associated with the enforcement of Ecogen's patents and with obtaining
licenses, if required, under patents held by third parties can be significant
and thus could materially and adversely affect Ecogen's business. There can be
no assurance that Ecogen could obtain licenses with respect to such patents on
favorable terms, if at all.
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<PAGE> 10
PRODUCT LIABILITY. Product liability claims may be asserted
with respect to the Company's technology or products. Although Ecogen currently
has product liability insurance, there can be no assurance that Ecogen has
obtained sufficient insurance coverage, or that Ecogen will have sufficient
resources, to satisfy any product liability claims. A successful product
liability claim in excess of the Company's insurance coverage could have a
material adverse effect on the Company.
STOCK PRICE VOLATILITY. The market prices for shares of common
stock and other securities of biotechnology companies (including Ecogen)
historically have been extremely volatile. Factors such as announcements of
technical innovations and new commercial products by Ecogen's current or
potential competitors, adverse results in Ecogen's field tests or product sales,
adverse litigation, adverse legislation, patent or proprietary rights
developments or market conditions in general may have a significant impact on
the market prices of the Shares offered hereby. In addition, the future sale of
a substantial number of shares of Common Stock by existing stockholders or by
Ecogen may have an adverse impact on the market price of the Shares offered
hereby. There can be no assurance that the trading price of the Company's Common
Stock will remain at or near its current level.
DILUTION. Ecogen has granted options to purchase Common Stock
under employee benefit plans and agreements with management and directors of
Ecogen. Warrants, options, convertible securities (including, without
limitation, the Series A Stock) and other rights to purchase Common Stock are
also outstanding under financing arrangements and other transactions. Ecogen
regularly examines opportunities to expand its technology base and product line
through means such as licenses, joint ventures and acquisition of assets or
ongoing businesses (including the acquisition of outstanding minority interests
in its Ecogen Technology I Incorporated subsidiary) and may issue securities in
connection with such transactions. Ecogen may issue additional stock, warrants
and/or options or other convertible securities in order to raise funds or for
other purposes in the future and may also issue additional securities in
connection with its employee benefit plans. During the terms of any such
options, warrants and other convertible securities, the holders thereof have an
opportunity to profit from a future rise, if any, in the market price of the
Common Stock. The exercise of any such outstanding options, warrants or other
convertible securities or the issuance of any such additional warrants, options
or other equity or derivative securities of the Company may adversely affect the
market value of the Shares offered hereby or adversely affect the terms on which
Ecogen may obtain additional equity financing.
FORWARD LOOKING STATEMENTS
Certain statements contained or incorporated by reference in
this Prospectus, including without limitation statements containing the words
"believes," "anticipates," "intends," "expects," and words of similar import,
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors which may cause
the actual results, performance or achievements of the Company, or industry
results, to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include, among others, those set forth in this Prospectus, including
under the caption "Risk Factors." Given these uncertainties, prospective
investors are cautioned not to place undue reliance on such forward-looking
statements. The Company disclaims any obligation to update any such statements
or to publicly announce any updates or revisions to any of the forward-looking
statements contained herein to reflect any change in the Company's expectation
with regard thereto or any change in events, conditions, circumstances or
assumptions underlying such statements.
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<PAGE> 11
SELLING STOCKHOLDERS
The following table sets forth as of August 28, 1998, and upon
completion of the offering described in this Prospectus, information with regard
to the beneficial ownership of the Company's Common Stock by the Selling
Stockholders. Such Selling Stockholders may not have a present intention of
selling the Shares and may offer less than the amount of Shares indicated.
<TABLE>
<CAPTION>
Shares Beneficially Owned
Shares Beneficially Shares Shares Beneficially
Owned Before to Owned After Offering (1)
Name and Address Offering be Offered Number Percentage
<S> <C> <C> <C> <C>
KA Investments LDC (2) 400,156(3) 1,576,000 (4) 0 __
c/o Deephaven Capital Management
1712 Hopkins Crossroads
Minnetonka, MN 55305
Jesup & Lamont Securities Corp. (5) 24,000 24,000 0 __
650 Fifth Avenue, Third Floor
New York, NY 10019
</TABLE>
(1) Assumes resale of all shares of Common Stock offered hereby.
(2) KA Investments LDC is managed by Deephaven Capital Management LLC, 1712
Hopkins Crossroads, Minnetonka, MN 55305, a privately held investment management
firm.
(3) Includes shares of Common Stock issuable upon exercise of the Warrant and
upon conversion of the Series A Stock at an assumed conversion price of $1.25
per share (the "Initial Stock"). Because the number of shares of Common Stock
issuable upon conversion of the Series A Stock and as payment of dividends
thereon in shares of Common Stock is dependent in part upon the market price of
the Common Stock prior to a conversion, the actual number of shares of Common
Stock that will be issued in respect of such conversions or dividend payments,
and consequently the number of shares of Common Stock that will be beneficially
owned by the Selling Stockholder, will fluctuate daily and cannot be determined
at this time. However, the Selling Stockholder has contractually agreed to
restrict its ability to convert Preferred Stock (and receive shares of Common
Stock in payment of dividends thereon) or exercise the Warrant to the extent
that the number of shares of Common Stock held by it and its affiliates after
such conversion or exercise exceeds 4.999% of the then issued and outstanding
shares of Common Stock following such conversion or exercise. Due to this
restriction, the number of Shares beneficially owned by KA Investments is equal
to 4.999% of the total shares of Common Stock outstanding (including shares
issued on conversion or exercise).
(4) Includes shares of Common Stock issuable upon conversion of the Series A
Stock and the payment of dividends thereon at an assumed conversion price of
$1.25 per share and shares of Common Stock issuable upon exercise of the
Warrant, in each case without regard to the limitation described in footnote (3)
above. Because the number of shares of Common Stock issuable upon conversion of
the Series A Stock and as payment of
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<PAGE> 12
dividends thereon is dependent in part upon the market price of the Common Stock
prior to a conversion, the actual number of shares of Common Stock that will be
issued in respect of such conversions or dividend payments and, consequently,
offered for sale under this Registration Statement, cannot be determined at this
time. In order to provide for a cushion for such fluctuations, the number of
shares of Common Stock registered hereunder in excess of the Initial Stock shall
be available for issuance upon conversion of the Series A Stock and payment of
dividends thereon and exercise of the Warrant.
(5) Jesup & Lamont Securities Corp. is owned 100% by Jesup & Lamont Group
Holdings, 650 Fifth Avenue, Third Floor, New York, NY 10019, which is owned 80%
by Mr. Howard F. Curd, c/o Jesup & Lamont Group Holdings, 650 Fifth Avenue,
Third Floor, New York, NY 10019.
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<PAGE> 13
PLAN OF DISTRIBUTION
The Selling Stockholders or their pledgees, donees,
transferees or other successors-in-interest, may, from time to time, sell all or
a portion of the Shares on the NASDAQ National Market System, in privately
negotiated transactions or otherwise, at fixed prices that may be changed, at
market prices prevailing at the time of sale, at prices related to such market
prices or at negotiated prices. The Shares may sold by the Selling Stockholders
by one or more of the following methods, without limitation: (a) block trades in
which the broker or dealer so engaged will attempt to sell the Shares as agent
but may position and resell a portion of the block as principal to facilitate
the transaction, (b) purchases by a broker or dealer as principal and resale by
such broker or dealer for its account pursuant to this Prospectus, (c) an
exchange distribution in accordance with the rules of the applicable exchange,
(d) ordinary brokerage transactions and transactions in which the broker
solicits purchasers, (e) privately negotiated transactions, (f) short sales and
(g) a combination of any such methods of sale.
From time to time the Selling Stockholders may engage in short
sales, short sales against the box, puts and calls and other transactions in
securities of the Company or derivatives thereof, and may sell and deliver the
Shares in connection therewith or in settlement of securities loans. If the
Selling Stockholders engage in such transactions, the applicable conversion
price may be affected. From time to time the Selling Stockholders may pledge
their Shares pursuant to the margin provisions of its customer agreements with
its brokers. Upon a default by the Selling Stockholders, the broker may offer
and sell the pledged Shares from time to time.
In effecting sales, brokers and dealers engaged by the Selling
Stockholders may arrange for other brokers or dealers to participate in such
sales. Brokers or dealers may receive commissions or discounts from the Selling
Stockholders (or, if any such broker-dealer acts as agent for the purchaser of
such shares, from such purchaser) in amounts to be negotiated which are not
expected to exceed those customary in the types of transactions involved.
Broker-dealers may agree with the Selling Stockholders to sell a specified
number of such Shares at a stipulated price per share, and, to the extent such
broker-dealer is unable to do so acting as agent for a Selling Stockholder, to
purchase as principal any unsold Shares at the price required to fulfill the
broker-dealer commitment to the Selling Stockholders. Broker-dealers who acquire
shares as principal may thereafter resell such Shares from time to time in
transactions (which may involve block transactions and sales to and through
other broker-dealers, including transactions of the nature described above) in
the over-the-counter market or otherwise at prices and on terms then prevailing
at the time of sale, at prices then related to the then-current market price or
in negotiated transactions and, in connection with such resales, may pay to or
receive from the purchasers of such Shares commissions as described above. The
Selling Stockholders may also sell the Shares in accordance with Rule 144 under
the Securities Act, rather than pursuant to this Prospectus.
The Selling Stockholders and any broker-dealers or agents that
participate with the Selling Stockholders in sales of the Shares may be deemed
to be "underwriters" within the meaning of the Securities Act in connection with
such sales. In such event, any commissions received by such broker-dealers or
agents and any profit on the resale of the Shares purchased by them may be
deemed to be underwriting commissions or discounts under the Securities Act.
The Company is required to pay all fees and expenses incident
to the registration of the Shares, including fees and disbursements of counsel
to the Selling Stockholders (not to exceed an aggregate of $5,000). The Company
has agreed to indemnify the Selling Stockholders against certain losses, claims,
damages and liabilities, including liabilities under the Securities Act.
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<PAGE> 14
DESCRIPTION OF SECURITIES
The following description does not purport to be complete and
is subject in all respects to the applicable provisions of the Company's
Restated Certificate of Incorporation, as amended, and By-Laws.
The authorized capital stock of the Company consists of
42,000,000 shares of Common Stock, par value $0.01, and 7,500,000 shares of
Preferred Stock, par value $0.01, the terms of which will be determined by the
Company's Board of Directors as and when such shares are issued. Of the
7,500,000 shares of Preferred Stock, 35,000 have been designated Series 1998-A
Convertible Preferred Stock and 50,000 have been designated Series 1998-C
Convertible Preferred Stock. At August 28, 1998, 8,033,956 shares of Common
Stock, 20,000 shares of Series 1998-A Convertible Preferred Stock and 32,354
shares of Series 1998-C Convertible Preferred Stock were outstanding.
Common Stock
The holders of shares of Common Stock are entitled to one vote
for each share of Common Stock held on all matters on which holders of Common
Stock are entitled to vote. Holders of Common Stock are entitled to receive
dividends when and as declared by the Board of Directors out of funds legally
available therefor and are entitled to receive on a pro rata basis all assets of
the Company legally available for distribution to the stockholders in the event
of the liquidation, dissolution or winding up of the Company. Holders of Common
Stock have no preemptive, subscription, redemption or conversion rights, and no
right to vote cumulatively for the election of directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common
Stock is American Stock Transfer & Trust Company, 40 Wall Street, New York, NY
10005.
EXPERTS
The consolidated financial statements and schedules of Ecogen
Inc. and its subsidiaries as of October 31, 1996 and October 31, 1997, and for
each of the years in the three-year period ended October 31, 1997 have been
incorporated by reference herein in reliance upon the report of KPMG Peat
Marwick LLP, independent certified public accountants, which has been
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing.
LEGAL MATTERS
Certain legal matters relating to the Common Stock, including
the validity thereof, will be passed upon for the Company by Paul, Hastings,
Janofsky & Walker LLP, Stamford, Connecticut, counsel for the Company. Esteban
A. Ferrer, a member of Paul, Hastings, Janofsky & Walker LLP, is a director of
the Company.
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<PAGE> 15
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the various expenses payable by
the Company in connection with the sale of the Shares being registered. All of
the amounts shown are estimates except the registration fee.
<TABLE>
<S> <C>
Registration fee................................. $ 1,239
Legal fees and expenses.......................... 15,000
Accounting fees and expenses..................... 2,000
Miscellaneous.................................... 1,761
TOTAL $ 20,000
===========
</TABLE>
Item 15. Indemnification of Directors and Officers
Article VIII of the Bylaws of the Company, as amended,
provides generally for indemnification of officers, directors, agents and
employees of the Company to the extent authorized by the General Corporation Law
of the State of Delaware. Pursuant to Section 145 of the Delaware General
Corporation Law, a corporation generally has the power to indemnify its present
and former directors, officers, employees and agents against expenses incurred
by them in connection with any suit to which they are, or are threatened to be
made, a party by reason of their serving in such positions so long as they acted
in good faith and in a manner they reasonably believed to be in, or not opposed
to, the best interests of a corporation, and with respect to any criminal
action, they had no reasonable cause to believe their conduct was unlawful. With
respect to suits by or in the right of a corporation, however, indemnification
is not available if such person is adjudged to be liable for negligence or
misconduct in the performance of his duty to the corporation unless the court
determines that indemnification is appropriate. In addition, a corporation has
the power to purchase and maintain insurance for such persons. The statute also
expressly provides that the power to indemnify authorized thereby is not
exclusive of any rights granted under any bylaw, Agreement, vote of stockholders
or disinterested directors, or otherwise.
As permitted by Section 102 of the Delaware General
Corporation Law, the Company's stockholders have approved and incorporated
provisions into the Company's Restated Certificate of Incorporation eliminating
a director's personal liability for monetary damages to the Company and its
stockholders arising from a breach of a director's fiduciary duty, except for
liability under Section 174 of the Delaware General Corporation Law or liability
for any breach of the director's duty of loyalty to the Company or its
stockholders, for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law or for any transaction in
which the director derived an improper personal benefit.
The Company has entered into indemnification agreements with
directors and officers. These agreements provide substantially broader indemnity
rights than those provided under the Delaware General Corporation Law and the
Company's Bylaws. The indemnification agreements are not intended to deny or
otherwise limit third party or derivative suits against the Company or its
directors or officers, but to the extent a director or office were entitled to
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<PAGE> 16
indemnity or contribution under the indemnification Agreement, the financial
burden of a third party suit would be borne by the Company, and the Company
would not benefit from derivative recoveries against the director or officer.
Such recoveries would accrue to the benefit of the Company but would be offset
by the Company's obligations to the director or officer under the
indemnification Agreement.
The above discussion of the Company's Bylaws, Restated
Certificate of Incorporation and indemnification agreements and of Section 145
of the Delaware General Corporation Law is not intended to be exhaustive and is
qualified in its entirety by such Bylaws, Restated Certificate of Incorporation,
indemnification agreements and statute.
Item 16. Exhibits.
Exhibit No. Description
----------- -----------
*3.1 Restated Certificate of Incorporation of Ecogen Inc.
(Form 10-Q for fiscal quarter ended January 31,
1996).
*3.2 By-laws of Ecogen Inc., as amended (Form S-1
Registration Statement, File No. 33-14119).
*3.3 Certificate of Designations, Preferences and Rights
of Series 1998-A Convertible Preferred Stock. (Form
10-Q for fiscal quarter ended April 30, 1998).
*3.4 Certificate of Designations, Preferences and Rights
of Series 1998-C Convertible Preferred Stock. (Form
8-K, dated September 2, 1998).
5 Opinion of counsel as to legality of securities being
registered.
10.140 Amended and Restated Convertible Preferred Stock
Purchase Agreement between Ecogen Inc. and KA
Investments LDC dated as of June 5, 1998.
10.141 Warrant Agreement between Ecogen Inc. and KA
Investments LDC dated June 5, 1998.
10.142 Amended and Restated Registration Rights Agreement
between Ecogen Inc. and KA Investments LDC dated as
of June 5, 1998.
23.1 Consent of KPMG Peat Marwick.
23.2 Consent of counsel. (The Consent of counsel is
included in Exhibit 5).
