<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended April 30, 1999
Commission File Number 1-9579
Ecogen Inc.
(Exact name of registrant as specified in its charter)
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<CAPTION>
<S> <C>
Delaware 22-2487948
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2000 W. Cabot Boulevard, Suite #170, Langhorne, Pennsylvania 19047
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number,
including area code (215) 757-1590
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes X No .
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
<TABLE>
<CAPTION>
Class Outstanding at May 28, 1999
----- ---------------------------
<S> <C>
Common Stock, $.01 par value 9,446,901
</TABLE>
<PAGE> 2
ECOGEN INC.
INDEX
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<CAPTION>
Page
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements:
Unaudited Consolidated Condensed Balance Sheets as of
April 30, 1999 and October 31, 1998.................................................................1
Unaudited Consolidated Condensed Statements of Operations for the three
months and six months ended April 30, 1999 and 1998.................................................2
Unaudited Consolidated Condensed Statement of Stockholders'
Equity for the six months ended April 30, 1999......................................................3
Unaudited Consolidated Condensed Statements of Cash Flows
for the six months ended April 30, 1999 and 1998....................................................4
Notes to Unaudited Consolidated Condensed Financial
Statements..........................................................................................6
Item 2 - Management's Discussion and Analysis of Results
of Operations and Financial Condition...................................................11
PART II - OTHER INFORMATION
Item 2(c) - Changes in Securities.....................................................................17
Item 6(a) - Exhibits..................................................................................17
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
ECOGEN INC AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
Assets APRIL 30, OCTOBER 31,
1999 1998
- - ----------------------------------------------------------------------------------------------------------------------------
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Current assets:
Cash and cash equivalents ................................................... $ -- $ 2,009,437
Temporary investments ....................................................... -- 813,150
Trade receivables, net ...................................................... 2,948,185 3,338,897
Inventory, net .............................................................. 5,576,518 4,298,374
Prepaid expenses and other current assets ................................... 428,216 624,072
- - ----------------------------------------------------------------------------------------------------------------------------
Total current assets ................................................... 8,952,919 11,083,930
Plant and equipment, net ....................................................... 2,624,060 2,771,255
Other assets, net .............................................................. 764,255 821,316
- - ----------------------------------------------------------------------------------------------------------------------------
$ 12,341,234 $ 14,676,501
============================================================================================================================
Liabilities and Stockholders' Equity
Current liabilities:
Line of credit due within one year .......................................... 507,072 26,019
Accounts payable and accrued expenses ................................... 3,932,848 3,076,300
Deferred contract revenue ................................................. 7,960 485,853
- - ----------------------------------------------------------------------------------------------------------------------------
Total current liabilities ............................................ 4,447,880 3,588,172
Long-term debt ................................................................. 1,559,685 1,327,875
Long-term deferred revenue ..................................................... 1,359,849 1,301,333
Minority interest in subsidiary ................................................ 1,533,854 1,533,854
- - ----------------------------------------------------------------------------------------------------------------------------
Total liabilities ...................................................... 8,901,268 7,751,234
- - ----------------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock, par value $01 per share; authorized 7,500,000 shares: Series
1998 A convertible preferred stock - 35,000 shares authorized;
none and 19,500 shares issued and outstanding in 1999 and
1998, respectively (liquidation value $0 and $1,950,000
in 1999 and 1998, respectively) ................................. -- 195
Series 1998 C convertible preferred shares: 50,000 shares authorized
32,354 shares issued and outstanding in 1999 and 1998
(liquidation value $3,235,400 in 1999 and 1998) ................ 324 324
Common stock, par value $01 per share; authorized 42,000,000 shares;
issued 9,446,901 and 8,242,600 shares in 1999 and 1998, respectively .. 94,469 82,426
Additional paid-in capital .................................................. 121,613,755 122,162,964
Accumulated deficit ......................................................... (118,268,582) (114,665,164)
Other ....................................................................... -- (655,478)
- - ----------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity ............................................. 3,439,966 6,925,267
