<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
ECOGEN INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
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<PAGE> 2
ECOGEN INC.
Langhorne, Pennsylvania 19047-1810
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
May 7, 1998
TO THE STOCKHOLDERS OF ECOGEN INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Ecogen Inc., a Delaware corporation (the "Company"), will be held at The
Sheraton Bucks County Hotel, 400 Oxford Valley Road, Langhorne, Pennsylvania, on
May 7, 1998, at 9:00 a.m., local time, for the following purposes:
To elect five members of the Board of Directors, each to serve until
the next annual meeting;
To ratify the appointment of KPMG Peat Marwick LLP as independent
auditors to audit the Company's books and accounts for fiscal year 1998; and
To transact such other business as may properly come before the
meeting.
The Board of Directors has fixed April 1, 1998 as the record date
for determining the holders of Common Stock entitled to notice of and to vote at
the meeting. Consequently, only holders of Common Stock of the Company of record
on the transfer books of the Company at the close of business on April 1, 1998,
will be entitled to notice of and to vote at the meeting.
We invite all stockholders to attend the meeting. TO ENSURE THAT
YOUR SHARES WILL BE VOTED AT THE MEETING, HOWEVER, PLEASE COMPLETE, DATE AND
SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY. If you attend the meeting, you
may vote in person, even though you have sent in your proxy.
James P. Reilly, Jr.
Chairman and Chief Executive Officer
Langhorne, Pennsylvania
April 2, 1998
<PAGE> 3
ECOGEN INC.
2005 CABOT BOULEVARD WEST
LANGHORNE, PENNSYLVANIA 19047-1810
PROXY STATEMENT
The accompanying proxy is solicited by the Board of Directors of
Ecogen Inc. (the "Company") for use at its 1998 Annual Meeting of Stockholders
(the "Annual Meeting") to be held on May 7, 1998. Copies of this proxy statement
and the accompanying proxy are being mailed on or after April 2, 1998, to the
holders of record of the Company's common stock, par value $.01 per share (the
"Common Stock") on April 1, 1998. The proxy may be revoked by a stockholder at
any time prior to its use by giving written notice of such revocation to the
Secretary of the Company or by voting in person at the Annual Meeting. The
expense of this solicitation will be paid by the Company. Officers and other
employees of the Company may solicit proxies personally or by telephone.
The persons named in the accompanying proxy will vote as set forth
under "Election of Directors" with respect to the election of directors. With
respect to the other subjects referred to in this proxy statement, the persons
named in the accompanying proxy will vote as stated in the proxy.
Holders of Common Stock of record at the close of business on April
1, 1998 will be entitled to one vote per share held of record on all business of
the Annual Meeting. On April 1, 1998 there were approximately 8,001,680 shares
of Common Stock outstanding. The presence at the Annual Meeting in person or by
proxy of the holders of a majority of the shares of Common Stock outstanding on
the record date will constitute a quorum to conduct business at the meeting.
Proxies submitted which are marked "abstain" or "withhold authority" will be
deemed present at the meeting for purposes of determining a quorum to conduct
business at the meeting.
If a quorum is present, the election of directors will be decided by
a plurality of the shares of Common Stock represented in person or by proxy at
the meeting and entitled to vote thereon. Shares represented by proxies which
are marked "abstain" or "withhold authority" and shares as to which a broker
indicates that it does not have discretionary authority to vote (referred to
herein as non-votes by brokers) with respect to any or all nominee(s) for
director will not be deemed present for purposes of voting on the election of
any or all such nominee(s) for director and therefore will have no impact on the
vote on any or all such nominee(s).
The approval of all other matters brought before the meeting will
require the affirmative vote of a majority of the shares of Common Stock
represented in person or by proxy at the meeting and entitled to vote thereon.
Shares represented by proxies which are marked "for," "against" or "abstain"
will be counted for purposes of determining the vote required for approval of
these other matters, and the total number of votes cast "for" each of these
other matters will determine whether sufficient affirmative votes have been
cast. An abstention from voting on these other matters has the same legal effect
as a vote against any such matter and shares represented by proxies which are
marked "withhold authority" (including non-votes by brokers) are not counted for
purposes of determining whether these other matters have been approved.
The Company's fiscal year begins on November 1 and ends on October
31. Unless the context otherwise requires, all references in this proxy
statement to a particular year shall mean the Company's fiscal year.
<PAGE> 4
PROPOSAL I
ELECTION OF DIRECTORS
Five directors are to be elected at the 1998 Annual Meeting of
Stockholders to serve until the 1999 Annual Meeting of Stockholders and until
their respective successors are elected and qualified. The persons named in the
accompanying proxy intend to vote for the election of the nominees identified
below unless authority to vote for one or more of such nominees is specifically
withheld in the proxy.