24 Power of Attorney executed by certain officers of the
Company and individual members of the Board of
Directors authorizing certain officers of the Company
to file amendments to the Company's Registration
Statement on Form S-3.
* These items are hereby incorporated by reference from the exhibits
of the filing or report indicated and are made a part of this
Registration Statement.
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<PAGE> 17
Item 17. Undertakings.
(A) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales
are being made, a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by section
10(a)(3) of the Securities Act;
(ii) to reflect in the prospectus any facts or
events arising after the effective date of this Registration Statement (or the
most recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in this
Registration Statement. Notwithstanding the foregoing, any increase or decrease
in volume of securities offered (if the total dollar value of securities offered
would not exceed that which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be reflected in the form of
prospectus filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement; and
(iii) to include any material information with
respect to the plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the Registration
Statement; provided, however, that paragraphs A(1)(i) and (ii) do not apply if
the information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
Section 13(a) or Section 15(d) of the Exchange Act that are incorporated by
reference in the Registration Statement.
(2) That, for the purpose of determining any liability
under the Securities Act, each such post- effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being registered which remain
unsold at the termination of the offering.
(B) The undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act, each filing of
the registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act that is incorporated by reference in the Registration Statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(C) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions or otherwise, the
registrant has been advised that in the opinion of the SEC such indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
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<PAGE> 18
securities being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
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<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 2 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in
Langhorne, Commonwealth of Pennsylvania, on September 11, 1998.
ECOGEN INC.
By: /s/ James P. Reilly, Jr.
Name: James P. Reilly, Jr.
Title: Chairman and Chief Executive Officer
II-5
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated as of the 11th day of September, 1998.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Signature Title
--------- -----
/s/ James P. Reilly, Jr.
(James P. Reilly, Jr.) Chairman of the Board, President September 11, 1998
and Chief Executive Officer
(Principal Executive Officer)
*
(Mary E. Paetzold) Vice President and Chief Financial September 11, 1998
Officer (Principal Financial and
Accounting Officer)
*
(Esteban A. Ferrer) Director September 11, 1998
*
(Philippe D. Katz) Director September 11, 1998
*
(Lowell N. Lewis) Director September 11, 1998
*
(John R. Sutley) Director September 11, 1998
* /s/ James P. Reilly, Jr.
James P. Reilly, Jr., as
attorney-in-fact
</TABLE>
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<PAGE> 21
ECOGEN INC.
INDEX TO EXHIBITS FILED WITH
FORM S-3 REGISTRATION STATEMENT
Exhibit No. Description
*5 Opinion of counsel as to legality of Securities being registered.
10.140 Amended and Restated Convertible Preferred Stock Purchase Agreement
between Ecogen Inc. and KA Investments LDC dated as of June 5, 1998.
10.141 Warrant Agreement between Ecogen Inc. and KA Investments LDC dated June
5, 1998.
10.142 Amended and Restated Registration Rights Agreement between Ecogen Inc.
and KA Investments LDC dated as of June 5, 1998.
23.1 Consent of KPMG Peat Marwick.
* Previously filed as an exhibit to this Registration Statement.
II-7
<PAGE> 1
AMENDED AND RESTATED CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
(this "Agreement"), dated as of June 5, 1998, between Ecogen Inc., a Delaware
corporation (the "Company"), and KA Investments LDC, a Cayman Islands
corporation (the "Purchaser").
WHEREAS, subject to the terms and conditions set forth in this
Agreement, the Company desires to issue and sell to the Purchaser and the
Purchaser desires to purchase from the Company, shares of the Company's 8%
Series 1998-A Convertible Preferred Stock, par value $.01 per share (the "Series
A Preferred"), and shares of the Company's 8% Series 1998-B Convertible
Preferred Stock, par value $.01 per share (the "Series B Preferred" and,
together with the Series A Preferred, the "Preferred Stock").
IN CONSIDERATION of the mutual covenants contained in this Agreement,
the Company and Purchaser agree as follows:
ARTICLE I
PURCHASE AND SALE OF PREFERRED STOCK
1.1 Purchase and Sale. (a) Subject to the terms and conditions set
forth herein, the Company shall issue and sell to the Purchaser, and the
Purchaser shall purchase from the Company 20,000 shares of the Series A
Preferred (the "Series A Shares") and 10,000 shares of the Series B Preferred
(the "Series B Shares and, together with the Series A Shares, the "Shares").
(b) The Series A Preferred shall have the respective rights,
preferences and privileges set forth in Exhibit A attached hereto (the "Series A
Terms"), which shall be incorporated into a Certificate of Designation to be
approved by the Purchaser and filed prior to the time of the Series A Closing
(as defined below) by the Company with the Secretary of State of Delaware (the
"Series A Designation"). The Series B Preferred shall have respective rights,
preferences and privileges identical to the Series A Terms, mutatis mutandis,
and shall rank pari passu with the Series A Preferred with regard to dividends,
liquidation, voting rights and any other preferential rights designated therein,
except that the Conversion Price (as defined below) for conversion of the Series
B Shares shall be determined as of the Original Issue Date (as defined below)
for such Series B Shares.
The Series B Preferred shall be authorized pursuant to a Certificate of
Designation prepared by the Company and, subject to the approval of the
Purchaser, filed prior to the Series B Closing Date (as defined below), by the
Company with the Secretary of State of Delaware (the "Series B Designation" and,
together with the Series A Designation, the "Certificates of Designation").
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<PAGE> 2
For purposes of this Agreement, "Business Day," "Conversion Price,"
"Original Issue Date," "Trading Day" and "Per Share Market Value" shall have the
meanings set forth in the Series A Terms.
1.2 Purchase Price. The purchase price per Share shall be $100.00.
1.3 The Closings.
(a) The Series A Closing. (i) The closing of the purchase and
sale of the 20,000 Series A Shares (the "Series A Closing") shall take place at
the offices of Robinson Silverman Pearce Aronsohn & Berman LLP ("Robinson
Silverman"), 1290 Avenue of the Americas, New York, New York 10104, immediately
following the execution hereof or such later date as the parties shall agree.
The date of the Series A Closing is hereinafter referred to as the "Series A
Closing Date."
(ii) At the Series A Closing, the parties shall
deliver or shall cause to be delivered the following: (a) the Company shall
deliver to the Purchaser (1) a stock certificate representing 20,000 Series A
Shares registered in the name of the Purchaser, (2) a five year common stock
purchase warrant in the form of Exhibit B (the "Series A Warrant") entitling the
Purchaser to purchase an aggregate of 160,000 shares of the Company's common
stock, $.01 par value per share (the "Common Stock"), at an exercise price equal
to 120% of the Per Share Market Value on the Series A Closing Date, registered
in the name of the Purchaser, (3) the legal opinion of Paul, Hastings, Janofsky
& Walker LLP, outside counsel to the Company, substantially in the form of
Exhibit D, dated the Series A Closing Date, and (4) all other documents,
instruments and writings required to have been delivered at or prior to the
Series A Closing Date by the Company pursuant to this Agreement, including an
executed Registration Rights Agreement, dated the date hereof, between the
Company and the Purchaser, in the form of Exhibit C (the "Registration Rights
Agreement"), and the Irrevocable Transfer Agent Instructions, dated the Series A
Closing Date, in the form of Exhibit E, delivered to and acknowledged by the
Company's transfer agent (the "Transfer Agent Instructions"); and (b) the
Purchaser shall deliver to the Company (1) $2,000,000 in United States dollars
in immediately available funds by wire transfer to an account designated in
writing by the Company for such purpose prior to the Series A Closing Date (the
"Series A Purchase Price") less the amounts referred to in Section 5.1, and (2)
all documents, instruments and writings required to have been delivered at or
prior to the Series A Closing Date by the Purchaser pursuant to this Agreement,
including an executed Registration Rights Agreement.
(b) The Series B Closing. (i) Subject to the terms and
conditions set forth in this Agreement, the Company shall have the right to
deliver a written notice to the Purchaser (a "Subsequent Financing Notice")
requiring the Purchaser to buy the Series B Shares for a purchase price of
$1,000,000. A Subsequent Financing Notice may be
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<PAGE> 3
delivered no earlier than 90 days following the date the initial Registration
Statement is filed with the Securities and Exchange Commission (the
"Commission") pursuant to the Registration Rights Agreement (the "Series A
Underlying Securities Registration Statement" and, together with each other
Registration Statement filed with the Commission pursuant to the Registration
Rights Agreement, the "Underlying Securities Registration Statements") is
declared effective by the Commission (the "Effectiveness Date") and no later
than 210 days following the Effectiveness Date, or as otherwise agreed to by the
parties. The closing of the purchase and sale of the Series B Shares (the
"Series B Closing") shall take place at the offices of the Robinson Silverman on
the third (3rd) Business Day after the Subsequent Financing Notice is delivered
hereunder or on such other date as otherwise agreed to by the parties; provided,
however, that in no case shall the Series B Closing take place unless and until
the conditions listed in Section 4.1 have been satisfied or waived by the
Purchaser. The date of the Series B Closing is hereinafter referred to as the
"Series B Closing Date."
(ii) At the Series B Closing, the parties shall
deliver or shall cause to be delivered the following: (a) the Company shall
deliver to the Purchaser (1) a stock certificate representing 10,000 Series B
Shares registered in the name of the Purchaser, (2) a five year common stock
purchase warrant in the form of Exhibit B (the "Series B Warrant" and together
with the Series A Warrant, the "Warrants") entitling the Purchaser to purchase
an aggregate of 80,000 shares of Common Stock, at an exercise price equal to
120% of the Per Share Market Value on the Series B Closing Date, registered in
the name of the Purchaser, (3) the legal opinion referenced in Section 4.1(xii),
and (4) all other documents, instruments and writings required to have been
delivered at or prior to the Series B Closing Date by the Company to the
Purchaser pursuant to this Agreement; and (b) the Purchaser shall deliver to the
Company (1) $500,000 in United States dollars in immediately available funds by
wire transfer to an account designated in writing by the Company for such
purpose prior to the Series B Closing Date (the "Series B Purchase Price") less
the amounts referred to in Section 5.1, and (2) all documents, instruments and
writings required to have been delivered at or prior to the Series B Closing
Date by the Purchaser pursuant to this Agreement, including a certificate signed
on behalf of the Purchaser confirming the accuracy of its representation and
warranties incurred on and as of the Series B Closing Date.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations, Warranties and Agreements of the Company. The
Company hereby makes the following representations and warranties to the
Purchaser:
(a) Organization and Qualification. The Company is a
corporation, duly incorporated, validly existing and in good standing under the
laws of the State of Delaware, with the requisite corporate power and authority
to own and use its properties and assets and to carry on its business as
currently conducted. The Company has no subsidiaries other than
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<PAGE> 4
as set forth in Schedule 2.1(a) (collectively the "Subsidiaries"). Except as set
forth in Schedule 2.1(a), each of the Subsidiaries is an entity, duly
incorporated or otherwise organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation or organization (as
applicable), with the full corporate power and authority to own and use its
properties and assets and to carry on its business as currently conducted except
where the failure to be duly organized, validly existing or in good standing, as
the case may be is not reasonably likely to, individually or in the aggregate,
(x) adversely affect the legality, validity or enforceability of the Securities
(as defined below) or any of this Agreement, the Certificates of Designation,
the Warrants or the Registration Rights Agreement (collectively, the
"Transaction Documents"), (y) have or result in a material adverse effect on the
results of operations, assets, or condition (financial or otherwise) of the
Company and the Subsidiaries, taken as a whole, or (z) adversely impair the
Company's ability to perform fully on a timely basis its obligations under any
of the Transaction Documents (any of (x), (y) or (z), being a "Material Adverse
Effect"). Except as set forth in Schedule 2.1(a), each of the Company and the
Subsidiaries is duly qualified to do business and is in good standing as a
foreign corporation in each jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary, except
where the failure to be so qualified or in good standing, as the case may be, is
not reasonably likely to have a Material Adverse Effect.
(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by each of the Transaction Documents, and otherwise to carry out
its obligations thereunder. The execution and delivery of each of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated thereby have been duly authorized by all necessary
action on the part of the Company and no further action is required by the
Company. Each of the Transaction Documents has been duly executed by the Company
and, when delivered (or filed, as the case may be) in accordance with the terms
hereof, will constitute the valid and binding obligation of the Company
enforceable against the Company in accordance with its terms. Neither the
Company nor any Subsidiary is in violation of any of the provisions of its
respective certificate of incorporation, by-laws or other charter documents.
(c) Capitalization. The number of authorized, issued and
outstanding shares of capital stock of the Company is set forth in Schedule
2.1(c). No shares of Common Stock are entitled to preemptive or similar rights,
nor is any holder of the Common Stock entitled to preemptive or similar rights
arising out of any agreement or understanding with the Company by virtue of any
of the Transaction Documents, except as set forth in Schedule 2.1(c). Except as
disclosed in Schedule 2.1(c), there are no outstanding options, warrants, script
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or, except as a result of the purchase and sale of the Shares and
the Warrants, securities, rights or obligations convertible into or exchangeable
for, or giving any person any right to
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<PAGE> 5
subscribe for or acquire any shares of Common Stock, or contracts, commitments,
understandings, or arrangements by which the Company or any Subsidiary is or may
become bound to issue additional shares of Common Stock, or securities or rights
convertible or exchangeable into shares of Common Stock. To the knowledge of the
Company, except as specifically disclosed in the SEC Documents (as defined
below) or Schedule 2.1(c), no Person or group of related Persons beneficially
owns (as determined pursuant to Rule 13d-3 promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) or has the right to
acquire by agreement with or by obligation binding upon the Company beneficial
ownership of in excess of 5% of the Common Stock. A "Person" means an individual
or corporation, partnership, trust, incorporated or unincorporated association,
joint venture, limited liability company, joint stock company, government (or an
agency or subdivision thereof) or other entity of any kind.
(d) Issuance of the Shares and the Warrants. The Shares and
the Warrants are duly authorized, and, when issued and paid for in accordance
with the terms hereof, shall have been validly issued, fully paid and
nonassessable, free and clear of all liens, encumbrances and rights of first
refusal of any kind (collectively, "Liens"). The Company has on the date hereof
and will, at each Closing Date and at all times while the Shares and the
Warrants are outstanding, maintain an adequate reserve of duly reserved shares
of Common Stock, reserved for issuance to the holders of the Shares and the
Warrants to enable it to perform its conversion, exercise and other obligations
under this Agreement, the Certificates of Designations and the Warrants. Such
number of reserved and available shares of Common Stock shall be not less than
the sum of (i) the number of shares of Common Stock which would be issuable upon
conversion in full of the Shares, assuming such conversion were effected on the
Series A Closing Date or the Filing Date (as defined in the Registration Rights
Agreement), whichever yields a lower Conversion Price, (ii) the number of shares
of Common Stock issuable upon exercise in full of the Warrants, and (iii) 175%
of the number of shares Common Stock which would be issuable upon conversion of
additional Shares issued as payment of dividends on the Shares (such additional
Shares, the "Dividend Shares"), assuming each Share and Dividend Share is
outstanding for two years and all dividends are paid in the form of Dividend
Shares. The shares of Common Stock issuable upon conversion of the Shares and
Dividend Shares and upon exercise of the Warrants are collectively referred to
herein as the "Underlying Shares." The Shares, the Dividend Shares, the Warrants
and the Underlying Shares are collectively referred to as the "Securities." When
issued in accordance with the Certificates of Designation and upon exercise of
the Warrants, in accordance with their respective terms, the Underlying Shares
shall have been duly authorized, validly issued, fully paid and nonassessable,
free and clear of all Liens.