- - ----------------------------------------------------------------------------------------------------------------------------
$ 12,341,234 $ 14,676,501
============================================================================================================================
</TABLE>
See Accompanying Notes To Unaudited Consolidated
Condensed Financial Statements
1
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ECOGEN INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
APRIL 30, APRIL 30,
- - ---------------------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Product sales, net ................................... $ 1,780,937 $3,339,816 $ 3,522,502 $ 5,055,753
Contract research ...................................... 80,386 1,021,744 596,277 4,241,588
- - ---------------------------------------------------------------------------------------------------------------------------------
Total revenues ...................................... 1,861,323 4,361,560 4,118,779 9,297,341
- - ---------------------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of products sold .................................. 1,218,249 2,451,418 2,793,408 3,858,002
Research and development:
Funded by third parties .............................. 48,331 123,922 273,007 348,842
Self funded .......................................... 583,126 801,177 1,064,414 1,539,025
Selling, general and administrative .................... 1,636,348 1,927,238 3,187,225 3,608,059
- - ---------------------------------------------------------------------------------------------------------------------------------
Total costs and expenses ........................... 3,486,054 5,303,755 7,318,054 9,353,928
- - ---------------------------------------------------------------------------------------------------------------------------------
Operating loss ........................................... (1,624,731) (942,195) (3,199,275) (56,587)
Other income (expense):
Interest expense, net ................................. (134,156) (140,169) (245,348) (271,910)
Other income .......................................... 7,940 564,731 16,246 564,731
- - ---------------------------------------------------------------------------------------------------------------------------------
Total other income (expense), net ..................... (126,216) 424,562 (229,102) 292,821
- - ---------------------------------------------------------------------------------------------------------------------------------
Net income (loss) ........................................ (1,750,947) (517,633) (3,428,377) 236,234
Dividends on preferred stock ............................. 72,828 - 175,041 -
- - ---------------------------------------------------------------------------------------------------------------------------------
Net income (loss) available to common stockholders ....... ($1,823,775) ($517,633) ($3,603,418) $ 236,234
=================================================================================================================================
Basic and diluted net income (loss) per common share ..... ($0.20) ($0.06) ($0.41) $0.03
=================================================================================================================================
Weighted average number of common shares
outstanding ........................................... 9,149,000 8,034,000 8,761,000 8,033,000
=================================================================================================================================
</TABLE>
See Accompanying Notes to Unaudited Consolidated
Condensed Financial Statements.
2
<PAGE> 5
ECOGEN INC AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
Six months ended April 30, 1999
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<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE ADDITIONAL OTHER
PREFERRED COMMON PAID-IN ACCUMULATED STOCKHOLDERS'
STOCK STOCK CAPITAL DEFICIT EQUITY TOTAL
- - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance November 1, 1998 ................ $519 $82,426 $122,162,964 ($114,665,164) ($655,478) $6,925,267
Transfer of 5,037 shares of treasury
stock for employee benefits ........... - - (56,963) - 65,783 8,820
Dividends on preferred stock ............ - 635 108,662 (175,041) - (65,744)
Conversion of 19,500 shares of Series
A convertible preferred stock to
1,155,975 shares of common stock ...... (195) 11,408 (600,908) - 589,695 -
Net loss ............................... - - - (3,428,377) - (3,428,377)
- - ---------------------------------------------------------------------------------------------------------------------------------
Balance April 30, 1999 ................ $324 $94,469 $121,613,755 ($118,268,582) - $3,439,966
=================================================================================================================================
</TABLE>
See Accompanying Notes To Unaudited Consolidated
Condensed Financial Statements
3
<PAGE> 6
ECOGEN INC AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
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<CAPTION>
SIX MONTHS ENDED
APRIL 30,
1999 1998
- - ----------------------------------------------------------------------------------------------------------------
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Cash flows from operating activities:
Net income (loss) .................................................. ($3,428,377) $ 236,234
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Gain on sale of assets ........................................ -- (562,268)
Depreciation and amortization expense ...................... 346,568 400,170
Noncash interest and compensation expense ..................... 210,114 195,826
Other ......................................................... -- (2,739)
Changes in assets and liabilities, net of effects of disposition (527,968) (1,608,151)
- - ----------------------------------------------------------------------------------------------------------------