The Board of Directors is informed that all of the nominees are
willing to serve as directors, but if any of them should decline to serve or
become unavailable for election as a director at the Annual Meeting, an event
which the Board of Directors does not anticipate, the persons named in the proxy
will vote for such nominee or nominees as may be designated by the Board of
Directors, unless the Board of Directors reduces the number of directors
accordingly.
The nominees for election to the Company's Board of Directors are:
MR. ESTEBAN A. FERRER, 47, has served as a director of the
Company since January, 1996. From 1983 until 1995, he served as Secretary of
the Company. Since September, 1990, Mr. Ferrer has been a partner at the law
firm of Paul, Hastings, Janofsky & Walker LLP. Mr. Ferrer holds a Juris
Doctor degree from Columbia University School of Law and is admitted to
practice in the states of Connecticut and New York.**/***
MR. PHILIPPE D. KATZ, 36, has served as a director of the Company
since February, 1998. Since 1996, Mr. Katz has been a partner at the investment
firm of United Equities (Commodities) Company. From 1992 to 1996, Mr. Katz was
associated with United Equities (Commodities) Company. From 1989 to 1992, Mr.
Katz was associated with the law firm of Weil, Gotshal & Manges.
DR. LOWELL N. LEWIS, 66, has served as a director of the Company
since February, 1989. Since February, 1992, Dr. Lewis has been an
International Research Management Consultant. From January, 1988 through his
retirement from the University of California in April, 1991, Dr. Lewis was
employed at the University of California as Associate Vice President for
Programs, Agriculture and Natural Resources; Associate Director of the
California Agricultural Experiment Station; and Associate Director of
Cooperative Extension.*/***
MR. JAMES P. REILLY, JR., 51, has served as Chairman of the Board of
Directors of the Company since November 1, 1995 and as a director of the Company
since June, 1992. Since January, 1994, Mr. Reilly has been the Chief Executive
Officer of the Company and since June, 1992, he has been the Company's
President. From June, 1992 to January, 1994, Mr. Reilly served as Chief
Operating Officer of the Company. From 1976 until he joined the Company, Mr.
Reilly was employed in various management capacities at Rhone-Poulenc, Inc.,
most recently, from April, 1991 to May, 1992, as Vice President and General
Manager of the Fine Chemicals Division.**
MR. JOHN R. SUTLEY, 55, has served as a director of the Company
since March, 1996. Since 1994, he has been President and Chief Executive Officer
of Nalco/Exxon Energy Chemicals, L.P., a specialty chemicals company. From 1968
to 1994, Mr. Sutley was employed in various management capacities at Nalco
Chemical Co., most recently, from 1991 to 1994, as Group Vice President of Nalco
Chemical Co. and President of Nalco Europe.*/***
* Member, Audit Committee
** Member, Nominating Committee
*** Member, Compensation Committee
2
<PAGE> 5
All directors hold office until the next annual meeting of the
Company's stockholders and until their successors are elected and qualified. In
calendar year 1997, Dr. Lewis, Mr. Ferrer and Mr. Sutley were each paid an
annual retainer of $12,000, and no additional fees for attendance at meetings of
the Board or Committees of the Board were paid to Directors in calendar year
1997. In addition, in calendar year 1997, Dr. Lewis, Mr. Ferrer and Mr. Sutley
were each issued non-statutory stock options to purchase 2,000 shares of Common
Stock under the Company's Stock Option Plan at an exercise price per share of
$2.56, the market price of Common Stock when the options were issued. The
options become exercisable ratably over a two year period.
The Board of Directors held four regularly scheduled and three
special meeting during fiscal 1997. During fiscal 1997, the standing committees
of the Board of Directors were the Audit Committee, the Compensation Committee
and the Nominating Committee.
The Audit Committee, which met on three occasions in fiscal 1997, is
responsible for: (i) reviewing the Company's financial results and financial
position and the scope and results of audits of the Company's financial
statements; (ii) evaluating the Company's system of internal controls; (iii)
meeting with independent auditors and with appropriate Company financial
personnel concerning the Company's system of internal controls; (iv)
recommending to the Board of Directors the appointment of the independent
auditors; and (v) evaluating the Company's financial reporting activities and
the accounting standards and principles followed in preparing the Company's
financial statements.
The Compensation Committee, which met on three occasions in fiscal
1997, is responsible for: (i) considering and recommending to the Board of
Directors salaries, bonuses and other forms of compensation for corporate
officers; (ii) performing such duties and exercising such authority which, under
the terms of the Plan and applicable law, may be assigned to a committee of the
Board of Directors; (iii) considering and adopting changes in the Company's
non-officer employee compensation structure; and (iv) considering and
recommending to the Board of Directors changes in director compensation.