(e) No Conflicts. The execution, delivery and performance of
the Transaction Documents by the Company and the consummation by the Company of
the transactions contemplated thereby do not and will not (i) conflict with or
violate any
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provision of its certificate of incorporation, bylaws or other charter documents
(each as amended through the date hereof), or (ii) subject to obtaining the
consents referred to in Section 2.1(f), conflict with, or constitute a default
(or an event which with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, credit facility, indenture or instrument
(evidencing a Company debt or otherwise) to which the Company or any Subsidiary
is a party or by which any property or asset of the Company or any Subsidiary is
bound or affected, or (iii) result in a violation of any law, rule, regulation,
order, judgment, injunction, decree or other restriction of any court or
governmental authority to which the Company is subject (including Federal and
state securities laws and regulations), or by which any property or asset of the
Company is bound or affected, except in the case of each of clauses (ii) and
(iii), as is not reasonably likely to, individually or in the aggregate, have or
result in a Material Adverse Effect. The business of the Company is not being
conducted in violation of any law, ordinance or regulation of any governmental
authority, except as set in Schedule 2.1(e) and for violations which,
individually or in the aggregate, are not reasonably likely to have or result in
a Material Adverse Effect.
(f) Consents and Approvals. Except as specifically set forth
in Schedule 2.1(f), neither the Company nor any Subsidiary is required to obtain
any consent, waiver, authorization or order of, give any notice to, or make any
filing or registration with, any court or other Federal, state, local or other
governmental authority or other Person in connection with the execution,
delivery and performance by the Company of the Transaction Documents, other than
(i) the filings of the Certificates of Designation with the Secretary of State
of Delaware, (ii) the filing of the Underlying Securities Registration
Statements with the Commission pursuant to the Registration Rights Agreement,
(iii) the application(s) to the Nasdaq National Market ("NASDAQ") for the
listing of the Underlying Shares with the NASDAQ (and with any other national
securities exchange or market on which the Common Stock is then listed), (iv)
the filing of a Form D with the Commission, and (v) in all other cases where the
failure to obtain such consent, waiver, authorization or order, or to give such
notice or make such filing or registration is not reasonably likely to have or
result in, individually or in the aggregate, a Material Adverse Effect (together
with the consents, waivers, authorizations, orders, notices and filings referred
to in Schedule 2.1(f), the "Required Approvals").
(g) Litigation; Proceedings. Except as specifically disclosed
in the SEC Documents or as set forth in Schedule 2.1(g), there is no action,
suit, notice of violation, proceeding or investigation pending or, to the
knowledge of the Company, threatened against or affecting the Company or any of
its Subsidiaries or any of their respective properties before or by any court,
governmental or administrative agency or regulatory authority (Federal, state,
county, local or foreign) which is reasonably likely, individually or in the
aggregate, to have or result in a Material Adverse Effect.
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<PAGE> 7
(h) No Default or Violation. Neither the Company nor any
Subsidiary (i) is in default under or in violation of (and no event has occurred
which has not been waived which, with notice or lapse of time or both, would
result in a default by the Company or any Subsidiary under), nor has the Company
or any Subsidiary received notice of a claim that it is in default under or that
it is in violation of, any indenture, loan or credit agreement or any other
agreement or instrument to which it is a party or by which it or any of its
properties is bound, (ii) is in violation of any order of any court, arbitrator
or governmental body, or (iii) is in violation of any statute, rule or
regulation of any governmental authority, except, with respect to each of (i),
(ii) and (iii), as set forth in Schedule 2.1(h) and as is not reasonably likely,
individually or in the aggregate, to have or result in a Material Adverse
Effect.
(i) Private Offering. Assuming the accuracy of the
representations and warranties of the Purchaser set forth in Sections
2.2(b)-(h), the offer, issuance and sale of the Securities to the Purchaser as
contemplated hereby are exempt from the registration requirements of the
Securities Act of 1933, as amended (the "Securities Act"). Neither the Company
nor any Person acting on its behalf has taken any action which might subject the
offering, issuance or sale of the Securities to the registration requirements of
the Securities Act.
(j) SEC Documents; Financial Statements. The Company has filed
all reports required to be filed by it under the Exchange Act, including
pursuant to Section 13(a) or 15(d) thereof, for the two years preceding the date
hereof (or such shorter period as the Company was required by law to file such
material) (the foregoing materials being collectively referred to herein as the
"SEC Documents" and, together with the Schedules to this Agreement the
"Disclosure Materials") on a timely basis or has received a valid extension of
such time of filing and has filed any such SEC Documents prior to the expiration
of any such extension. As of their respective dates, the SEC Documents complied
in all material respects with the requirements of the Securities Act and the
Exchange Act and the rules and regulations of the Commission promulgated
thereunder, and none of the SEC Documents, when filed, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. All material
agreements to which the Company is a party or to which the property or assets of
the Company are subject have been filed as exhibits to the SEC Documents as
required. The financial statements of the Company included in the SEC Documents
comply in all material respects with applicable accounting requirements and the
rules and regulations of the Commission with respect thereto as in effect at the
time of filing. Such financial statements were prepared in accordance with
generally accepted accounting principles applied on a consistent basis ("GAAP")
during the periods involved, except as may be otherwise specified in such
financial statements or the notes thereto, and fairly present in all material
respects the financial position of the Company as of and for the dates thereof
and the results of operations and cash flows for the periods then ended,
subject, in the case of unaudited statements, to
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normal, immaterial, year-end audit adjustments. Since October 31, 1997, except
as specifically disclosed in the SEC Documents or as set forth in Schedule
2.1(k), (a) there has been no event, occurrence or development that has resulted
or is reasonably expected to result in a Material Adverse Effect, (b) the
Company has not incurred any liabilities (contingent or otherwise) other than
(x) liabilities incurred in the ordinary course of business consistent with past
practice and (y) liabilities not required to be reflected in the Company's
financial statements pursuant to GAAP, (c) the Company has not altered its
method of accounting or the identity of its auditors and (d) the Company has not
declared or made any payment or distribution of cash or other property to its
stockholders or officers or directors (other than in compliance with existing
Company stock option plans or other existing plan for the benefit of the
Company's employees described in the SEC Documents) with respect to its capital
stock, or purchased, or redeemed (or made any agreements to purchase or redeem)
any shares of its capital stock. The Company last filed audited financial
statements with the Commission on [February 13, 1998], and has not received any
comments from the Commission in respect thereof.
(k) Investment Company. The Company is not, and is not an
Affiliate (as defined in Rule 405 under the Securities Act)) of, an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
(l) Certain Fees. Except for certain fees payable by the
Company to Jesup & Lamont Securities Corp., no fees or commissions will be
payable by the Company to any broker, financial advisor or consultant, finder,
placement agent, investment banker, or bank with respect to the transactions
contemplated by this Agreement. The Purchaser shall have no obligation with
respect to any fees or with respect to any claims made by or on behalf of other
Persons for fees of a type contemplated in this Section that may be due in
connection with the transactions contemplated by this Agreement. The Company
shall indemnify and hold harmless the Purchaser, its employees, officers,
directors, agents, and partners, and their respective Affiliates, from and
against all claims, losses, damages, costs (including the costs of preparation
and reasonable attorney's fees) and expenses suffered in respect of any such
claimed or existing fees, as such fees and expenses are incurred.
(m) Solicitation Materials. Neither the Company nor any Person
acting on the Company's behalf has (i) distributed any offering materials in
connection with the offering and sale of the Securities, or (ii) solicited any
offer to buy or sell the Securities by means of any form of general solicitation
or advertising.
(n) Form S-3 Eligibility. The Company is, and at each Closing
Date will be, eligible to register securities for resale with the Commission
under Form S-3 promulgated under the Securities Act.
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<PAGE> 9
(o) Seniority. Except as provided in Schedule 2.1(p), no class
of equity securities of the Company is senior to the Shares in right of payment,
whether upon liquidation or dissolution, or otherwise.
(p) Patents and Trademarks. The Company has, or has rights to
use, all patents, patent applications, trademarks, trademark applications,
service marks, trade names, copyrights, licenses and rights (collectively, the
"Intellectual Property Rights") which the Company reasonably believes are
necessary for use in connection with its business, and which the failure to so
have would have a Material Adverse Effect. To the best knowledge of the Company,
all such Intellectual Property Rights are enforceable and there is no existing
infringement by another Person of any of the Intellectual Property Rights that
is reasonably likely to have a Material Adverse effect.
(q) Listing and Maintenance Requirements Compliance. The
Company has not in the two years preceding the date hereof received notice
(written or oral) from the NASDAQ or any other stock exchange, market or trading
facility on which the Common Stock is or has been listed (or on which it has
been quoted) to the effect that the Company is not in compliance with respect to
the Common Stock with the listing or maintenance requirements of such exchange
or market. The Company is in compliance with all such maintenance requirements.
(r) Registration Rights; Rights of Participation. Except as
described on Schedule 6(b) to the Registration Rights Agreement, (i) the Company
has not granted or agreed to grant to any Person any rights (including
"piggy-back" registration rights) to have any securities of the Company
registered with the Commission or any other governmental authority which has not
been satisfied and (ii) no Person, has any right of first refusal, preemptive
right, right of participation, or any similar right to participate in the
transactions contemplated by the Transaction Documents.
(s) Regulatory Permits. The Company and the Subsidiaries
possess all certificates, authorizations and permits issued by the appropriate
Federal, state or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Documents, except where the
failure to possess such permits could not, individually or in the aggregate,
have or result in a Material Adverse Effect.
(t) Disclosure. The Company confirms that it has not provided
the Purchaser or its agents or counsel with any information that constitutes or
might constitute material non-public information, other than information the
substance of which will be disclosed upon the filing by the Company of its next
Quarterly Report in Form 10-Q or the first Registration Statement filed by the
Company with the Commission pursuant to the Registration Rights Agreement or
which within 60 days from the date hereof will cease to be material nonpublic
information. The Company understands and confirms that the
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<PAGE> 10
Purchaser shall be relying on the foregoing representations in effecting
transactions in securities of the Company.
2.2 Representations and Warranties of the Purchaser. The Purchaser
hereby represents and warrants to the Company as follows:
(a) Organization: Authority. The Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation with the requisite corporate power and
authority, to enter into and to consummate the transactions contemplated by the
Transaction Documents and otherwise to carry out its obligations thereunder. The
purchase by the Purchaser of the Securities hereunder has been duly authorized
by all necessary action on the part of the Purchaser. Each of this Agreement and
the Registration Rights Agreement has been duly executed and delivered by the
Purchaser and constitutes the valid and legally binding obligation of the
Purchaser, enforceable against it in accordance with its terms.
(b) Investment Intent. The Purchaser is acquiring the
Securities for its own account for investment purposes only and not with a view
to or for distributing or reselling such Securities or any part thereof or
interest therein, without prejudice, however, to the Purchaser's right, subject
to the provisions of this Agreement and the Registration Rights Agreement, at
all times to sell or otherwise dispose of all or any part of such Securities
pursuant to an effective registration statement under the Securities Act and in
compliance with applicable state securities laws or under an exemption from such
registration.
(c) Purchaser Status. At the time the Purchaser was offered
the Shares and the Warrants, it was, and at the date hereof, it is, and at each
Closing Date and each exercise date under the Warrants, it will be, an
"accredited investor" as defined in Rule 501(a) under the Securities Act.
(d) Experience of the Purchaser. The Purchaser, either alone
or together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Securities, and has so
evaluated the merits and risks of such investment.
(e) Ability of the Purchaser to Bear Risk of Investment. The
Purchaser is able to bear the economic risk of an investment in the Securities
and, at the present time, is able to afford a complete loss of such investment.
(f) Access to Information. The Purchaser acknowledges receipt
of the Disclosure Materials and further acknowledges that it has reviewed the
Disclosure Materials and has been afforded (i) the opportunity to ask such
questions as it has deemed necessary
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<PAGE> 11
of, and to receive answers from, representatives of the Company concerning the
terms and conditions of the offering of the Securities and the merits and risks
of investing in the Securities; (ii) access to information about the Company and
the Company's financial condition, results of operations, business, properties,
management and prospects sufficient to enable it to evaluate its investment; and
(iii) the opportunity to obtain such additional information which the Company
possesses or can acquire without unreasonable effort or expense that is
necessary to make an informed investment decision with respect to the investment
and to verify the accuracy and completeness of the information contained in the
Disclosure Materials.
(g) General Solicitation. The Purchaser is not purchasing the
Shares as a result of or subsequent to any advertisement, article, notice or
other communication published in any newspaper, magazine or similar media or
broadcast over television or radio or presented at any seminar.
(h) Reliance. The Purchaser understands and acknowledges that
(i) the Securities are being offered and sold to it without registration under
the Securities Act in a private placement that is exempt from the registration
provisions of the Securities Act and (ii) the availability of such exemption,
depends in part on, and the Company will rely upon the accuracy and truthfulness
of, the foregoing representations and the Purchaser hereby consents to such
reliance.
The Company acknowledges and agrees that the Purchaser makes
no representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 2.2.
ARTICLE III
OTHER AGREEMENTS OF THE PARTIES
3.1 Transfer Restrictions. (a) Securities may only be disposed by a
Purchaser or a subsequent transferee of the Securities pursuant to an effective
registration statement under the Securities Act, to the Company or pursuant to
an available exemption from or in a transaction not subject to the registration
requirements of the Securities Act. In connection with any transfer of
Securities other than pursuant to an effective registration statement or to the
Company, except as otherwise set forth herein, the Company may require the
transferor thereof to provide to the Company an opinion of counsel selected by
the transferor and reasonably satisfactory to the Company, the form and
substance of which opinion shall be reasonably satisfactory to the Company, to
the effect that such transfer does not require registration under the Securities
Act. Notwithstanding the foregoing, the Company hereby consents to and agrees to
register on the books of the Company and with any transfer agent for the
securities of the Company any transfer of Securities by the Purchaser to an
Affiliate
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of the Purchaser or to a fund under common management with the Purchaser, or any
transfer among any such Affiliates or funds, provided that transferee certifies
to the Company that it is an "accredited investor" as defined in Rule 501(a)
under the Securities Act and that it is acquiring the Securities solely for
investment purposes. Any such transferee shall agree in writing to be bound by
the terms of this Agreement and shall have the rights of a Purchaser under this
Agreement and the Registration Rights Agreement.
(b) The Purchaser agrees to the imprinting, so long as is
required by this Section 3.1(b), of the following legend on the Securities:
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE [CONVERTIBLE] [EXERCISABLE] HAVE BEEN REGISTERED WITH
THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF
ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS.
[FOR SHARES ONLY] THE SHARES REPRESENTED BY THIS CERTIFICATE
ARE SUBJECT TO CERTAIN RESTRICTIONS ON CONVERSION SET FORTH IN A
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT, DATED AS OF MAY, [ ],
1998, BETWEEN ECOGEN INC. (THE "COMPANY") AND THE ORIGINAL HOLDER
HEREOF. A COPY OF THAT AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF
THE COMPANY.
Underlying Shares shall not contain the legend set forth above
nor any other legend if the conversion of Shares and Dividend Shares, exercise
of the Warrants or other issuances of Underlying Shares as contemplated hereby
or by the Certificates of Designation occurs at any time while an Underlying
Securities Registration Statement is effective under the Securities Act or in
the event there is not an effective Underlying Securities Registration Statement
at such time, if in the opinion of counsel to the Company such legend is not
required under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the Commission). The
Company shall cause its counsel to issue the Transfer Agent instructions
attached hereto as Exhibit E to the Company's transfer agent on the day that the
Underlying Securities Registration Statement is declared effective by the
Commission. The Company agrees that it will provide
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the Purchaser, upon request, with a certificate or certificates representing
Underlying Shares, free from such legend at such time as such legend is no
longer required hereunder. The Company may not make any notation on its records
or give instructions to any transfer agent of the Company which enlarge the
restrictions of transfer set forth in this Section.
3.2 Acknowledgment of Dilution. The Company acknowledges that the
issuance of the Underlying Shares upon (i) conversion of the Shares and Dividend
Shares in accordance with the terms of the Certificates of Designation, and (ii)
exercise of the Warrants, may result in dilution of the outstanding shares of
Common Stock, which dilution may be substantial under certain market conditions.
The Company further acknowledges that its obligation to issue Underlying Shares
upon (x) conversion of the Shares and Dividend Shares in accordance with the
terms of the Certificates of Designation, and (y) exercise of the Warrants, is
unconditional and absolute, subject to the limitations set forth in this
Agreement, in the Certificates of Designation or pursuant to the Warrants,
regardless of the effect of any such dilution.