Net cash used in operating activities ................................ (3,399,663) (1,340,928)
- - ----------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from maturity of temporary investments ..................... 813,150 --
Purchase of plant and equipment .................................. (4,092) (62,617)
Net proceeds from sale of pheromone product line .................... -- 1,659,410
- - ----------------------------------------------------------------------------------------------------------------
Net cash provided by investing activities ............................ 809,058 1,596,793
- - ----------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Repayment of capital lease obligations .............................. (99,885) (250,152)
Proceeds from line of credit, net ................................... 681,053 --
- - ----------------------------------------------------------------------------------------------------------------
Net cash provided by (used) in financing activities .................. 581,168 (250,152)
- - ----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents ............. (2,009,437) 5,713
Cash and cash equivalents, beginning of period ................... 2,009,437 2,373,945
================================================================================================================
Cash and cash equivalents, end of period ......................... $ 0 $ 2,379,658
================================================================================================================
(Continued)
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4
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ECOGEN INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS, CONTINUED
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- - --------------------------------------------------------------------------------
SIX MONTHS ENDED
APRIL 30,
1999 1998
- - --------------------------------------------------------------------------------
<S> <C> <C>
Changes in assets and liabilities,
net of effects of disposition:
Decrease (increase) in trade receivables.... $ 390,712 ($1,320,899)
(Increase) decrease in inventory............ (1,278,144) 309,997
Decrease (increase) in prepaid expenses
and other current assets.................. 195,856 (1,003,687)
(Increase) decrease in other assets......... (12,604) 391,482
Increase (decrease) in accounts payable
and accrued expenses...................... 654,105 (173,813)
(Decrease) increase in deferred
contract revenue.......................... (477,893) 520,423
Decrease in other long-term liabilities..... (331,654)
- - --------------------------------------------------------------------------------
Changes in assets and liabilities, net of
effects of disposition ($527,968) ($1,608,151)
================================================================================
- - --------------------------------------------------------------------------------
Interest paid $86,248 $76,084
================================================================================
- - --------------------------------------------------------------------------------
Noncash investing and financing activities:
- - --------------------------------------------------------------------------------
</TABLE>
In the first six months of fiscal 1999, the Company issued 1,155,975 shares of
its common stock upon conversion of the Company's Series 1998A convertible
preferred stock of which 46,924 shares were transferred from treasury stock.
In the first six months of fiscal 1999, the Company issued 63,506 shares of
common stock, as dividends on the Company's preferred stock.
In the first six months of fiscal 1999 and 1998, the Company transferred 5,037
and 5,582 shares, respectively, of treasury stock to outstanding shares
pursuant to certain employee benefit plans.
In the first six months of fiscal 1999, the Company purchased $195,281 of plant
and equipment under capital leases.
================================================================================
See Accompanying Notes to Unaudited Consolidated Condensed Financial Statements.
5
<PAGE> 8
ECOGEN INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
APRIL 30, 1999 AND 1998
(1) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION:
The consolidated condensed financial statements include the accounts of
Ecogen Inc. ("Ecogen" or the "Company") and its wholly-owned and
majority-owned subsidiaries. All intercompany accounts and transactions
have been eliminated in consolidation.
The accompanying consolidated condensed financial statements include all
adjustments (consisting of normal recurring accruals) which are, in the
opinion of management, necessary for a fair presentation of the
consolidated results of operations and financial position for the interim
periods presented. The consolidated condensed financial statements have
been prepared in accordance with the requirements for Form l0-Q and,
therefore, do not include all disclosures of financial information
required by generally accepted accounting principles. These consolidated
condensed financial statements should be read in conjunction with the
Company's October 31, l998 consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K.
The results of operations for the interim period ended April 30, 1999 are
not necessarily indicative of the operating results for the full year.
Effective November 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 ("SFAS 130"), Reporting Comprehensive
Income. SFAS 130 establishes new rules for the reporting and display of
comprehensive income and its components. The adoption of SFAS 130 had no
impact on the Company's results of operations for the three and six
months ended April 30, 1999 and an immaterial impact for the three and
six months ended April 30, 1998. The net loss is substantially equal to
the comprehensive loss for the periods.