The Nominating Committee, which met on two occasions in fiscal 1997,
is responsible for: (i) recommending qualified candidates for election as
directors of the Company, including the slate of directors which the Board of
Directors proposes for election by stockholders at each annual meeting; (ii)
recommending the structure and membership of the committees of the Board of
Directors; and (iii) recommending to the Board of Directors the appointment of
new corporate officers. The Nominating Committee will consider recommendations
of stockholders for nominees for election to the Company's Board of Directors if
such nominations are submitted in writing and include the name and description
of the qualifications of the nominee along with the reason for such nomination,
addressed to the Company at its Langhorne, Pennsylvania office, to the attention
of the Nominating Committee.
In 1997, each of the incumbent directors attended at least 75% of
the aggregate of all meetings of the Board of Directors and committees of which
he was a member.
3
<PAGE> 6
PROPOSAL II
RATIFICATION OF APPOINTMENT OF AUDITORS
Subject to stockholder ratification, the Board of Directors has
appointed the firm of KPMG Peat Marwick LLP as independent auditors to audit the
Company's books and accounts for the fiscal year 1998. If the stockholders do
not ratify this appointment, the appointment will be reconsidered by the Board
of Directors.
KPMG Peat Marwick LLP has audited the Company's books and accounts
since August, 1987. Audit services provided by KPMG Peat Marwick LLP for the
fiscal year ended October 31, 1997 included: examination of the Company's
consolidated financial statements, limited reviews of interim reports, review of
the Company's filings with the Securities and Exchange Commission and
consultations on matters related to accounting, taxation and financial
reporting. A representative of KPMG Peat Marwick LLP is expected to be present
at the Annual Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE FOR SUCH RATIFICATION.
OTHER BUSINESS
The Board of Directors does not intend to present to the meeting any
business other than the matters described in this proxy statement. If any other
matter is presented to the meeting which under applicable proxy regulations need
not be included in this proxy statement or which the Board of Directors did not
know would be presented within a reasonable time before this solicitation, the
persons named in the accompanying proxy will have discretionary authority to
vote proxies with respect to such matter in accordance with their best judgment.
4
<PAGE> 7
COMPENSATION COMMITTEE REPORT
Dear Stockholders:
Responsibility for recommending compensation of the Company's
executive officers for services rendered during fiscal 1997 rested with the
Compensation Committee of the Company's Board of Directors. Those
recommendations were then considered and approved by the Board.
In recommending the compensation of the Company's executive
officers, the Compensation Committee has adopted the philosophy that aligning
compensation with each executive officer's contribution to Company-wide
performance objectives and encouraging stock ownership result in optimal
performance by its executive officers which, in turn, should positively affect
the Company's future performance. The major components of the Company's
executive officers' compensation are salary, cash bonuses and stock options.
Salaries of the Company's executive officers tend to be set at the midpoint of
industry peers, and stock option grants and cash bonuses are employed to enhance
the competitiveness of compensation packages within the industry, to reward
outstanding performance and to provide incentive for reaching further
performance goals.
For the fiscal year 1997 the Compensation Committee set three
quantitative goals for the Company, representing what the Committee believes are
the three primary indicia of the Company's progress toward profitability.
Specific targets were set for product sales, net loss and cash receipts. The
Committee believed that these three factors, considered as a whole without
particular emphasis on any one factor, provided the primary criteria for
measuring the Company's performance in fiscal 1997. The Committee has also
identified several additional factors on which to judge the success achieved by
the Company in moving toward its long-term objective of becoming a leading
developer and supplier of biological pesticide products. These factors include
(1) progress in research and development programs, (2) implementation of
strategic alliances with other enterprises, (3) improvements in product
manufacturing processes, (4) diversification and expansion of product lines, and
(5) management of Company expense levels and cash requirements.
With respect to the compensation of Mr. Reilly, the Company's
Chairman and Chief Executive Officer during fiscal 1997, Mr. Reilly was paid
$300,000 as salary for fiscal 1997. Mr. Reilly was not granted a cash bonus for
services rendered in fiscal 1997. In fiscal 1997, Mr. Reilly was granted stock
options to purchase up to 75,000 shares of the Company's common stock under the
Company's Stock Option Plan. The options have an exercise price per share of
$3.188, the market price of the Company's common stock when the options were
granted, and become exercisable over a three year period. In addition, stock
options to purchase up to 20,000 shares of the Company's common stock that had
been granted to Mr. Reilly under the Stock Option Plan in 1994 were repriced
from an exercise price per share of $15.625 to $3.188, the market price of the
Company's common stock when the options were repriced. These options had been
fully exercisable but as a result of the repricing are now exercisable ratably
over a three year period.
During fiscal 1997, Mr. Reilly submitted plans to the Compensation
Committee and the Board that lay the groundwork for a strategic repositioning of
the Company's business. The grant in fiscal 1997 to Mr. Reilly of stock options,
and the repricing in fiscal 1997 of certain of Mr. Reilly's previously granted
stock options, were intended by the Committee and the Board to reward Mr. Reilly
for the development of such strategic plans and to incentivize Mr. Reilly to
guide the Company through the implementation phase of such plans. The Committee
also concluded that, while the Company did make progress during fiscal 1997
toward achievement of a number of its long-term objectives, the Company fell
short of achieving its quantitative goals and the Chief Executive Officer bears
responsibility for both the successes and the failures of the Company. The
Company's progress in fiscal 1997 included the filing of a number of patents
with respect to the Company's Bt technology, implementation of new manufacturing
processes for the Company's new WDG formulation, introduction of CRYMAX (R)
Bioinsecticide and management of the Company's expenditure levels.