3.3 Furnishing of Information. As long as the Purchaser owns
Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to Section
13(a) or 15(d) of the Exchange Act. As long as the Purchaser owns Securities, if
the Company is not required to file reports pursuant to such sections, it will
prepare and furnish to the Purchaser and make publicly available in accordance
with Rule 144(c) promulgated under the Securities Act annual and quarterly
financial statements, together with a discussion and analysis of such financial
statements in form and substance substantially similar to those that would
otherwise be required to be included in reports required by Section 13(a) or
15(d) of the Exchange Act, as well as any other information required thereby, in
the time period that such filings would have been required to have been made
under the Exchange Act. The Company further covenants that it will take such
further action as any holder of Securities may reasonably request, all to the
extent required from time to time to enable such Person to sell Underlying
Shares without registration under the Securities Act within the limitation of
the exemptions provided by Rule 144 promulgated under the Securities Act,
including the legal opinion referenced above in this Section. Upon the
reasonable request of any such Person, the Company shall deliver to such Person
a written certification of a duly authorized officer as to whether it has
complied with such requirements.
3.4 Blue Sky Laws. In accordance with the Registration Rights
Agreement, the Company shall qualify or exempt the issuance and sale of the
Underlying Shares under the securities or Blue Sky laws of such jurisdictions as
the Purchaser may reasonably request and shall continue such qualification or
exemption at all times until the Purchaser notifies the Company in writing that
it no longer owns Securities; provided, however, that neither the Company nor
its Subsidiaries shall be required in connection therewith to qualify as a
foreign
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corporation where they are not now so qualified or to take any action that would
subject the Company to general service of process in any such jurisdiction where
it is not then required to be so subject or subject the Company to any material
tax in any such jurisdiction where it is not then so subject.
3.5 Integration. The Company shall not, and shall use its best efforts
to ensure that, no Affiliate shall, sell, offer for sale or solicit offers to
buy or otherwise negotiate in respect of any security (as defined in Section 2
of the Securities Act) that would be integrated with the offer or sale of the
Securities in a manner that would require the registration under the Securities
Act of the sale of the Securities to the Purchaser.
3.6 Increase in Authorized Shares. At such times as the Company would
be, if a notice of conversion or exercise (as the case may be) were to be
delivered on such date, precluded from (a) converting 175% of the Shares and
Dividend Shares outstanding that remain unconverted at such date, or (b)
honoring the exercise in full of the Warrants, due to the unavailability of a
sufficient number of shares of authorized but unissued or reacquired Common
Stock, the Board of Directors of the Company shall promptly (and in any case,
within 30 Business Days from such date) prepare and mail to the stockholders of
the Company proxy materials requesting authorization to amend the Company's
Certificate of Incorporation to increase the number of shares of Common Stock
which the Company is authorized to issue to at least such number of shares as
reasonably requested by the Purchaser in order to provide for such number of
authorized and unissued shares of Common Stock to enable the Company to comply
with its conversion, exercise and reservation of shares obligations as set forth
in this Agreement, the Certificates of Designation and the Warrants (the sum of
(x) the number of then authorized shares of Common Stock, (y) the number of
shares of Common Stock then outstanding plus all shares of Common Stock issuable
upon exercise of all outstanding options, warrants and convertible instruments,
and (z) the sum of (i) 175% of the number of Underlying Shares as are then
issuable upon a conversion in full of all Shares and Dividend Shares, and (ii)
the number of Underlying Shares as are issuable upon exercise in full of the
Warrants, shall be a reasonable number). In connection therewith, the Board of
Directors shall (a) adopt proper resolutions authorizing such increase, (b)
recommend to and otherwise use its best efforts to promptly and duly obtain
stockholder approval to carry out such resolutions (and hold a special meeting
of the stockholders no later than the 60th day after delivery of the proxy
materials relating to such meeting) and (c) within 5 Business Days of obtaining
such stockholder authorization, file an appropriate amendment to the Company's
Certificate of Incorporation to evidence such increase.
3.7 Listing and Reservation of Underlying Shares. (a) The Company shall
(i) not later than the 10th day following each Closing Date, prepare and file
with the NASDAQ (as well as any other national securities exchange or market or
trading or quotation facility on which the Common Stock is then listed) an
additional shares listing application covering a number of shares of Common
Stock which is at least equal to the number of shares required
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<PAGE> 15
to be reserved pursuant to Section 2.1(d), (ii) take all steps necessary to
cause such shares to be approved for listing on the NASDAQ (as well as on any
other national securities exchange or market or trading or quotation facility on
which the Common Stock is then listed) as soon as possible thereafter, and (iii)
provide to the Purchaser evidence of such listing, and the Company shall
maintain the listing of its Common Stock thereon. If at any time thereafter the
number of Underlying Shares as are issuable upon conversion in full of the then
number of outstanding Shares and Dividend Shares, and upon exercise of the then
unexercised portion of the Warrants, exceeds 85% of the number of Underlying
Shares previously listed on account thereof with NASDAQ (and other required
exchanges), the Company shall take the necessary actions to immediately list a
number of Underlying Shares as equal 175% of the number of Underlying Shares
then issuable upon conversion of the Shares and Dividend Shares, and exercise of
the Warrants.
(b) The Company shall maintain a reserve of Common Stock for
issuance upon conversion of the Shares and Dividend Shares, and upon exercise of
the Warrants in accordance with its terms, in such amount as may be required to
perform its obligations in full under the Transaction Documents, which reserve
shall include a number of shares of Common Stock equal to no less than two times
the number of shares of Common Stock as would be issuable upon conversion in
full of the Shares and Dividend Shares, and upon exercise in full of the
Warrants.
3.8 Purchaser Ownership of Common Stock. The Purchaser agrees not to
convert Shares or Dividend Shares or exercise the Warrants to the extent such
conversion or exercise would result in the Purchaser beneficially owning (as
determined in accordance with Section 13(d) of the Exchange Act and the rules
thereunder) in excess of 4.999% of the then issued and outstanding shares of
Common Stock, including shares issuable upon conversion of the Shares or
Dividend Shares and exercise of the Warrants held by such Purchaser after
application of this Section. To the extent that the limitation contained in this
Section applies, the determination of whether Shares or Dividend Shares are
convertible (in relation to other securities owned by a Purchaser) and of which
Shares or Dividend Shares are convertible shall be in the sole discretion of the
Purchaser, and the submission of Shares or Dividend Shares for conversion shall
be deemed to be such Purchaser's determination of whether such Shares or
Dividend Shares are convertible (in relation to other securities owned by a
Purchaser) and of which portion of such Shares or Dividend Shares are
convertible, in each case subject to such aggregate percentage limitation, and
the Company shall have no obligation to verify or confirm the accuracy of such
determination. Nothing contained herein shall be deemed to restrict the right of
the Purchaser to convert Shares or Dividend Shares or exercise the Warrants at
such time as such conversion will not violate the provisions of this Section.
The provisions of this Section may be waived by the Purchaser upon not less than
75 days prior notice to the Company, and the provisions of this Section shall
continue to apply until such 75th day (or later, if stated in the notice of
waiver).
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3.9 Conversion Procedures. The Transfer Agent Instructions, Conversion
Notice (as defined in Exhibit A) and Notice of Exercise under the Warrants set
forth the totality of the procedures with respect to the conversion of the
Shares and Dividend Shares and exercise of the Warrants, including the form of
legal opinion, if necessary, that shall be rendered to the Company's transfer
agent and such other information and instructions as may be reasonably necessary
to enable the Purchaser to convert its Shares and Dividend Shares and exercise
the Warrants as contemplated in the Certificates Designation of and the Warrants
(as applicable).
3.10 Notice of Breaches. (a) Each of the Company and the Purchaser
shall give prompt written notice to the other of any material breach by it of
any representation, warranty or other agreement contained in any Transaction
Document, as well as any events or occurrences arising after the date hereof
which would reasonably be likely to cause any representation or warranty or
other agreement of such party, as the case may be, contained therein to be
incorrect or breached as of each Closing Date. However, no disclosure by either
party pursuant to this Section shall be deemed to cure any breach of any
representation, warranty or other agreement contained in any Transaction
Document.
(b) Notwithstanding the generality of Section 3.10(a), the
Company shall promptly notify the Purchaser of any notice or claim (written or
oral) that it receives from any lender of the Company to the effect that the
consummation of the transactions contemplated by the Transaction Documents
violates or would violate any written agreement or understanding between such
lender and the Company, and the Company shall promptly furnish by facsimile to
the holders of the Shares a copy of any written statement in support of or
relating to such claim or notice.
3.11 Conversion and Exercise Obligations of the Company. The Company
shall honor conversions of the Shares and Dividend Shares and exercises of the
Warrants and shall deliver Underlying Shares in accordance with the respective
terms and conditions and time periods set forth in the respective Certificates
of Designation and the Warrants.
3.12 Right of First Refusal; Subsequent Registrations. (a) Except as
provided for in Schedule 3.12, the Company shall not, directly or indirectly,
without the prior written consent of the Purchaser, offer, sell, grant any
option to purchase, or otherwise dispose of (or announce any offer, sale, grant
or any option to purchase or other disposition) any of its or its Affiliates'
equity or equity equivalent securities in a transaction intended to be exempt or
not subject to registration under the Securities Act (a "Subsequent Financing")
for a period of 180 days after each Closing Date, except (i) the granting of
options or warrants to employees, officers and directors, and the issuance of
shares upon exercise of options granted, under any stock option plan heretofore
or hereinafter duly adopted by the Company, (ii) shares issued upon exercise of
any currently outstanding warrants and upon conversion of any currently
outstanding convertible security in each case disclosed in Schedule 2.1 (c),
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(iii) shares of Common Stock issued upon conversion of the Shares and Dividend
Shares in accordance with the Certificates of Designation, and (iv) shares of
Common Stock issued in connection with a Strategic Transaction (as defined
below); unless (A) the Company delivers to the Purchaser a written notice (the
"Subsequent Placement Notice") of its intention to effect such Subsequent
Placement, which Subsequent Placement Notice shall describe in reasonable detail
the proposed terms of such Subsequent Placement, the amount of proceeds intended
to be raised thereunder, the Person with whom such Subsequent Placement shall be
affected, the date on which the Company reasonably expects such Subsequent
Placement to close and attached to which shall be a term sheet or similar
document relating thereto and (B) the Purchaser shall not have notified the
Company by 5:00 p.m. (New York City time) on the fifth (5th) Business Day after
its receipt of the Subsequent Placement Notice of its willingness to cause the
Purchaser to provide (or to cause its sole designee, which must be an affiliate
of the Purchaser, to provide), subject to completion of mutually acceptable
documentation, financing to the Company on substantially the terms set forth in
the Subsequent Placement Notice. If the Purchaser shall fail to notify the
Company of its intention to enter into such negotiations within such time
period, the Company may effect the Subsequent Placement substantially upon the
terms and to the Persons (or Affiliates of such Persons) set forth in the
Subsequent Placement Notice; provided, that the Company shall provide the
Purchaser with a second Subsequent Placement Notice, and the Purchaser shall
again have the right of first refusal set forth above in this paragraph (a), if
the Subsequent Placement subject to the initial Subsequent Placement Notice
shall not have been consummated for any reason on the terms set forth in such
Subsequent Placement Notice within sixty (60) Business Days after the date of
the initial Subsequent Placement Notice with the Person (or an Affiliate of such
Person) identified in the Subsequent Placement Notice. If the Purchaser
exercises its right of first refusal, the closing shall take place at the time
contemplated in the Subsequent Placement Notice, subject to completion of
mutually acceptable documentation, which the parties shall negotiate in good
faith. For purposes of this Section 3.12, a "Strategic Transaction" shall mean a
transaction or relationship in which the Company issues Common Stock to an
entity which is, itself or through its subsidiaries, an operating company in a
business related to the business of the Company and in which the Company
receives material benefits in addition to the investment of funds, but shall not
include a transaction in which the Company is issuing securities primarily for
the purpose of raising capital.
(b) Except for (w) Underlying Shares, (x) other "Registrable
Securities" (as such term is defined in the Registration Rights Agreement) to be
registered in accordance with the Registration Rights Agreement, (y) the
securities listed on Schedule 6(b) to the Registration Rights Agreement, and (z)
Company securities to be registered for resale in connection with actions
permitted pursuant to paragraph (a)(i) through (iv) of this Section, the Company
shall not, without the prior written consent of the Purchaser (i) issue or sell
any of its or any of its Affiliates' equity or equity-equivalent securities
pursuant to Regulation S promulgated under the Securities Act, or (ii) register
for resale any securities of the Company
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for a period of not less than 90 Trading Days after the later to occur of (1)
the date that an Underlying Securities Registration Statement is declared
effective by the Commission (provided, that in the event that the Underlying
Securities Registration Statement filed does not cover the Underlying Shares
issuable upon conversion or exercise of the Series B Shares, then each such 90
Trading Day period shall commence on the date that the Underlying Securities
Registration Statement covering the Underlying Shares issuable in respect of the
Series B Shares is declared effective by the Commission) and (2) the 90th
Trading Day after the Series B Closing Date. Any days that the Purchaser is
unable to sell Underlying Shares under an Underlying Securities Registration
Statement shall be added to such 90 Trading Day period.
3.13 Certain Securities Laws Disclosures; Publicity. Pursuant to each
Closing, the Company shall (i) timely file with the Commission a Form D
promulgated under the Securities Act as required under Regulation D promulgated
under the Securities Act and provide a copy thereof to the Purchaser promptly
after the filing thereof, and (ii) file with the Commission a Report on Form 8-K
or, if permitted, Form 10-Q disclosing the transactions contemplated hereby
within ten (10) Business Days after each Closing Date.
3.14 Use of Proceeds. The Company shall use the net proceeds from the
sale of the Securities hereunder for working capital purposes and not for the
satisfaction of any portion of Company debt (other than capitalized lease
obligations) or to redeem any Company equity or equity equivalent securities.
Pending application of the proceeds of this placement in the manner permitted
hereby, the Company will invest such proceeds in interest bearing accounts
and/or short-term, investment grade interest bearing securities.
3.15 Reimbursement. If the Purchaser, other than by reason of its gross
negligence or willful misconduct, becomes involved in any capacity in any
action, proceeding or investigation brought by or against any Person, including
stockholders of the Company, in connection with or as a result of the
consummation of the transactions contemplated by Transaction Documents, the
Company will reimburse the Purchaser for its reasonable legal and other expenses
(including the cost of any investigation and preparation) incurred in connection
therewith, as such expenses are incurred. In addition, other than with respect
to any matter in which the Purchaser is a named party, the Company will pay the
Purchaser the charges, as reasonably determined by the Purchaser, for the time
of any officers or employees of the Purchaser devoted to appearing and preparing
to appear as witnesses, assisting in preparation for hearings, trials or
pretrial matters, or otherwise with respect to inquiries, hearings, trials, and
other proceedings relating to the subject matter of this Agreement. The
reimbursement obligations of the Company under this paragraph shall be in
addition to any liability which the Company may otherwise have, shall extend
upon the same terms and conditions to any Affiliates of the Purchaser who are
actually named in such action, proceeding or investigation, and partners,
directors, agents, employees and controlling persons (if any), as the case may
be, of the Purchaser and any such Affiliate, and shall be
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binding upon and inure to the benefit of any successors, assigns, heirs and
personal representatives of the Company, the Purchaser and any such Affiliate
and any such Person. The Company also agrees that neither the Purchaser nor any
such Affiliates, partners, directors, agents, employees or controlling persons
shall have any liability to the Company or any person asserting claims on behalf
of or in right of the Company in connection with or as a result of the
consummation of the Transaction Documents except to the extent that any losses,
claims, damages, liabilities or expenses incurred by the Company result from the
gross negligence or willful misconduct of the Purchaser or entity in connection
with the transactions contemplated by this Agreement.
3.16 Exclusivity. The Company shall not issue and sell any Shares to
any Person other than the Purchaser except with the specific prior written
consent of the Purchaser.