OPERATIONS:
The Company is a biotechnology company specializing in the development
and marketing of environmentally compatible products for the control of
pests in agricultural and related markets. The Company has not yet
achieved profitable operations for any of its fiscal years and there is
no assurance that profitable operations, if achieved, could be sustained
on a continuing basis. Further, the Company's future operations are
dependent, among other things, on the success of the Company's
commercialization efforts and market acceptance of the Company's
products.
(Continued)
6
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ECOGEN INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS,
CONTINUED
(1) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
CONT.
NET INCOME (LOSS) PER COMMON SHARE:
Basic income (loss) per share is based on net income (loss) for the
relevant period, divided by the weighted average number of common shares
outstanding during the period. Diluted income (loss) per share is based
on net income (loss) for the relevant period divided by common shares
outstanding and other potential common shares if they are dilutive.
The assumed conversion of the convertible preferred stock in fiscal 1999
and the convertible note in fiscal 1998 into common shares and adding
back the dividends and interest expense incurred during the three-month
and six-month periods ended April 30, 1999 and 1998, was not included in
the net income (loss) per share calculation since the effect was
anti-dilutive. Stock options and warrants were not considered because
they were anti-dilutive.
RECLASSIFICATIONS:
Certain reclassifications have been made to the reported amounts in the
1998 financial statements to conform to the 1999 classifications.
(2) INVENTORY
At April 30, l999, inventory consisted of raw materials of $.6 million,
work-in-progress of $.9 million and finished products of $4.1 million.
(3) MONSANTO TRANSACTION
In January 1996, the Company entered into agreements with Monsanto
Company ("Monsanto") for an equity investment, purchase of technology
and joint research and development arrangement relating to the Company's
proprietary Bacillus thuringiensis ("Bt") technology for in-plant
applications (collectively, the "Monsanto Transaction"). In January
1998, the Company amended its research and development agreement with
Monsanto. In connection therewith, the Company received approximately
$4.8 million in cash payments during the first half of fiscal 1998 of
which an aggregate of $2.5 million was earned and recorded as research
contract revenue in the first six months of fiscal 1998 since the
Company has no continuing obligations with respect to such amounts.
Total research contract revenue from Monsanto was $.5 million and $4.2
million during the six months ended April 30, 1999 and 1998,
respectively. The amended research contract ended January 1999.
(4) LOAN AGREEMENT
In August 1998, the Company obtained a secured, revolving working
capital line of credit for up to $5.0 million with a financial
institution. Up to $1.0 million of the line may be used for letters of
credit. The working capital line of
(Continued)
7
<PAGE> 10
ECOGEN INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS,
(CONTINUED)
(4) LOAN AGREEMENT, CONT.
credit is for a minimum of two years (subject to termination on certain
events of default), bears interest at prime plus 1.25% and is fully
collateralized by the Company's assets, other than its intellectual
property rights. The lending formula is based on eligible receivables
and finished goods inventory. At April 30, 1999, the balance outstanding
under the line was $1.8 million. Further, at April 30, 1999 a $.5
million letter of credit was outstanding under the line (see note 7 of
notes to the consolidated financial statements.) The loan agreement
contains certain financial covenants with which the Company is in
compliance.
(5) SALE OF PHEROMONE PRODUCT LINE
In April 1998, the Company sold substantially all of the assets
(excluding trade accounts receivable) associated with the pheromone
product line to Scentry Biologicals, Inc. ("Scentry") for total
consideration of approximately $2.4 million. Scentry is a newly formed
company, the principals of which are the former manager of the Company's
pheromone production facility and a principal of one of the Company's
distributors in Central and South America. Unaudited pro forma
consolidated results of operations for the six-month period ended April
30, 1998, as if the product line was sold on November 1, 1996, exclusive
of the $.5 million gain on the sale, are as follows:
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<CAPTION>
Six Months Ended April 30, 1998
($ in thousands except per share data)
--------------------------------------
<S> <C>
Total revenues $7,254
Net loss (518)
Basic and diluted net
loss per share (.06)
=======
</TABLE>
The pro forma information is not necessarily indicative of the results
that would have been obtained had the disposition of the pheromone
product line actually occurred on the date indicated nor is it indicative
of the Company's future consolidated results of operations.