5
<PAGE> 8
With respect to executive officers' compensation generally during
fiscal 1997, the Compensation Committee primarily focused on the compensation of
management-level employees at both comparable companies and at divisions of
larger companies engaged in the same industry as the Company, and also
considered the contribution made by each individual officer to the achievement
of the Company-wide objectives outlined above.
The Company has considered the effect of Internal Revenue Code
Section 162(m) and proposed regulations thereunder concerning the
non-deductibility of certain executive compensation payments in excess of $1
million and has determined that the Company need not adopt a policy with respect
thereto because none of its executive officers currently has compensation
approaching $1 million per year, nor is it likely that any such officer will
reach that level of compensation in the near future.
It is our hope that you, the stockholders, will come to view our
decisions on executive compensation as indicators of how your directors view
both the individual contributions of each of the Company's executives and where
the Company stands along its strategic path.
Esteban A. Ferrer Lowell N. Lewis John R. Sutley
(Chairman)
6
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
There are no Compensation Committee interlocks and there is no
participation on the Compensation Committee by insiders of the Company.
<PAGE> 9
EXECUTIVE COMPENSATION
COMPENSATION
The following table sets forth the compensation for services
rendered to the Company during the last three fiscal years by the Chief
Executive Officer and the three other executive officers of the Company:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation*
(Awards/
Annual Compensation Payouts)
------------------- --------
Name and Salary Bonus Options All Other
Principal Position Year ($) ($) (#) Compensation
- ------------------ ---- --- --- --- ------------
<S> <C> <C> <C> <C> <C>
James P. Reilly, Jr., 1997 $300,000 -0- 75,000 $7,125(1)
Chairman and Chief 1996 287,500 -0- -0- 4,762(1)
Executive Officer 1995 225,000 $60,000 60,000 5,250(1)
Richard A. Deak, 1997 $179,167 -0- -0- $7,125(1)
Vice President, 1996 173,333 -0- -0- 5,581(1)
General Counsel and 1995 163,167 -0- 30,000 4,130(1)
Secretary
Mary E. Paetzold, 1997 $175,000 -0- 10,000 $7,087(1)
Vice President, Chief 1996 173,333 -0- -0- 5,489(1)
Financial Officer and 1995 162,500 -0- 30,000 53,850(2)
Treasurer
Leigh H. English, 1997 $162,500 -0- 40,000 $7,125(1)
Vice President, 1996 141,775 -0- -0- 5,011(1)
Research 1995 97,055 -0- 30,000 5,823(1)
</TABLE>
* The Company did not make long-term compensation plan awards of stock
appreciation rights or restricted stock to the named executive officers in
fiscal 1997, 1996 or 1995 or make any long-term plan payout during such
periods.
(1) Reflects the Company's contribution on behalf of such executive officer to
the Company's 401(k) Profit Sharing Plan.
(2) "All Other Compensation" was comprised of $3,850, reflecting the Company's
contribution on Ms. Paetzold's behalf to the Company's 401(k) Profit Sharing
Plan, and $50,000, reflecting a relocation allowance to which Ms. Paetzold
was entitled upon her joining the Company.
7
<PAGE> 10
The Company does not have a defined benefit or actuarial pension
plan. The Company does not have a long-term incentive plan nor did it make any
long-term incentive awards in fiscal 1997.
The Company has entered into severance compensation agreements with
each of James P. Reilly, Jr., Chairman and Chief Executive Officer of the
Company, Richard A. Deak, Vice President, General Counsel and Secretary of the
Company, Dr. Leigh H. English, Vice President, Research and Mary E. Paetzold,
Vice President, Chief Financial Officer and Treasurer of the Company (each an
"Executive"). Under each agreement, if the Executive's employment is terminated
(as defined in the agreement) under certain circumstances the Company is
obligated to continue to pay to the Executive the Executive's salary and
benefits for a period of eighteen months.
OPTION GRANTS FOR LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of
Stock Appreciation for
Option Term(2)
--------------
% of Total
Options Granted Exercise
Options to Employees Price Expiration
Name Granted(1) For Fiscal Year (/sh) Date 5%($) 10%($)
---- ---------- --------------- ----- ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
J. P. Reilly, Jr. 75,000 52% $3.188 9/18/07 $169,842 $443,080
M. E. Paetzold 10,000 7% 3.188 9/18/07 22,646 59,077
L. H. English 40,000 28% 3.188 9/18/07 90,582 236,309
</TABLE>
(1) Exercisable ratably over a three year period beginning on the first
anniversary of the date of grant.