ARTICLE IV
CONDITIONS
4.1 Conditions Precedent to the Obligation of the Purchaser to Purchase
the Series B Shares. The obligation of the Purchaser to acquire Series B Shares
is subject to the satisfaction or waiver by the Purchaser, at or before the
Series B Closing Date of each of the following conditions:
(i) Series A Closing The Series A Closing shall have occurred;
(ii) Accuracy of the Company's Representations and Warranties.
The representations and warranties of the Company contained herein shall be true
and correct in all material respects as of the date when made and as of the
Series B Closing Date as though made on and as of the Series B Closing Date.
(iii) Performance by the Company. The Company shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by the Transaction Documents to be performed,
satisfied or complied with by the Company at or prior to the Series B Closing
Date, including, without limitation, (a) delivery of the Underlying Shares upon
conversion of Series A Shares and performance of its obligations in accordance
with the terms, conditions and timing requirements of the Series A Designation
and (b) delivery of Underlying Shares upon exercise of the Series A Warrant and
performance of its obligations in accordance with the terms of the Series A
Warrant;
(iv) Underlying Securities Registration Statement. The Series
A Underlying Securities Registration Statement shall have been declared
effective under the Securities Act by the Commission and shall have remained
effective at all times, not subject
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<PAGE> 20
to any actual or threatened stop order or subject to any actual or threatened
suspension at any time between the Effectiveness Date and the Series B Closing
Date;
(v) No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court of governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by the Transaction Documents, including the issuance of Common
Stock upon conversion of any of the Shares or Dividend Shares or exercise of the
Warrants;
(vi) Adverse Changes. Since the Series A Closing Date, no
event or series of events which had or could reasonably be expected to result in
a Material Adverse Effect shall have occurred;
(vii) No Suspensions of Trading in Common Stock. The trading
in the Common Stock shall not have been suspended by the Commission or on the
NASDAQ (except for any suspension of trading of limited duration solely to
permit dissemination of material information regarding the Company) at any time
since the Series A Closing Date;
(viii) Listing of Common Stock. The Common Stock shall have
been at all times since the Series A Closing Date listed for trading on the
NASDAQ;
(ix) Change of Control. No Change of Control in the Company
shall have occurred. "Change of Control" means the occurrence of any of: (i) an
acquisition after the date hereof by an individual or legal entity or "group"
(as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of in
excess of 50% of the voting securities of the Company, (ii) a replacement of
more than one-half of the members of the Company's board of directors which is
not approved by those individuals who are members of the board of directors on
the date hereof in one or a series of related transactions, (iii) the merger or
consolidation of the Company with or into another entity, if the stockholders of
the Company immediately before such merger or consolidation do not own, directly
or indirectly, immediately following such merger or consolidation, more than 50%
of the combined voting power of the resulting outstanding voting securities in
substantially the same proportion as their pre-merger or pre-consolidation
ownership, or sale of all or substantially all of the assets of the Company in
one or a series of related transactions or (iv) the execution by the Company of
an agreement to which the Company is a party or by which it is bound, providing
for any of the events set forth above in (i), (ii) or (iii);
(x) Legal Opinion. The Company shall have delivered to the
Purchaser the opinion of the Company's outside counsel, in substantially the
form of Exhibit D, dated the Series B Closing Date;
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<PAGE> 21
(xi) Required Approvals. All Required Approvals shall have
been obtained.
(xii) Shares of Common Stock. The Company shall have duly
reserved the number of Underlying Shares required by this Agreement to be
reserved for issuance upon conversion of Series B Shares and of additional
Series B Shares issued as payment of dividends on the Series B Shares (such
additional Series B Shares, the "Dividend B Shares"), assuming each Series B
Share and Dividend B Share is outstanding for two years and all dividends are
paid in the form of Dividend B Shares;
(xiii) Delivery of Stock Certificates and Warrant. The Company
shall have delivered to the Purchaser or its designee a stock certificate
representing the 10,000 Series B Shares, registered in the name of the Purchaser
or its designee, and a warrant, substantially in the form of Exhibit B, to
purchase 0,000 shares of Common Stock, each in form satisfactory to the
Purchaser;
(xiv) Closing Threshold. For the 30 Trading Days immediately
preceding the Series B Closing Date, the average daily trading volume of the
Common Stock on the NASDAQ shall have been at least 35,000 shares, and the Per
Share Market Value for each of the seven (7) Trading Days preceding the Series B
Closing Date shall be greater than $3.00;
(xv) Transfer Agent Instructions. The Transfer Agent
Instructions, dated the Series B Closing Date, shall have been delivered to and
acknowledged in writing by the Company's transfer agent; and
(xvi) Shareholder Approval. No approval of the shareholders of
the Company shall be required in order to issue 175% of the number of Underlying
Shares issuable upon conversion in full of the Series B Shares to be issued on
the Series B Closing Date and the number of Shares issuable on account of
dividends in the Series B Shares, assuming all dividends for a two year period
were paid in the form of Series B Shares (assuming such conversion occurred on
the Series B Closing Date).
4.2 Delay of Series B Closing. If all of the conditions set forth in
Section 4.1 are not met on the date scheduled for the Series B Closing and such
conditions have not been waived by the Purchaser, the Company shall have the
right to postpone the Series B Closing to a date not later than 210 days after
the Effectiveness Date. No such postponement shall have the effect of waiving or
eliminating any of the conditions for the Series B Closing set forth in Section
4.1.
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<PAGE> 22
ARTICLE V
MISCELLANEOUS
5.1 Fees and Expenses. On the Series A Closing Date, the Series A
Purchase Price shall be reduced by (i) $115,000 to be paid to Jesup & Lamont
Securities Corp., and (ii) $15,000 to be paid to Robinson Silverman in
connection with the preparation and negotiation of the Transaction Documents
relating to the Series A Closing, in each case directly from the Purchaser, and
on the Series B Closing Date, the Series B Purchase Price shall be reduced by
(i) $62,000 to be paid to Jesup & Lamont Securities Corp., and (ii) $3,000 to be
paid to Robinson Silverman in connection with the preparation of the Transaction
Documents relating to the Series B Closing, in each case directly from the
Purchaser. Other than the amounts contemplated in the immediately prior
sentence, and except as otherwise set forth in the Registration Rights
Agreement, each party shall pay the fees and expenses of its advisers, counsel,
accountants and other experts, if any, and all other expenses incurred by such
party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement. The Company shall pay all stamp and other taxes
and duties levied in connection with the issuance of the Securities pursuant
hereto.
5.2 Entire Agreement; Amendments. This Agreement, together with the
Exhibits and Schedules hereto, the Registration Rights Agreement, the
Certificates of Designation and the Warrants contain the entire understanding of
the parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, oral or written, with respect to such matters,
which the parties acknowledge have been merged into such documents, exhibits and
schedules.
5.3 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Section prior to 8:00 p.m. (New York City
time) on a Business Day, (ii) the Business Day after the date of transmission,
if such notice or communication is delivered via facsimile at the facsimile
telephone number specified below later than 8:00 p.m. (New York City time) on
any date and earlier than 11:59 p.m. (New York City time) on such date, (iii)
the Business Day following the date of mailing, if sent by nationally recognized
overnight courier service, or (iv) upon actual receipt by the party to whom such
notice is required to be given. The address for such notices and communications
shall be as follows:
If to the Company: Ecogen Inc.
2005 Cabot Boulevard West
Langhorne, PA 19047
Facsimile No.: (215) 757-3339
Attn: Chief Financial Officer
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<PAGE> 23
With copies to: Paul, Hastings, Janofsky & Walker LLP
1055 Washington Boulevard
Stamford, CT 06901
Facsimile No.: (203) 359-3031
Attn: Elizabeth A. Brower, Esq.
If to the Purchaser: KA Investments LDC
c/o Tarmachan Capital Management
1712 Hopkins Crossroads
Minnetonka, MN 55305
Facsimile No.: (612) 542-4244
Attn: Ivana Bozjak
With copies to: Robinson Silverman Pearce Aronsohn &
Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630
Attn: Kenneth L. Henderson, Esq.
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
5.4 Amendments; Waivers. No provision of this Agreement may be waived
or amended except in a written instrument signed, in the case of an amendment,
by both the Company and the Purchaser; or, in the case of a waiver, by the party
against whom enforcement of any such waiver is sought. No waiver of any default
with respect to any provision, condition or requirement of this Agreement shall
be deemed to be a continuing waiver in the future or a waiver of any other
provision, condition or requirement hereof, nor shall any delay or omission of
either party to exercise any right hereunder in any manner impair the exercise
of any such right accruing to it thereafter.
5.5 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
5.6 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Purchaser. Except as set forth in
Section 3.1 (a), the Purchaser may not assign this Agreement or any of the
rights or obligations hereunder without the consent of the Company. This
provision shall not limit the Purchaser's right to transfer securities or
transfer
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<PAGE> 24
or assign rights hereunder or under the Registration Rights Agreement, each in
accordance with the terms of this Agreement.
5.7 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.
5.8 Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the internal laws of the State of New York
without regard to the principles of conflicts of law thereof.
5.9 Survival. The representations, warranties, agreements and covenants
contained herein shall survive each Closing and the delivery and conversion or
exercise (as the case may be) of the Shares, the Dividend Shares and the
Warrants.
5.10 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
5.11 Publicity. The Company and the Purchaser shall consult with each
other in issuing any press releases or otherwise making public statements with
respect to the transactions contemplated hereby and neither party shall issue
any such press release or otherwise make any such public statement without the
prior written consent of the other, which consent shall not be unreasonably
withheld or delayed, except that no prior consent shall be required if such
disclosure is required by law, in which such case the disclosing party shall
provide the other party with prior notice of such public statement.
Notwithstanding the foregoing, the Company shall not publicly disclose the name
of the Purchaser without the prior written consent of the Purchaser, except to
the extent such disclosure (but not any disclosure as to the controlling Persons
thereof) is required by law, in which case the Company shall provide the
Purchaser with prior notice of such disclosure.
5.12 Severability. In case any one or more of the provisions of this
Agreement shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Agreement shall not
in any way be affecting or impaired thereby and the parties will attempt to
agree upon a valid and enforceable provision which shall be a reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Agreement.
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<PAGE> 25
5.13 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, the Purchaser
will be entitled to specific performance of the obligations of the Company under
the Transaction Documents. Each of the Company and the Purchaser agree that
monetary damages may not be adequate compensation for any loss incurred by
reason of any breach of its obligations described in the foregoing sentence and
hereby agrees to waive in any action for specific performance of any such
obligation the defense that a remedy at law would be adequate.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have caused this
Convertible Preferred Stock Purchase Agreement to be duly executed by their
respective authorized signatories as of the date first indicated above.
ECOGEN INC.
By: /s/ James P. Reilly, Jr.
James P. Reilly, Jr.
Chairman and
Chief Executive Officer
KA INVESTMENTS LDC
By: /s/ Gary Sobczak
-----------------
Gary Sobczak
Secretary
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<PAGE> 1
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREUNDER AND IN COMPLIANCE WITH
APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
ECOGEN INC.
WARRANT
Dated: June 5, 1998
Ecogen Inc., a Delaware corporation (the "Company"), hereby certifies
that, for value received, KA Investments LDC, or its registered assigns
("Holder"), is entitled, subject to the terms set forth below, to purchase from
the Company up to a total of 160,000 shares of Common Stock, $.01 par value per
share (the "Common Stock"), of the Company (each such share, a "Warrant Share"
and all such shares, the "Warrant Shares") at an exercise price equal to $3.525
per share (as adjusted from time to time as provided in Section 11, the
"Exercise Price"), at any time and from time to time from and after the date
hereof and through and including June 5, 2003 (the "Expiration Date"), and
subject to the following terms and conditions:
1. Registration of Warrant. The Company shall register this
Warrant, upon records to be maintained by the Company for that purpose (the
"Warrant Register"), in the name of the record Holder hereof from time to time.
The Company may deem and treat the registered Holder of this Warrant as the
absolute owner hereof for the purpose of any exercise hereof or any distribution
to the Holder, and for all other purposes, and the Company shall not be affected
by notice to the contrary.
2. Registration of Transfers and Exchanges.
(a) The Company shall register the transfer of any
portion of this Warrant in the Warrant Register, upon surrender of this Warrant,
with the Form of Assignment attached hereto duly completed and signed, to the
Transfer Agent or to the Company at the office specified in or pursuant to
Section 3(b). Upon any such registration or transfer, a new warrant
<PAGE> 2
to purchase Common Stock, in substantially the form of this Warrant (any such
new warrant, a "New Warrant"), evidencing the portion of this Warrant so
transferred shall be issued to the transferee and a New Warrant evidencing the
remaining portion of this Warrant not so transferred, if any, shall be issued to
the transferring Holder. The acceptance of the New Warrant by the transferee
thereof shall be deemed the acceptance of such transferee of all of the rights
and obligations of a holder of a Warrant.
(b) This Warrant is exchangeable, upon the surrender
hereof by the Holder to the office of the Company specified in or pursuant to
Section 3(b) for one or more New Warrants, evidencing in the aggregate the right
to purchase the number of Warrant Shares which may then be purchased hereunder.
Any such New Warrant will be dated the date of such exchange.
3. Duration and Exercise of Warrants.
(a) This Warrant shall be exercisable by the
registered Holder on any business day before 5:30 P.M., Eastern time, at any
time and from time to time on or after the date hereof to and including the
Expiration Date. At 5:30 P.M., Eastern time on the Expiration Date, the portion
of this Warrant not exercised prior thereto shall be and become void and of no
value. Prior to the Expiration Date, the Company may not call or otherwise
redeem this Warrant without the prior written consent of the Holder.
(b) Subject to Sections 2(b) and 6, upon surrender of
this Warrant, with the Form of Election to Purchase attached hereto duly
completed and signed, to the Company at its address for notice set forth in
Section 14 and upon payment of the Exercise Price multiplied by the number of
Warrant Shares that the Holder intends to purchase hereunder, in lawful money of
the United States of America, in cash, by certified or official bank check or
checks or wire transfer of immediately available funds, all as specified by the
Holder in the Form of Election to Purchase, the Company shall promptly (but in
no event later than 5 business days after the Date of Exercise) issue or cause
to be issued and cause to be delivered to or upon the written order of the
Holder and in such name or names as the Holder may designate, a certificate for
the Warrant Shares issuable upon such exercise, free of restrictive legends
other than as required by applicable law. Any person so designated by the Holder
to receive Warrant Shares shall be deemed to have become holder of record of
such Warrant Shares as of the Date of Exercise of this Warrant.
A "Date of Exercise" means the date on which the
Company shall have received (i) this Warrant (or any New Warrant, as
applicable), with the Form of Election to Purchase attached hereto (or attached
to such New Warrant) appropriately completed and duly signed, and (ii) payment
of the Exercise Price for the number of Warrant Shares so indicated by the
holder hereof to be purchased.
(c) This Warrant shall be exercisable, either in its
entirety or, from time to time, for a portion of the number of Warrant Shares.
If less than all of the Warrant Shares
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<PAGE> 3
which may be purchased under this Warrant are exercised at any time, the Company
shall issue or cause to be issued, at its expense, a New Warrant evidencing the
right to purchase the remaining number of Warrant Shares for which no exercise
has been evidenced by this Warrant.
4. No Voting or Dividend Rights; Limitation of Liability.
Nothing contained in this Warrant shall construed as conferring upon the Holder
the right to vote or to consent or to receive notice as a stockholder in respect
of meetings of stockholders for the election of directors of the Company or any
other matters or any rights whatsoever as a stockholder of the Company. No cash
dividends shall be payable or accrued in respect of this Warrant or the Warrant
Shares until, and only to the extent that, this Warrant shall have been
exercised. No provisions hereof, in the absence of affirmative action by the
Holder to purchase shares of Common Stock, and no mere enumeration herein of the
rights or privileges of the Holder hereof, shall give rise to any liability of
the Holder for the Exercise Price or as a stockholder of the company whether
such liability is asserted by the Company or by its creditors.
5. Registration Rights. This Warrant and the Warrant Shares
are entitled to certain registration rights pursuant to that certain
Registration Rights Agreement, dated as of June 5, 1998, between the Company and
the purchaser named therein (the "Registration Rights Agreement"). Pursuant to
the terms of the Registration Rights Agreement, the Company is obligated, among
other things, to file a registration statement registering for resale the
Warrant Shares and naming the Holder as a selling stockholder thereunder (the
"Underlying Securities Registration Statement").