(2) Option terms are generally ten years. The dollar amounts under these columns
are the result of calculations at the 5% and 10% rates set by the Securities
and Exchange Commission and are not intended to forecast possible future
appreciation, if any, of the Company's stock price.
8
<PAGE> 11
OPTION EXERCISE AND YEAR-END VALUE TABLE
Aggregated Option Exercises in Last Fiscal Year and Full Year-End Option Value
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Options at Fiscal In-the-Money Options
Year-End (#) at Fiscal Year End($)(1)
------------ ------------------------
Shares Value
Acquired on Realized
Name Exercise (#) ($) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ --- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
J.P. Reilly, Jr. None N/A 78,000 130,000 $-0- $-0-
R.A. Deak None N/A 23,500 27,500 -0- -0-
M.E. Paetzold None N/A 32,500 37,500 -0- -0-
L.H. English None N/A 14,310 61,950 -0- -0-
</TABLE>
(1) The dollar values have been calculated by determining the difference between
the fair market value of the securities underlying the options at fiscal year
end and the exercise prices of the options. For purpose of determining the fair
market value of the in-the-money options at October 31, 1997, the fair market
value of the Company's common stock was $2.75.
REPORT OF COMPENSATION COMMITTEE
ON REPRICING OF OPTIONS
The Company's Stock Option Plan (the "Plan") is intended to encourage
Company employees, through their individual efforts, to improve the Company's
overall performance and to promote profitability by providing them an
opportunity to participate in the increased values they help create. In
December, 1996, the Compensation Committee determined that the imbalance between
the exercise price of certain of the stock options then outstanding (equal to
the respective market prices for common stock at the times they were granted)
and the lower market prices which prevailed for the Company's common stock at
that time did not provide an incentive for employees holding such options. To
restore that incentive, the Board, upon the recommendation of the Committee,
extended to all of the Company's employees holding stock options, other than the
Company's four executive officers, the opportunity, at such employee's election,
to receive a repriced option under the Plan, exercisable at $2.563 per share,
the market price of Company common stock on the date of the repricing.
In September, 1997 the Committee, based on its assessment of the
performance of the Company's four executive officers and to enhance the
incentive for the executive officers to implement the Company's strategic
repositioning program, recommended, and the Board approved, the extension to
each of the executive officers the opportunity, at his or her election, to
exchange the options held by such executive officer having an exercise price per
share of $15.62 or more for new options having an exercise price per share of
$3.188, the market price of Company common stock at the time the Board approved
the repricing. Options to purchase an aggregate of 42,600 shares of common stock
were affected by the repricing which included options to purchase 20,000 shares
of Company common stock held by the Company's Chairman and Chief Executive
Officer. (See "Compensation Committee Report" on p. 5.) Except as modified as
described above, each new option continues to be governed by the same terms as
applied to the surrendered option except that the repriced options are generally
exercisable ratably over a three year period, twenty-five percent at issuance
and twenty-five percent on each of the first three anniversaries of the issuance
date. The surrendered options were currently exercisable.
The participation by executive officers in the repricing program is
shown in the table entitled "Ten-Year Option Repricings" below.
Esteban A. Ferrer Lowell N. Lewis John R. Sutley
(Chairman)
9
<PAGE> 12
TEN-YEAR OPTION REPRICINGS
The following table provides information with respect to the
participation in the Company's repricings of employee stock options during the
last ten completed fiscal years by then executive officers of the Company.
<TABLE>
<CAPTION>
Years of
Number of Original
Securities Option
Underlying Term
Options Market Price of Exercise Price Remaining
Name and Date Repriced Stock at Time at Time of New at Date of
Principal of or Amended of Repricing or Repricing or Exercise Repricing or
Position Repricing Shares Amendment($) Amendment($) Price($) Amendment
- -------- --------- ------ ------------ ------------ -------- ---------
<S> <C> <C> <C> <C> <C> <C>
J. P. Reilly Jr 5/12/95 40,000 $ 10.94 $ 47.56 $ 10.94 6
Chairman and 5/12/95 5,000 10.94 35.20 10.94 7
CEO 5/12/95 8,000 10.94 33.40 10.94 8
9/18/97 20,000 3.19 15.62 3.19 7
J. E. Davies* 10/25/89 12,000 21.88 31.25 21.88 8
Chairman 7/2/90 12,000 12.56 21.87 12.56 7
5/12/95 5,000 10.94 65.87 10.94 6
5/12/95 10,000 10.94 35.22 10.94 7
5/12/95 11,000 10.94 33.40 10.94 8
J. Leslie* 10/25/89 18,000 21.88 38.81 21.88 9
President 7/2/90 18,000 12.56 21.87 12.56 8
B. C. Carlton* 5/12/95 4,000 10.94 65.88 10.94 6
V.P., Research 5/12/95 5,000 10.94 35.20 10.94 7
and 5/12/95 4,000 10.94 33.40 10.94 8
Development
L. H. English 9/18/97 2,600 3.19 15.62 3.19 7
V.P. Research
R. A. Deak 5/12/95 8,000 10.94 39.30 10.94 7
V.P. and 5/12/95 3,000 10.94 33.40 10.94 8
General Counsel 9/18/97 10,000 3.19 15.62 3.19 7
M. E. Paetzold 5/12/95 20,000 10.94 34.65 10.94 8
V.P. and CFO 9/18/97 10,000 3.19 15.62 3.19 7
</TABLE>
- ----------
* Not currently an executive officer of the Company and the subject options were
not exercised and are no longer exercisable.
10
<PAGE> 13
PERFORMANCE GRAPH
The following is a line graph comparison of the Company's yearly
percentage change in cumulative total shareholder return with that of the NASDAQ
Composite Index and the Zacks Agricultural Operations Index, for the period
beginning with December 31, 1992 and ending October 31, 1997.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG ECOGEN INC., NASDAQ COMPOSITE INDEX,
AND ZACKS AGRICULTURAL OPERATIONS INDEX
<TABLE>
<CAPTION>
Description 1992 1993 1994 1995 1996 1997
------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
ECOGEN INC ($) $ 100.00 $ 90.32 $ 50.00 $ 15.32 $ 8.71 $ 7.10
Nasdaq U.S.($) $ 100.00 $ 128.85 $ 129.55 $ 174.49 $ 205.95 $ 271.02
ZACK'S INDEX ($) $ 100.00 $ 132.83 $ 126.01 $ 184.90 $ 270.91 $ 377.56
</TABLE>
- ----------
* Assumes an initial investment of $100. Total return assumes reinvestment of
dividends.
** Included in the Zacks Index are AG Services of America Inc., Chai Na Ta
Corporation, DeKalb Genetics Corp., Delta & Pine Land Co., Embrex, Inc., Mycogen
Corp., Neogen Corp., Northland Cranberries Inc., Pioneer Hi-Bred International
and U.S. Home & Garden Inc.
*** Values are as of December 31 for 1992 and 1993 and as of October 31
thereafter.
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<PAGE> 14
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of January 31, 1998, with respect
to the beneficial ownership of the Company's Common Stock by all persons known
by the Company to be the beneficial owners of more than 5% of its outstanding
Common Stock, by each director and nominee for director, by each named executive
officer, and by all current executive officers and directors as a group. Except
as indicated in the footnotes to the table, the persons named in the table have
sole voting and investment power with respect to all shares of Common Stock
beneficially owned by them.
<TABLE>
<CAPTION>
================================================================================
Name and Address (1) Number of Shares Percentage of Class
- --------------------------------------------------------------------------------
<S> <C> <C>
Monsanto Company 943,397 12%
800 North Lindbergh Boulevard
St. Louis, MO 63167
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United Equities (Commodities) 1,537,357 17%
Company
160 Broadway
New York, NY 10038 (2)
- --------------------------------------------------------------------------------
Moses Marx 1,537,357 17%
160 Broadway
New York, NY 10038 (2)
- --------------------------------------------------------------------------------
Philippe D. Katz 1,545,357 17%
160 Broadway
New York, NY 10038 (2)
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James P. Reilly, Jr. (3) 104,481 1%
- --------------------------------------------------------------------------------
Richard A. Deak (4) 34,160 *
- --------------------------------------------------------------------------------
Leigh H. English (5) 24,310 *
- --------------------------------------------------------------------------------
Mary E. Paetzold (6) 56,743 *
- --------------------------------------------------------------------------------
Esteban A. Ferrer (7) 3,200 *
- --------------------------------------------------------------------------------
Lowell N. Lewis (8) 5,940 *
- --------------------------------------------------------------------------------
John R. Sutley (9) 7,040 *
- --------------------------------------------------------------------------------
All current executive officers and
directors as a group (eight persons) 1,758,731 19%
(2) (3) (4) (5) (6) (7) (8) (9)
and (10)
================================================================================
</TABLE>
* Indicates amount is less than 1%.
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<PAGE> 15
(1) The addresses of all officers and directors of the Company listed above
are in care of the Company except as noted. The Company's corporate
headquarters are located at 2005 Cabot Boulevard West, Langhorne,
Pennsylvania 19047. For purposes of calculating beneficial ownership, the
Company relied upon reports filed with the Securities and Exchange
Commission and upon its actual knowledge.
(2) Pursuant to a Schedule 13D filed by Moses Marx and United Equities
(Commodities) Company ("United Equities") dated November 12, 1997,
securities reported as being beneficially owned by United Equities include
1,012,444 shares of Ecogen Common Stock that United Equities has the right
to acquire at any time upon the conversion of a Convertible Secured Note
held in the name of United Equities. Moses Marx has a 99% equity interest
in United Equities and is deemed to beneficially own the shares of Ecogen
Common Stock held by United Equities. Philippe Katz has a .5% equity
interest in United Equities and may be deemed to beneficially own the
shares of Ecogen Common Stock held by United Equities. Mr. Katz also
directly owns 8,000 shares of Ecogen Common Stock.