6. Payment of Taxes. The Company will pay all documentary
stamp taxes attributable to the issuance of Warrant Shares upon the exercise of
this Warrant; provided, however, that the Company shall not be required to pay
any tax which may be payable in respect of any transfer involved in the
registration of any certificates for Warrant Shares or Warrants in a name other
than that of the Holder, and the Company shall not be required to issue or cause
to be issued or deliver or cause to be delivered the certificates for Warrant
Shares unless or until the person or persons requesting the issuance thereof
shall have paid to the Company the amount of such tax or shall have established
to the satisfaction of the Company that such tax has been paid. The Holder shall
be responsible for all other tax liability that may arise as a result of holding
or transferring this Warrant or receiving Warrant Shares upon exercise hereof.
7. Replacement of Warrant. If this Warrant is mutilated, lost,
stolen or destroyed, the Company shall issue or cause to be issued in exchange
and substitution for and upon cancellation hereof, or in lieu of and
substitution for this Warrant, a New Warrant, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction and
indemnity and/or bond, if requested, satisfactory to it. Applicants for a New
Warrant under such circumstances shall also comply with such other reasonable
regulations and procedures and pay such other reasonable charges as the Company
may prescribe.
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<PAGE> 4
8. Reservation of Warrant Shares. The Company covenants that
it will at all times reserve and keep available out of the aggregate of its
authorized but unissued Common Stock, solely for the purpose of enabling it to
issue Warrant Shares upon exercise of this Warrant as herein provided, the
number of Warrant Shares which are then issuable and deliverable upon the
exercise of this entire Warrant, free from preemptive rights or any other actual
contingent purchase rights of persons other than the Holder (taking into account
the adjustments and restrictions of Section 9) The Company covenants that all
Warrant Shares that shall be so issuable and deliverable shall, upon issuance
and the payment of the applicable Exercise Price in accordance with the terms
hereof, be duly and validly authorized, issued and fully paid and nonassessable.
9. Certain Adjustments. The Exercise Price and number of
Warrant Shares issuable upon exercise of this Warrant are subject to adjustment
from time to time as set forth in this Section 9. Upon each such adjustment of
the Exercise Price pursuant to this Section 9, the Holder shall thereafter prior
to the Expiration Date be entitled to purchase, at the Exercise Price resulting
from such adjustment, the number of Warrant Shares obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
Warrant Shares issuable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(a) If the Company, at any time while this Warrant is
outstanding, (i) shall pay a stock dividend (except scheduled dividends paid on
outstanding preferred stock as of the date hereof which contain a stated divided
rate) or otherwise make a distribution or distributions on shares of its Common
Stock (as defined below) or on any other class of capital stock and not the
Common Stock) payable in shares of Common Stock, (ii) subdivide outstanding
shares of Common Stock into a larger number of shares, or (iii) combine
outstanding shares of Common Stock into a smaller number of shares, the Exercise
Price shall be multiplied by a fraction of which the numerator shall be the
number of shares of Common Stock (excluding treasury shares, if any) outstanding
before such event and of which the denominator shall be the number of shares of
Common Stock (excluding treasury shares, if any) outstanding after such event.
Any adjustment made pursuant to this Section shall become effective immediately
after the record date for the determination of stockholders entitled to receive
such dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision or combination, and shall apply to
successive subdivisions and combinations.
(b) In case of any reclassification of the Common
Stock, any consolidation or merger of the Company with or into another person,
the sale or transfer of all or substantially all of the assets of the Company or
any compulsory share exchange pursuant to which the Common Stock is converted
into other securities, cash or property, then the Holder shall have the right
thereafter to exercise this Warrant only into the shares of stock and other
securities and property receivable upon or deemed to be held by holders of
Common Stock following such reclassification, consolidation, merger, sale,
transfer or share exchange, and the Holder shall be entitled upon such event to
receive such amount of securities or property equal to the amount of
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<PAGE> 5
Warrant Shares such Holder would have been entitled to had such Holder exercised
this Warrant immediately prior to such reclassification, consolidation, merger,
sale, transfer or share exchange. The terms of any such consolidation, merger,
sale, transfer or share exchange shall include such terms so as to continue to
give to the Holder the right to receive the securities or property set forth in
this Section 9(b) upon any exercise following any such reclassification,
consolidation, merger, sale, transfer or share exchange.
(c) If the Company, at any time while this Warrant is
outstanding, shall distribute to all holders of Common Stock (and not to holders
of this Warrant) evidences of its indebtedness or assets or rights or warrants
to subscribe for or purchase any security (excluding those referred to in
Sections 9(a), (b) and (d)), then in each such case the Exercise Price shall be
determined by multiplying the Exercise Price in effect immediately prior to the
record date fixed for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the Exercise Price
determined as of the record date mentioned above, and of which the numerator
shall be such Exercise Price on such record date less the then fair market value
at such record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of Common Stock as determined by
the Company's independent certified public accountants that regularly examines
the financial statements of the Company (an "Appraiser").
(d) If, at any time while this Warrant is
outstanding, the Company shall issue or cause to be issued rights or warrants to
acquire, or securities convertible into, or otherwise sell or distribute, shares
of Common Stock for a consideration per share less than the Market Value in
effect on the date of issuance of such rights, warrants or shares, then,
forthwith upon such issue or sale, the Exercise Price shall be reduced to the
price (calculated to the nearest cent) determined by multiplying the Exercise
Price in effect immediately prior thereto by a fraction, the numerator of which
shall be the sum of the number of shares of Common Stock which the aggregate
consideration received (or to be received, assuming exercise or conversion in
full of such rights, warrants and convertible securities) for the issuance of
such additional shares of Common Stock would purchase at such Market Value, and
the denominator of which shall be the sum of the number of shares of Common
Stock outstanding immediately after the issuance of such additional shares. Such
adjustment shall be made successively whenever such an issuance is made. For
purposes hereof, the "Market Value" of the Common Stock as at a date of
determination shall mean the arithmetic average of the Per Share Market Value
(as defined in the Purchase Agreement) for the ten business days preceding the
date of determination.
(e) For the purposes of this Section 9, the following
clauses shall also be applicable:
(i) Record Date. In case the Company shall
take a record of the holders of its Common Stock for the purpose of entitling
them (A) to receive a dividend or other distribution payable in Common Stock or
in securities convertible or exchangeable into shares of Common Stock, or (B) to
subscribe for or purchase Common Stock or securities convertible or
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<PAGE> 6
exchangeable into shares of Common Stock, then such record date shall be deemed
to be the date of the issue or sale of the shares of Common Stock deemed to have
been issued or sold upon the declaration of such dividend or the making of such
other distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
(ii) Treasury Shares. The number of shares
of Common Stock outstanding at any given time shall not include shares owned or
held by or for the account of the Company, and the disposition of any such
shares shall be considered an issue or sale of Common Stock.
(f) All calculations under this Section 9 shall be
made to the nearest cent or the nearest 1/100th of a share, as the case may be.
(g) Whenever the Exercise Price is adjusted pursuant
to Section 9(c) above, the Holder, after receipt of the determination by the
Appraiser, shall have the right to select an additional appraiser (which shall
be a nationally recognized accounting firm), in which case the adjustment shall
be equal to the average of the adjustments recommended by each of the Appraiser
and such appraiser. The Holder shall promptly mail or cause to be mailed to the
Company, a notice setting forth the Exercise Price after such adjustment and
setting forth a brief statement of the facts requiring such adjustment. Such
adjustment shall become effective immediately after the record date mentioned
above.
(h) If:
(i) the Company shall declare a
dividend (or any other
distribution) on its Common Stock;
or
(ii) the Company shall declare a special
nonrecurring cash dividend on or a
redemption of its Common Stock; or
(iii) the Company shall authorize the
granting to all holders of the
Common Stock rights or warrants to
subscribe for or purchase any
shares of capital stock of any
class or of any rights; or
(iv) the approval of any stockholders of
the Company shall be required in
connection with any
reclassification of the Common
Stock of the Company, any
consolidation or merger to which
the Company is a party, any sale or
transfer of all or substantially
all of the assets of the Company,
or any compulsory share exchange
whereby the Common
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<PAGE> 7
Stock is converted into other
securities, cash or property; or
(v) the Company shall authorize the
voluntary dissolution, liquidation
or winding up of the affairs of the
Company,
then the Company shall cause to be mailed to each Holder at their last addresses
as they shall appear upon the Warrant Register, at least ten (10) business days
prior to the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not to
be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are to
be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding up; provided, however, that the failure to mail such notice or any
defect therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice.
(i) No adjustment in the Exercise Price under
Sections 9(c) or (d) shall be required to be made if such adjustment would
result in a change of less than $.10 in the Exercise Price, but any adjustments
not made by reason of this clause (i) shall be carried forward and shall be made
at the time of and together with the next subsequent adjustment(s) which,
together with any adjustment(s) so carried forward, shall require an increase or
decrease of at least $.10 in the Exercise Price then in effect.
10. Fractional Shares. The Company shall not be required to
issue or cause to be issued fractional Warrant Shares on the exercise of this
Warrant. The number of full Warrant Shares which shall be issuable upon the
exercise of this Warrant shall be computed on the basis of the aggregate number
of Warrant Shares purchasable on exercise of this Warrant so presented. If any
fraction of a Warrant Share would, except for the provisions of this Section 13,
be issuable on the exercise of this Warrant, the Company shall pay an amount in
cash equal to the Exercise Price multiplied by such fraction.
11. Notices. Any and all notices or other communications or
deliveries hereunder shall be in writing and shall be deemed given and effective
on the earliest of (i) the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile telephone number specified in this
Section prior to 8:00 p.m. (New York City time) on a business day, (ii) the
business day after the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section later than 8:00 p.m. (New York City time) on any date and earlier than
11:59 p.m. (New York City time) on such
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<PAGE> 8
date, (iii) the business day following the date of mailing, if sent by
nationally recognized overnight courier service, or (iv) upon actual receipt by
the party to whom such notice is required to be given. The addresses for such
communications shall be: (i) if to the Company, to Ecogen Inc., 2005 Cabot
Boulevard West, Langhorne PA 19047, Attention: Chief Financial Officer, or to
facsimile no. (215) 757-3339, or (ii) if to the Holder, to the Holder at the
address or facsimile number appearing on the Warrant Register or such other
address or facsimile number as the Holder may provide to the Company in
accordance with this Section 14.
12. Warrant Agent.
(a) The Company shall serve as warrant agent under
this Warrant. Upon not less than thirty (30) days' notice to the Holder, the
Company may appoint a new warrant agent.
(b) Any corporation into which the Company or any new
warrant agent may be merged or any corporation resulting from any consolidation
to which the Company or any new warrant agent shall be a party or any
corporation to which the Company or any new warrant agent transfers
substantially all of its corporate trust or shareholders services business shall
be a successor warrant agent under this Warrant without any further act. Any
such successor warrant agent shall promptly cause notice of its succession as
warrant agent to be mailed (by first class mail, postage prepaid) to the Holder
at the Holder's last address as shown on the Warrant Register.
13. Miscellaneous.
(a) This Warrant shall be binding on and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns. This Warrant may be amended only in writing signed by the Company and
the Holder.
(b) Subject to Section 13(a) above, nothing in this
Warrant shall be construed to give to any person or corporation other than the
Company and the Holder any legal or equitable right, remedy or cause under this
Warrant. This Warrant shall inure to the sole and exclusive benefit of the
Company and the Holder.
(c) This Warrant shall be governed by and construed
and enforced in accordance with the internal laws of the State of New York
without regard to the principles of conflicts of law thereof.
(d) The headings herein are for convenience only, do
not constitute a part of this Warrant and shall not be deemed to limit or affect
any of the provisions hereof.
(e) In case any one or more of the provisions of this
Warrant shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and
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<PAGE> 9
provisions of this Warrant shall not in any way be affected or impaired thereby
and the parties will attempt in good faith to agree upon a valid and enforceable
provision which shall be a commercially reasonable substitute therefor, and upon
so agreeing, shall incorporate such substitute provision in this Warrant.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,
SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Company has caused this Warrant to be
duly executed by its authorized officer as of the date first indicated above.
ECOGEN INC.
By: /s/ James P. Reilly, Jr.
Name: James P. Reilly, Jr.
Title: Chairman and Chief Executive Officer
<PAGE> 1
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
This Amended and Restated Registration Rights Agreement (this
"Agreement") is made and entered into as of June 5, 1998, between Ecogen Inc., a
Delaware corporation (the "Company"), and KA Investments LDC, a Cayman Islands
corporation (the "Purchaser").
This Agreement is made pursuant to the Convertible Preferred Stock
Purchase Agreement, dated as of the date hereof between the Company and the
Purchaser (the "Purchase Agreement").
The Company and the Purchaser hereby agree as follows:
1. Definitions
Capitalized terms used and not otherwise defined herein that are
defined in the Purchase Agreement shall have the meanings given such terms in
the Purchase Agreement. As used in this Agreement, the following terms shall
have the following meanings:
"Advice" shall have meaning set forth in Section 3(o).
"Affiliate" means, with respect to any Person, any other Person that
directly or indirectly controls or is controlled by or under common control with
such Person. For the purposes of this definition, "control," when used with
respect to any Person, means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms of "affiliated," "controlling" and "controlled" have meanings
correlative to the foregoing.
"Business Day" means any day except Saturday, Sunday and any day
which shall be a legal holiday or a day on which banking institutions in the
state of New York generally are authorized or required by law or other
government actions to close.
"Closing Date" shall have the meaning set forth in the Purchase
Agreement.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Company's common stock, $.01 par value.
"Effectiveness Date" means (i) with respect to the Registrable
Securities issuable upon conversion of the Company's 8% Series 1998-A Preferred
Stock and exercise of the Series A
<PAGE> 2
Warrant, the 120th day following the Series A Closing Date, (ii) with respect to
the Registrable Securities issuable upon conversion of the Company's 8% Series
1998-B Preferred Stock and exercise of the Series B Warrant, the 120th day
following the Series B Closing Date (as defined in the Purchase Agreement) and
(iii) with respect to the Registrable Securities issuable upon exercise of the
Trigger Warrants, the 120th day following the issuance of Trigger Warrants.
"Effectiveness Period" shall have the meaning set forth in Section
2(a).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Filing Date" means (i) with respect to the Registrable Securities
issuable upon conversion of the Company's 8% Series 1998-A Preferred Stock and
exercise of the Series A Warrant, the 60th day following the Series A Closing
Date, (ii) with respect to the Registrable Securities issuable upon conversion
of the Company's 8% Series 1998-B Preferred Stock and exercise of the Series B
Warrant, the 10th day following the Series B Closing Date (as defined in the
Purchase Agreement) and (iii) with respect to the Registrable Securities
issuable upon exercise of the Trigger Warrants, the 60th day following the
issuance of Trigger Warrants.
"Holder" or "Holders" means the holder or holders, as the case may
be, from time to time of Registrable Securities.
"Indemnified Party" shall have the meaning set forth in Section 5(c).
"Indemnifying Party" shall have the meaning set forth in Section
5(c).
"Losses" shall have the meaning set forth in Section 5(a).
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Preferred Stock" means the Company's shares of 8% Series 1998-A
Preferred Stock, $.01 par value, and shares of 8% Series 1998-B Preferred Stock,
$.01 par value, to be issued to the Purchaser pursuant to the Purchase Agreement
(including any shares of Preferred Stock issued in payment of dividends on the
Preferred Stock).
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"Prospectus" means the prospectus included in the Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus
2
<PAGE> 3
supplement, with respect to the terms of the offering of any portion of the
Registrable Securities covered by the Registration Statement, and all other
amendments and supplements to the Prospectus, including post-effective
amendments, and all material incorporated by reference or deemed to be
incorporated by reference in such Prospectus.