(3) Includes 98,000 shares which Mr. Reilly has the right to acquire upon
exercise of stock options under the Plan which are exercisable on or
within 60 days following January 31, 1998. Does not include 110,000 shares
which Mr. Reilly has the right to acquire upon exercise of stock options
under the Plan which are not presently exercisable and not exercisable
within 60 days following January 31, 1998.
(4) Includes 33,500 shares which Mr. Deak has the right to acquire upon
exercise of stock options under the Plan which are exercisable on or
within 60 days following January 31, 1998. Does not include 17,500 shares
which Mr. Deak has the right to acquire upon exercise of stock options
under the Plan which are not presently exercisable and not exercisable
within 60 days following January 31, 1998.
(5) Includes 24,310 shares which Dr. English has the right to acquire upon
exercise of stock options under the Plan which are exercisable on or
within 60 days following January 31, 1998. Does not include 51,950 shares
which Dr. English has the right to acquire upon exercise of stock options
under the Plan which are not presently exercisable and not exercisable
within 60 days following January 31, 1998.
(6) Includes 500 shares held by Ms. Paetzold's husband. Ms. Paetzold disclaims
beneficial ownership of these shares. Includes 42,500 shares which Ms.
Paetzold has the right to acquire upon exercise of stock options under the
Plan which are exercisable on or within 60 days following January 31,
1998. Does not include 27,500 shares which Ms. Paetzold has the right to
acquire upon exercise of stock options under the Plan which are not
presently exercisable and not exercisable within 60 days following January
31, 1998.
(7) Includes 2,200 shares which Mr. Ferrer has the right to acquire upon the
exercise of stock options under the Plan which are exercisable on or
within 60 days following January 31, 1998. Does not include 1,600 shares
which Mr. Ferrer has the right to acquire upon exercise of stock options
under the Plan which are not presently exercisable and not exercisable
within 60 days following January 31, 1998.
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<PAGE> 16
(8) Includes 4,800 shares which Dr. Lewis has the right to acquire upon
exercise of stock options under the Plan which are exercisable on or
within 60 days following January 31, 1998. Does not include 1,000 shares
which Dr. Lewis has the right to acquire upon exercise of stock options
under the Plan which are not presently exercisable and not exercisable
within 60 days following January 31, 1998.
(9) Includes 7,000 shares which Mr. Sutley has the right to acquire upon
exercise of stock options under the Plan which are exercisable on or
within 60 days following January 31, 1998. Does not include 4,000 shares
which Mr. Sutley has the right to acquire upon the exercise of stock
options under the Plan which are not presently exercisable and not
exercisable within 60 days following January 31, 1998.
(10) Gives full effect to stock options and warrants, which are presently
exercisable, held by executive officers and directors.
CERTAIN TRANSACTIONS
On January 24, 1996, the Company closed a transaction with Monsanto Company
("Monsanto") forming a strategic alliance for development of the Company's
proprietary Bt technology. Under the terms of the agreement, Monsanto purchased
943,397 shares of the Company's common stock for $10.60 per share for an
aggregate purchase price of $10 million. Monsanto is required to maintain its
ownership position in the Company's stock during the term of the Research and
Development Agreement between the Company and Monsanto and Monsanto is
prohibited, for three years after closing, from acquiring more than a 25%
aggregate equity interest in the Company. These restrictions, however, terminate
upon the occurrence of certain defined events relating to a change of control of
the Company. Monsanto has certain registration rights with respect to the shares
of Company common stock. In addition, Monsanto has a right of first refusal to
purchase securities from the Company in order to maintain its percentage
ownership interest in the Company.
In addition, Monsanto acquired for $5 million certain rights to Ecogen's
existing Bt strain library and insecticidal crystal protein gene library, and
the intellectual property rights associated with such libraries including
certain patents and patent applications (the "Bt Technology"). The Company
maintains rights to the Bt Technology for applications other than in-plant uses.
Monsanto did not acquire any rights to the Company's fermentation and
formulation technology, insectary technology or technology related to the
movement of Bt genes from Bt and back into Bt without foreign DNA.
Monsanto and the Company are parties to a Research and Development Agreement
involving research and development focusing on Bt technology (the "R & D
Program"). The results of the R & D Program are owned by Monsanto and licensed
to the Company for use outside of in-plant applications. Under the terms of the
agreement with Monsanto, the Company will also share in the commercialization
success of transgenic plants incorporating the Bt Technology. Monsanto shall pay
to the Company a commercialization success fee based on revenue received by
Monsanto from products which incorporate the Bt Technology or the results from
the R & D Program.