"Registrable Securities" means the shares of Common Stock issuable
upon (i) conversion in full of the Preferred Stock, and (ii) exercise in full of
each of the Warrants and the Redemption Warrants, provided, that in order to
account for the fact that the number of shares of Common Stock that is issuable
upon conversion of the Preferred Stock is determined in part upon the market
price of the Common Stock at the time of conversion, Registrable Securities
contemplated by clause (i) above, shall include (but not be limited to) a number
of shares of Common Stock equal to no less than 175% of the number of shares of
Common Stock into which the shares of Preferred Stock (including shares of
Preferred Stock issuable as dividends) are convertible, assuming such conversion
occurred on the Series A Closing Date or the Filing Date, whichever yields a
lower Conversion Price and assuming all dividends for a two year period are paid
in shares of Preferred Stock and that all such shares of Preferred Stock are
outstanding. Notwithstanding anything herein contained to the contrary, if the
actual number of shares of Common Stock into which the shares of Preferred Stock
are convertible exceeds twice the number of shares of Common Stock into which
the shares of Preferred Stock are convertible based upon a computation at a
particular Closing Date, the term "Registrable Securities" shall be deemed to
include such additional shares of Common Stock. With respect to the Registration
Statement filed with respect to the Registrable Securities issuable upon
conversion of the Preferred Stock and exercise of the Warrants, the Company
shall be required to file additional Registration Statements to the extent the
actual number of shares of Common Stock into which the Preferred Stock is
convertible and Warrants are exercisable exceeds the number of shares of Common
Stock registered in the initial Registration Statement hereunder. The Company
shall have ten (10) Business Days to file such additional Registration
Statements after notice of the requirement thereof, which the Holders may give
at such time when the number of shares of Common Stock as are issuable upon
conversion of Preferred Stock plus the number of shares of Common Stock issuable
upon exercise in full of the Warrants, exceed 85% of the number of shares of
Common Stock registered in the initial Registration Statement hereunder.
"Registration Statement" means the registration statement and any
additional registration statements contemplated by Section 2(a), including (in
each case) the Prospectus, amendments and supplements to such registration
statement or Prospectus, including pre- and post-effective amendments, all
exhibits thereto, and all material incorporated by reference or deemed to be
incorporated by reference in such registration statement.
"Rule 144" means Rule 144 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 158" means Rule 158 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation
3
<PAGE> 4
hereafter adopted by the Commission having substantially the same effect as such
Rule.
"Rule 415" means Rule 415 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Securities Act" means the Securities Act of 1933, as amended.
"Special Counsel" means one special counsel to the Holders, for which
the Holders will be reimbursed by the Company pursuant to Section 4.
"Series A Closing Date" shall have the meaning set forth in the
Purchase Agreement.
"Series A Warrant" shall have the meaning set forth in the Purchase
Agreement.
"Series B Warrant" shall have the meaning set forth in the Purchase
Agreement.
"Trigger Warrants" means the common stock purchase warrants issuable
to the Purchaser pursuant Section 5(a)(ii) of the Certificate of Designation
filed in connection with the authorization of the Preferred Stock.
"Warrants" means the Series A Warrant and the Series B Warrant to be
issued to the Purchaser pursuant to the Purchase Agreement.
2. Shelf Registrations
(a) On or prior to each applicable Filing Date, the Company shall
prepare and file with the Commission a "Shelf" Registration Statement covering
all Registrable Securities required to be included herein in such Registration
Statement for an offering to be made on a continuous basis pursuant to Rule 415.
Each Registration Statement shall be on Form S-3 (except if otherwise directed
by the Holders of a majority in interest of the applicable Registrable
Securities in accordance herewith or if the Company is not then eligible to
register for resale the Registrable Securities on Form S-3, in which case such
registration shall be on another appropriate form in accordance herewith). Each
Registration Statement shall state, to the extent permitted by Rule 416 under
the Securities Act, that it also covers such indeterminate number of shares of
Common Stock as may be required to effect (i), conversion of the Preferred Stock
to prevent dilution resulting from stock splits, stock dividends or similar
events, or by reason of changes in the Conversion Price in accordance with the
terms of the Certificates of Designation (as defined in the Purchase Agreement)
and (ii) exercise of the Warrants in full to prevent dilution resulting from
stock splits, stock dividends or similar events, or by reason of changes in the
Exercise Price (as defined in the Warrants) in accordance with the terms of the
Warrants, provided, that any Registration Statements covering Registrable
Securities issuable upon exercise of Redemption Warrants will state, to the
extent permitted by Rule 416 under the Securities Act, that it also
4
<PAGE> 5
covers such indeterminate number of shares of Common Stock as may be required to
effect exercise of Redemption Warrants in full to prevent dilution resulting
from stock splits, stock dividends or similar events, or by reason of changes in
the Exercise Price (as defined in the Redemption Warrants) in accordance with
the terms of the Redemption Warrants.
(b) The Company shall use its reasonable best efforts to cause each
Registration Statement to be declared effective under the Securities Act as
promptly as possible after the filing thereof, but in any event prior to each
applicable Effectiveness Date, and shall use its reasonable best efforts to keep
such Registration Statement continuously effective under the Securities Act
until the date which is five years after the date that such Registration
Statement is declared effective by the Commission or such earlier date when all
Registrable Securities covered by such Registration Statement have been sold or
may be sold without volume restrictions pursuant to Rule 144(k) as determined by
the counsel to the Company pursuant to a written opinion letter to such effect,
addressed and acceptable to the Company's transfer agent (the "Effectiveness
Period"), provided, however, that the Company shall not be deemed to have used
its best efforts to keep the Registration Statement effective during the
Effectiveness Period if it voluntarily takes any action that would result in the
Holders not being able to sell the Registrable Securities covered by such
Registration Statement during the Effectiveness Period, unless such action is
required under applicable law or the Company has filed a post-effective
amendment to the Registration Statement and the Commission has not declared it
effective.
3. Registration Procedures
In connection with the Company's registration obligations hereunder,
the Company shall:
(a) Prepare and file with the Commission on or prior to each Filing
Date, a Registration Statement on Form S-3 in accordance with Section 2(a) and
the method or methods of distribution thereof as specified by the Holders
(except if otherwise directed by the Holders), and cause the Registration
Statement to become effective and remain effective as provided herein; provided,
however, that not less than seven (7) Business Days prior to the filing of the
Registration Statement or any related Prospectus or any amendment or supplement
thereto (including any document that would be incorporated or deemed to be
incorporated therein by reference), the Company shall, (i) furnish to the
Holders and their Special Counsel copies of all such documents proposed to be
filed, which documents (other than those incorporated or deemed to be
incorporated by reference) will be subject to the review of such Holders and
their Special Counsel, and (ii) cause its officers and directors, counsel and
independent certified public accountants to respond to such inquiries as shall
be necessary, in the reasonable opinion of respective counsel to such Holders,
to conduct a reasonable investigation within the meaning of the Securities Act.
The Holders or their Special Counsel will provide the Company with their
comments on the proposed Registration Statement within five (5) Business Days of
their receipt thereof (the "Review Period") and if the Holders and their Special
Counsel provide their comments to the Company after the end of the Review
Period, the Filing Date shall be extended by the
5
<PAGE> 6
number of Business Days after the Review Period before which such comments were
provided. The Company shall not file the Registration Statement or any such
Prospectus or any amendments or supplements thereto to which the Holders of a
majority of the Registrable Securities, their Special Counsel, shall reasonably
object on a timely basis.
(b) (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to the Registration Statement as may be
necessary to keep the Registration Statement continuously effective as to the
applicable Registrable Securities for the Effectiveness Period and prepare and
file with the Commission such additional Registration Statements in order to
register for resale under the Securities Act all of the Registrable Securities;
(ii) cause the related Prospectus to be amended or supplemented by any required
Prospectus supplement, and as so supplemented or amended to be filed pursuant to
Rule 424 (or any similar provisions then in force) promulgated under the
Securities Act; (iii) respond as promptly as reasonably possible to any comments
received from the Commission with respect to the Registration Statement or any
amendment thereto and as promptly as reasonably possible provide the Holders
true and complete copies of all correspondence from and to the Commission
relating to the Registration Statement; and (iv) comply in all material respects
with the provisions of the Securities Act and the Exchange Act with respect to
the disposition of all Registrable Securities covered by the Registration
Statement during the applicable period in accordance with the intended methods
of disposition by the Holders thereof set forth in the Registration Statement as
so amended or in such Prospectus as so supplemented.
(c) Notify the Holders of Registrable Securities to be sold and their
Special Counsel as promptly as reasonably possible (and, in the case of (i)(A)
below, not less than five (5) days prior to such filing) and (if requested by
any such Person) confirm such notice in writing no later than one (1) Business
Day following the day (i)(A) when a Prospectus or any Prospectus supplement or
post-effective amendment to the Registration Statement is proposed to be filed;
(B) when the Commission notifies the Company whether there will be a "review" of
such Registration Statement and whenever the Commission comments in writing on
such Registration Statement (the Company shall provide true and complete copies
thereof and all written responses thereto to each of the Holders); and (C) with
respect to the Registration Statement or any post-effective amendment, when the
same has become effective; (ii) of any request by the Commission or any other
Federal or state governmental authority for amendments or supplements to the
Registration Statement or Prospectus or for additional information; (iii) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement covering any or all of the Registrable Securities or the
initiation of any Proceedings for that purpose; (iv) of the receipt by the
Company of any notification with respect to the suspension of the qualification
or exemption from qualification of any of the Registrable Securities for sale in
any jurisdiction, or the initiation or threatening of any Proceeding for such
purpose; and (v) of the occurrence of any event that makes any statement made in
the Registration Statement or Prospectus or any document incorporated or deemed
to be incorporated therein by reference untrue in any material respect or that
requires any revisions to the Registration Statement, Prospectus or other
documents so that, in the case of the Registration Statement or the Prospectus,
as the case may be, it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated
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<PAGE> 7
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(d) Use its reasonable best efforts to avoid the issuance of, or, if
issued, obtain the withdrawal of (i) any order suspending the effectiveness of
the Registration Statement, or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale in
any jurisdiction, at the earliest practicable moment.
(e) Furnish to each Holder and their Special Counsel, without charge,
at least one conformed copy of each Registration Statement and each amendment
thereto, including finan cial statements and schedules, all documents
incorporated or deemed to be incorporated therein by reference, and all exhibits
to the extent requested by such Person (including those previously furnished or
incorporated by reference) promptly after the filing of such documents with the
Commission.
(f) Promptly deliver to each Holder and their Special Counsel,
without charge, as many copies of the Prospectus or Prospectuses (including each
form of prospectus) and each amendment or supplement thereto as such Persons may
reasonably request; and the Company hereby consents to the use of such
Prospectus and each amendment or supplement thereto by each of the selling
Holders in connection with the offering and sale of the Registrable Securities
covered by such Prospectus and any amendment or supplement thereto.
(g) Prior to any public offering of Registrable Securities, use its
best efforts to register or qualify or cooperate with the selling Holders and
their Special Counsel in connection with the registration or qualification (or
exemption from such registration or qualification) of such Registrable
Securities for offer and sale under the securities or Blue Sky laws of such
jurisdictions within the United States as any Holder requests in writing, to
keep each such registration or qualification (or exemption therefrom) effective
during the Effectiveness Period and to do any and all other acts or things
necessary or advisable to enable the disposition in such jurisdictions of the
Registrable Securities covered by a Registration Statement; provided, however,
that the Company shall not be required to qualify generally to do business in
any jurisdiction where it is not then so qualified or to take any action that
would subject it to general service of process in any such jurisdiction where it
is not then so subject or subject the Company to any material tax in any such
jurisdiction where it is not then so subject.
(h) Cooperate with the Holders to facilitate the timely preparation
and delivery of certificates representing Registrable Securities to be delivered
to a transferee pursuant to a Registration Statement, which certificates shall
be free, to the extent permitted by applicable law, of all restrictive legends,
and to enable such Registrable Securities to be in such denominations and
registered in such names as Holders may request at least two Business Days prior
to any sale of Registrable Securities.
(i) Upon the occurrence of any event contemplated by Section
3(c)(vi), as promptly as reasonably possible, prepare a supplement or amendment,
including a post-effective
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<PAGE> 8
amendment, to the Registration Statement or a supplement to the related
Prospectus or any document incorporated or deemed to be incorporated therein by
reference, and file any other required document so that, as thereafter
delivered, neither the Registration Statement nor such Prospectus will contain
an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
(j) Use its best efforts to cause all Registrable Securities relating
to such Registration Statement to be listed on the Nasdaq National Market (the
"NASDAQ") and any other securities exchange, quotation system, market or
over-the-counter bulletin board, if any, on which similar securities issued by
the Company are then listed as and when required pursuant to the Purchase
Agreement.
(k) Make available for inspection by the selling Holders, any
representative of such Holders, and any attorney or accountant retained by such
selling Holders, at the offices where normally kept, during reasonable business
hours, all financial and other records, pertinent corporate documents and
properties of the Company and its subsidiaries, and cause the officers,
directors, agents and employees of the Company and its subsidiaries to supply
all information in each case reasonably requested by any such Holder,
representative, attorney or accountant in connection with the Registration
Statement; provided, however, that any information that is determined in good
faith by the Company in writing to be of a confidential nature at the time of
delivery of such information shall be kept confidential by such Persons, unless
(i) disclosure of such information is required by court or administrative order
or is necessary to respond to inquiries of regulatory authorities; (ii)
disclosure of such information, in the opinion of counsel to such Person, is
required by law; (iii) such information becomes generally available to the
public other than as a result of a disclosure or failure to safeguard by such
Person; or (iv) such information becomes available to such Person from a source
other than the Company and such source is not known by such Person to be bound
by a confidentiality agreement with the Company. In the event that any Person is
requested or required to disclose any such information as described in clause
(i) or (ii) of the immediately preceding sentence, such Person shall provide the
Company with prompt prior notice so that the Company may seek a protective order
or other appropriate remedy and/or waive compliance with the provisions of this
Agreement. If such protective order or other remedy is not obtained, or if the
Company waives compliance with the provisions of this Agreement, such Person
shall furnish only that portion of such confidential information that is advised
by such Person's counsel is legally required and shall exercise its best efforts
to obtain a protective order or other reliable assurance that confidential
treatment will be accorded to such confidential information.
(l) Comply with all applicable rules and regulations of the
Commission in connection with the Registration Statement.
(m) The Company may require each selling Holder to furnish to the
Company such information regarding the distribution of such Registrable
Securities and the beneficial ownership of Common Stock held by such Holder as
is required by law to be disclosed in the
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<PAGE> 9
Registration Statement, and the Company may exclude from such registration the
Registrable Securities of any such Holder who unreasonably fails to furnish such
information within a reasonable time after receiving such request. The parties
agree that the "Plan of Distribution" section of each Prospectus shall be
substantially in the form of Annex A attached hereto.
If the Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of the Company, then such Holder shall
have the right to require (if such reference to such Holder by name or otherwise
is not required by the Securities Act or any similar Federal statute then in
force) the deletion of the reference to such Holder in any amendment or
supplement to the Registration Statement filed or prepared subsequent to the
time that such reference ceases to be required.
Each Holder covenants and agrees that (i) it will not sell any
Registrable Securities under the Registration Statement until it has received
copies of the Prospectus as then amended or supplemented as contemplated in
Section 3(g) and notice from the Company that such Registration Statement and
any post-effective amendments thereto have become effective as contemplated by
Section 3(c) and (ii) it and its officers, directors or Affiliates, if any, will
comply with the prospectus delivery requirements of the Securities Act as
applicable to it in connection with sales of Registrable Securities pursuant to
the Registration Statement.
Each Holder agrees by its acquisition of such Registrable Securities
that, upon receipt of a notice from the Company of the occurrence of any event
of the kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv), or 3(c)(v), such
Holder will forthwith discontinue disposition of such Registrable Securities
under the Registration Statement until such Holder's receipt of the copies of
the supplemented Prospectus and/or amended Registration Statement contemplated
by Section 3(j), or until it is advised in writing (the "Advice") by the Company
that the use of the applicable Prospectus may be resumed, and, in either case,
has received copies of any additional or supplemental filings that are
incorporated or deemed to be incorporated by reference in such Prospectus or
Registration Statement.