14
<PAGE> 17
In January, 1998 the Research and Development Agreement was amended
by agreement of the parties. As a result of the amendment, the Company received
from Monsanto a cash payment in January, 1998 of $4.3 million. The Monsanto
Research and Development Agreement now terminates in January, 1999, one year
earlier than the original agreement, without a reduction in the total payment of
$10 million called for under the original agreement. Of the total payments
received from Monsanto, $2.0 million was recorded as deferred revenue and will
be recognized as research contract revenue by the Company as research is
performed under the agreement through January 1999. As part of the R&D Program,
the Company will continue to assist Monsanto in expanding Monsanto's
capabilities in the Bt area. The amendment does not affect the Company's right
to receive the commercialization success fees as Monsanto utilizes
Ecogen-developed technology in its future products.
Mr. John E. Davies, a former Chairman and director of the Company,
began providing the Company with consulting services pursuant to the terms of an
employment and consulting agreement between the Company and Mr. Davies dated
January 1, 1994. During the consultancy term, which was scheduled to terminate
on December 31, 1998, Mr. Davies was entitled to receive an annual consulting
fee of $165,000 plus expenses for providing advice and assistance to the
Company. Under the terms of the consulting agreement, upon termination of Mr.
Davies' consultancy for any reason other than cause (as those terms are defined
in the agreement), the voluntary resignation by Mr. Davies, or Mr. Davies' death
or disability, the Company is obligated to continue to pay Mr. Davies'
consulting fee for the balance of the term of the agreement, and to continue
certain of Mr. Davies' benefits. In January, 1998 the Company informed Mr.
Davies of its decision to terminate the consulting agreement and the Company is
now engaged in litigation with Mr. Davies regarding such termination and other
matters.
The Company has hired KDS Marketing, Inc. ("KDS") as the Company's advertising
agency. Mr. Davies' son, Kevin Davies, is a principal of KDS. Prior to forming
KDS, Kevin Davies was employed by a firm that previously provided advertising
service to the Company. The terms of the business relationship between the
Company and KDS were negotiated, and the business relationship is conducted, on
an arm's length basis. In fiscal 1997, KDS provided services to the Company and
received compensation in the amount of approximately $749,000 for advertising,
corporate and product identification, product promotion and stockholder report
preparation.
During 1997, the Company sold, in a private placement, a $3.0
million 8% convertible secured note (the "Note") to United Equities
(Commodities) Company ("United Equities"). The Note is due in October 2002 (the
"Maturity Date") and is convertible by the holder, at any time, into shares of
the Company's common stock at $3.00 per share, subject to adjustment under
certain circumstances. Assuming the conversion of the Note, United Equities
would have a 17% beneficial interest in the Company. At the Company's option,
interest on the Note may be payable in cash, Company's common stock or a note.
The Company may redeem the Note, at its option, at any time prior to the
Maturity Date provided, that if the Company redeems the Note when the Company's
common stock has not traded for a certain period at or above $4.50 per share,
the Company would be required to issue the holder a warrant to acquire 1,000,000
shares of the Company's common stock at $3.00 per share. Such warrant, if
issued, would expire on the Maturity Date. The Note is secured by substantially
all of the Company's assets. The holder of the Note has certain demand and
piggyback registration rights and a right of first refusal under certain
circumstances for certain equity offerings.
The Company believes that all of the foregoing transactions were at the time
entered into at terms comparable to those which could have been obtained from a
third party in an arms' length transaction and furthermore have contributed to
the Company's product development and commercialization successes to date and
have assisted the Company in strategically positioning itself to meet the
future challenges of its business.
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<PAGE> 18
STOCKHOLDER INFORMATION
Holders of Common Stock of record on April 1, 1998 will receive a
copy of the Company's Annual Report to Stockholders for the fiscal year ended
October 31, 1997. The Annual Report to Stockholders is not soliciting material
and is not incorporated in this proxy statement by reference.
ANY PERSON FROM WHOM PROXIES FOR THE MEETING ARE SOLICITED MAY
OBTAIN FROM THE COMPANY, WITHOUT CHARGE, A COPY OF THE COMPANY'S ANNUAL REPORT
ON FORM 10-K FOR THE FISCAL YEAR ENDED OCTOBER 31, 1997, BY WRITTEN REQUEST
ADDRESSED TO ECOGEN INC., 2005 CABOT BOULEVARD WEST, LANGHORNE, PENNSYLVANIA
19047, ATTENTION: INVESTOR RELATIONS DEPARTMENT.
FUTURE STOCKHOLDER PROPOSALS
Based upon the Company's current tentative schedule for the 1999
Annual Meeting of Stockholders, the Company must receive at its principal office
before October 1, 1998, any proposal which a stockholder wishes to submit to the
1999 Annual Meeting of Stockholders, if the proposal is to be considered by the
Board of Directors for inclusion in the proxy materials for that meeting.
James P. Reilly, Jr.
Chairman and Chief Executive Officer
April 2, 1998
16