4. Registration Expenses. All fees and expenses incident to the
performance of or compliance with this Agreement by the Company, shall be borne
by the Company whether or not the Registration Statement is filed or becomes
effective and whether or not any Registrable Securities are sold pursuant to the
Registration Statement. The fees and expenses referred to in the foregoing
sentence shall include, without limitation, (i) all registration and filing fees
(including, without limitation, fees and expenses (A) with respect to filings
required to be made with the NASDAQ or each other securities exchange or market
on which Registrable Securities are required hereunder to be listed and (B) in
compliance with state securities or Blue Sky laws (including, without
limitation, fees and disbursements of counsel for the Holders in connection with
Blue Sky qualifications or exemptions of the Registrable Securities and
determination of the eligibility of the Registrable Securities for investment
under the laws of such jurisdictions as the Holders of a majority of Registrable
Securities may designate)), (ii) printing expenses (including, without
limitation, expenses of printing certificates for Registrable Securities and of
printing prospectuses if the printing of prospectuses is requested by the
holders of a majority of the
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<PAGE> 10
Registrable Securities included in the Registration Statement), (iii) messenger,
telephone and delivery expenses, (iv) fees and disbursements of counsel for the
Company and Special Counsel for the Holders (in the case of Special Counsel for
the Holders, such fees and disbursements shall not exceed $5,000), (v)
Securities Act liability insurance, if the Company so desires such insurance,
and (vi) fees and expenses of all other Persons retained by the Company in
connection with the consummation of the transactions contemplated by this
Agreement. In addition, the Com pany shall be responsible for all of its
internal expenses incurred in connection with the consummation of the
transactions contemplated by this Agreement (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit, the fees and expenses
incurred in connection with the listing of the Registrable Securities on any
securities exchange as required hereunder.
5. Indemnification
(a) Indemnification by the Company. The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold harmless
each Holder, the officers, directors, agents, brokers (including brokers who
offer and sell Registrable Securities as principal, in connection with a block
trade or as a result of a pledge or any failure to perform under a margin call
of Common Stock), investment advisors and employees of each of them, each Person
who controls any such Holder (within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act) and the officers, directors, agents and
employees of each such controlling Person, to the fullest extent permitted by
applicable law, from and against any and all losses, claims, damages,
liabilities, costs (including, without limitation, costs of preparation and
attor neys' fees) and expenses (collectively, "Losses"), as incurred, arising
out of or relating to any untrue or alleged untrue statement of a material fact
contained in the Registration Statement, any Prospectus or any form of
prospectus or in any amendment or supplement thereto or in any preliminary
prospectus, or arising out of or relating to any omission or alleged omission of
a material fact required to be stated therein or necessary to make the
statements therein (in the case of any Prospectus or form of prospectus or
supplement thereto, in light of the circumstances under which they were made)
not misleading, except to the extent, but only to the extent, that such untrue
statements or omissions are based solely upon information regarding such Holder
furnished in writing to the Company by such Holder expressly for use therein,
which information was reasonably relied on by the Company for use therein or to
the extent that such information relates to such Holder or such Holder's
proposed method of distribution of Registrable Securities and was reviewed and
expressly approved in writing by such Holder expressly for use in the
Registration Statement, such Prospectus or such form of Prospectus or in any
amendment or supplement thereto. The Company shall notify the Holders promptly
of the institution, threat or assertion of any Proceeding of which the Company
is aware in connection with the transactions contemplated by this Agreement.
(b) Indemnification by Holders. Each Holder shall, severally and not
jointly, indemnify and hold harmless the Company, its directors, officers,
agents and employees, each Person who controls the Company (within the meaning
of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, agents or employees of such controlling Persons, to the
fullest extent permitted by applicable law, from and against all Losses
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<PAGE> 11
(as determined by a court of competent jurisdiction in a final judgment not
subject to appeal or review) arising solely out of or based solely upon any
untrue statement of a material fact contained in the Registration Statement, any
Prospectus, or any form of prospectus, or in any amendment or supplement
thereto, or arising solely out of or based solely upon any omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading to the extent, but only to the extent, that such untrue
statement or omission is contained in any information regarding such Holder so
furnished in writing by such Holder to the Company specifically for inclusion in
the Registration Statement or such Prospectus and that such information was
reasonably relied upon by the Company for use in the Registration Statement,
such Prospectus or such form of prospectus or to the extent that such
information relates to such Holder or such Holder's proposed method of
distribution of Registrable Securities and was reviewed and expressly approved
in writing by such Holder expressly for use in the Registration Statement, such
Prospectus or such form of Prospectus, or in any amendment or supplement
thereto. In no event shall the liability of any selling Holder hereunder be
greater in amount than the dollar amount of the net proceeds received by such
Holder upon the sale of the Registrable Securities giving rise to such
indemnification obligation.
(c) Conduct of Indemnification Proceedings. If any Proceeding shall
be brought or asserted against any Person entitled to indemnity hereunder (an
"Indemnified Party"), such Indemnified Party shall promptly notify the Person
from whom indemnity is sought (the "Indemnifying Party") in writing, and the
Indemnifying Party shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to the Indemnified Party and the payment of all
fees and expenses incurred in connection with defense thereof; provided, that
the failure of any Indemnified Party to give such notice shall not relieve the
Indemnifying Party of its obligations or liabilities pursuant to this Agreement,
except (and only) to the extent that it shall be finally determined by a court
of competent jurisdiction (which determination is not subject to appeal or
further review) that such failure shall have proximately and materially
adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate counsel
in any such Proceeding and to participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Party
or Parties unless: (1) the Indemnifying Party has agreed in writing to pay such
fees and expenses; or (2) the Indemnifying Party shall have failed promptly to
assume the defense of such Proceeding and to employ counsel reasonably
satisfactory to such Indemnified Party in any such Proceeding; or (3) the named
parties to any such Proceeding (including any impleaded parties) include both
such Indemnified Party and the Indemnifying Party, and such Indemnified Party
shall have been advised by counsel that a conflict of interest is likely to
exist if the same counsel were to represent such Indemnified Party and the
Indemnifying Party (in which case, if such Indemnified Party notifies the
Indemnifying Party in writing that it elects to employ separate counsel at the
expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and such counsel shall be at the expense of
the Indemnifying Party). The Indemnifying Party shall not be liable for any
settlement of any such Proceeding effected without its written consent, which
consent shall not be unreasonably withheld. No Indemnifying Party shall, without
the prior written consent of the
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Indemnified Party, effect any settlement of any pending Proceeding in respect of
which any Indemnified Party is a party, unless such settlement includes an
unconditional release of such Indemnified Party from all liability on claims
that are the subject matter of such Proceeding.
All fees and expenses of the Indemnified Party (including reasonable
fees and expenses to the extent incurred in connection with investigating or
preparing to defend such Proceeding in a manner not inconsistent with this
Section) shall be paid to the Indemnified Party, as incurred, within 10 Business
Days of written notice thereof to the Indemnifying Party (regard less of whether
it is ultimately determined that an Indemnified Party is not entitled to
indemnifica tion hereunder; provided, that the Indemnifying Party may require
such Indemnified Party to undertake to reimburse all such fees and expenses to
the extent it is finally judicially determined that such Indemnified Party is
not entitled to indemnification hereunder).
(d) Contribution. If a claim for indemnification under Section 5(a)
or 5(b) is unavailable to an Indemnified Party (by reason of public policy or
otherwise), then each Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable considerations.
The relative fault of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or relates to
information supplied by, such Indemnifying Party or Indemnified Party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include, subject
to the limitations set forth in Section 5(c), any reasonable attorneys' or other
reasonable fees or expenses incurred by such party in connection with any
Proceeding to the extent such party would have been indemnified for such fees or
expenses if the indemnification provided for in this Section was available to
such party in accordance with its terms.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5(d) were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 5(d), no Holder shall be required
to contribute, in the aggregate, any amount in excess of the amount by which the
proceeds actually received by such Holder from the sale of the Registrable
Securities subject to the Proceeding exceeds the amount of any damages that such
Holder has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
The indemnity and contribution agreements contained in this Section
are in addition
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to any liability that the Indemnifying Parties may have to the Indemnified
Parties.
6. Miscellaneous
(a) Remedies. In the event of a breach by the Company or by a Holder,
of any of their obligations under this Agreement, each Holder or the Company, as
the case may be, in addition to being entitled to exercise all rights granted by
law and under this Agreement, including recovery of damages, will be entitled to
specific performance of its rights under this Agreement. The Company and each
Holder agree that monetary damages would not provide adequate com pensation for
any losses incurred by reason of a breach by it of any of the provisions of this
Agreement and hereby further agrees that, in the event of any action for
specific performance in respect of such breach, it shall waive the defense that
a remedy at law would be adequate.
(b) No Inconsistent Agreements. Neither the Company nor any of its
subsidiaries has, as of the date hereof, nor shall the Company or any of its
subsidiaries, on or after the date of this Agreement, enter into any agreement
with respect to its securities that is inconsistent with the rights granted to
the Holders in this Agreement or otherwise conflicts with the provisions hereof.
Except as and to the extent specified in Schedule 6(b) hereto, neither the
Company nor any of its subsidiaries has previously entered into any agreement
granting any registration rights with respect to any of its securities to any
Person. Without limiting the generality of the foregoing, without the written
consent of the Holders of a majority of the then outstanding Registrable
Securities, the Company shall not grant to any Person the right to request the
Company to register any securities of the Company under the Securities Act
unless the rights so granted are subject in all respects to the prior rights in
full of the Holders set forth herein, and are not otherwise in conflict or
inconsistent with the provisions of this Agreement.
(c) No Piggyback on Registrations. Except as and to the extent
specified in Schedule 6(b) hereto, neither the Company nor any of its security
holders (other than the Holders in such capacity pursuant hereto) may include
securities of the Company in the Registration Statement other than the
Registrable Securities, and the Company shall not after the date hereof enter
into any agreement providing any such right to any of its security holders.
(d) Piggy-Back Registrations. If at any time when there is not an
effective Registration Statement covering all of the Registrable Securities and
the Underlying Shares, the Company shall determine to prepare and file with the
Commission a registration statement relating to an offering for its own account
or the account of others under the Securities Act of any of its equity
securities, other than on Form S-4 or Form S-8 (each as promulgated under the
Securities Act) or their then equivalents relating to equity securities to be
issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with stock option or other employee
benefit plans, then the Company shall send to each holder of Registrable
Securities written notice of such determination and, if within twenty (20) days
after receipt of such notice, any such holder shall so request in writing, the
Company shall include in such registration statement all or any part of such
Registrable Securities such holder requests to be registered; provided, however,
that the Company shall not be required to register any Registrable Securities
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<PAGE> 14
pursuant to this Section 7(d) that are eligible for sale pursuant to Rule 144(k)
under the Securities Act.
(e) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the same shall be in writing and signed by the Company
and the Holders of at least two-thirds of the then outstanding Registrable
Securities; provided, however, that, for the purposes of this sentence,
Registrable Securities that are owned, directly or indirectly, by the Company,
or an Affiliate of the Company are not deemed outstanding. Notwithstanding the
foregoing, a waiver or consent to depart from the provisions hereof with respect
to a matter that relates exclusively to the rights of certain Holders and that
does not directly or indirectly affect the rights of other Holders may be given
by Holders of at least a majority of the Registrable Securities to which such
waiver or consent relates; provided, however, that the provisions of this
sentence may not be amended, modified, or supplemented except in accordance with
the provisions of the immediately preceding sentence.
(f) Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 8:00 p.m. (New
York City time) on a Business Day, (ii) the Business Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in the Purchase Agreement later than 8:00
p.m. (New York City time) on any date and earlier than 11:59 p.m. (New York City
time) on such date, (iii) the Business Day following the date of mailing, if
sent by nationally recognized overnight courier service, or (iv) upon actual
receipt by the party to whom such notice is required to be given. The address
for such notices and communications shall be as follows:
If to the Company: Ecogen Inc.
2005 Cabot Boulevard West
Langhorne, PA 19047
Facsimile No.:(215) 757-3339
Attn: Chief Financial Officer
With copies to: Paul, Hastings, Janofsky & Walker LLP
1055 Washington Boulevard
Stamford, CT 06901
Facsimile No.: (203) 359-3031
Attn: Elizabeth A. Brower, Esq.
If to the Purchaser: KA Investments LDC
c/o Tarmachan Capital Management, L.L.C.
1712 Hopkins Crossroads
Minnetonka, MN 55305
14
<PAGE> 15
Facsimile No.: (612) 542-4244
Attn: Ivana Bozjak
-and-
Robinson Silverman Pearce Aronsohn &
Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630
Attn: Kenneth L. Henderson, Esq.
If to any other Person who is then the registered Holder:
To the address of such Holder as it appears in
the stock transfer books of the Company
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
(g) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors and permitted assigns of each of the
parties and shall inure to the benefit of each Holder. The Company may not
assign its rights or obligations hereunder without the prior written consent of
each Holder. Each Holder may assign their respective rights hereunder in the
manner and to the Persons as permitted under the Purchase Agreement.
(h) Assignment of Registration Rights. The rights of each Holder
hereunder, including the right to have the Company register for resale
Registrable Securities in accordance with the terms of this Agreement, shall be
automatically assignable by each Holder to any Affiliate of such Holder, any
other Holder or Affiliate of any other Holder and up to four other assignees of
all or a portion of the shares of Preferred Stock, the Warrants, the Redemption
Warrants or the Registrable Securities if: (i) the Holder agrees in writing with
the transferee or assignee to assign such rights, and a copy of such agreement
is furnished to the Company within a reasonable time after such assignment, (ii)
the Company is, within a reasonable time after such transfer or assignment,
furnished with written notice of (a) the name and address of such transferee or
assignee, and (b) the securities with respect to which such registration rights
are being transferred or assigned, (iii) following such transfer or assignment
the further disposition of such securities by the transferee or assignees is
restricted under the Securities Act and applicable state securities laws, (iv)
at or before the time the Company receives the written notice contemplated by
clause (ii) of this Section, the transferee or assignee agrees in writing with
the Company to be bound by all of the provisions of this Agreement, and (v) such
transfer shall have been made in accordance with the applicable requirements of
the Purchase Agreement. The rights to assignment shall apply to the Holders (and
to subsequent) successors and assigns.
(i) Counterparts. This Agreement may be executed in any number of
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<PAGE> 16
counterparts, each of which when so executed shall be deemed to be an original
and, all of which taken together shall constitute one and the same Agreement. In
the event that any signature is delivered by facsimile transmission, such
signature shall create a valid binding obligation of the party executing (or on
whose behalf such signature is executed) the same with the same force and effect
as if such facsimile signature were the original thereof.
(j) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, without regard to
principles of conflicts of law.
(k) Cumulative Remedies. The remedies provided herein are cumulative
and not exclusive of any remedies provided by law.
(l) Severability. If any term, provision, covenant or restriction of
this Agree ment is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their reasonable efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such that may be hereafter declared invalid, illegal, void or unenforceable.
(m) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(n) Shares Held by The Company and its Affiliates. Whenever the
consent or approval of Holders of a specified percentage of Registrable
Securities is required hereunder, Registrable Securities held by the Company or
its Affiliates (other than any Holder or transferees or successors or assigns
thereof if such Holder is deemed to be an Affiliate solely by reason of its
holdings of such Registrable Securities) shall not be counted in determining
whether such consent or approval was given by the Holders of such required
percentage.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE TO FOLLOW]
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IN WITNESS WHEREOF, the parties have executed this Registration
Rights Agreement as of the date first written above.
ECOGEN INC.
By: /s/ James P. Reilly, Jr.
Name: James P. Reilly, Jr.
Title: Chairman and CEO
KA INVESTMENTS LDC
By: /s/ Gary Sobczak
Name: Gary Sobczak
Title: Secretary
<PAGE> 1
EXHIBIT 23.1
Consent of KPMG Peat Marwick LLP
II-10
<PAGE> 2
Board of Directors
Ecogen Inc.
We consent to the use of our report incorporated herein by
reference and to the reference to our firm under the heading "Experts" in the
prospectus.
KPMG Peat Marwick LLP
Short Hills, New Jersey
September 11, 1998
II-11