(6) STOCKHOLDERS' EQUITY
During the first six months of fiscal 1999, the Company issued 1,155,975
shares of its common stock in exchange for 19,500 shares of the Company's
Series 1998-A 8% convertible preferred stock issued in June 1998. The
Company also issued 63,506 shares of its common stock in payment of
cumulative dividends at the time of conversion.
In fiscal 1999 the vesting schedule on 100,000 shares of common stock
granted to an officer in fiscal 1998 was accelerated, to become
immediately vested. As a result, the remaining deferred compensation was
recorded as expense during the second quarter of fiscal 1999.
(Continued)
8
<PAGE> 11
ECOGEN INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS,
(CONTINUED)
(6) STOCKHOLDERS' EQUITY, CONT.
In April 1999 the Company's shareholders approved the 1999 stock option
plan ("1999 Option Plan") under which 1,500,000 shares of common stock
may be issued. The Option Plan permits the granting of both incentive
stock options and nonstatutory stock options. The option price of the
shares for incentive stock options may not be less than the fair market
value of such stock at the grant date as determined under the 1999 Option
Plan. Options are exercisable over a period determined by the Board of
Directors, but not longer than ten years after grant date. Upon the
approval of the 1999 Option Plan 825,000 options available for grant
under the 1998 stock option plan were cancelled.
(7) COMMITMENTS AND CONTINGENCIES
At April 30, 1999 the Company had outstanding a $.5 million letter of
credit under the Company's line of credit as described in note 4 above.
(8) SUBSEQUENT EVENTS
In May 1999, the Company sold 15,000 shares of Series 1999-A 7%
convertible preferred stock, stated value $100 per share, to an
institutional investor for net proceeds of $1.4 million. The holder of
the preferred stock was issued five-year warrants to purchase 120,000
shares of common stock at $3.98 per share. Dividends are payable
semi-annually in cash or stock at the option of the Company. The
preferred stock has no voting rights except with respect to certain
matters affecting the Company's preferred stock. At the election of the
holder, the preferred stock may be converted at various dates to shares
of the Company's common stock at the lesser of $3.69 per share or 95% of
the average market price, as defined in the agreement, over a twenty-day
period at the time of conversion. The Company, at its option, may redeem
the preferred stock at 125% of the stated value. If the Company is unable
to issue sufficient shares of common stock within a specified period of
time after the holder has requested conversion, the dividend rate may
increase and the Company may be required to issue additional warrants.
Further, in certain circumstances, all of which are in the control of the
Company, the Company may be required to redeem the shares at various
premiums over stated value. The holder of the preferred stock has certain
registration rights with respect to the shares of common stock underlying
the warrants and the preferred stock and warrants. Included in the fee
paid to the placement agent in connection with the transaction were
20,000 shares of the Company's common stock. In accordance with the terms
of the Series 1999-A Preferred Stock the Company is required to recognize
an assumed incremental yield of $.8 million, or ($.09) per share
(calculated at the date of issuance based on the conversion formula in
the agreement). Such amounts will be amortized as a preferred stock
dividend over a seven month period beginning with the date of issuance.
Unaudited pro forma consolidated balance sheet information as of April
30, 1999 as if the sale of preferred stock had taken place at April 30,
1999 is as follows:
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<CAPTION>
<S> <C>
Current assets $9,772
Non-current assets 3,388
Current liabilities 3,927
Long-term liabilities 4,453
Stockholders' equity 4,780
</TABLE>
9
<PAGE> 12
(8) SUBSEQUENT EVENTS, CONT.
The pro forma information is not necessarily an indication of the
Company's future consolidated financial position.
10
<PAGE> 13
ECOGEN INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
THREE MONTHS AND SIX MONTHS ENDED APRIL 30, 1999 AND 1998
OVERVIEW
For the first six months of fiscal 1999, total revenues decreased 56% from $9.3
million in fiscal 1998 to $4.1 million in fiscal 1999. The decrease was due
primarily to $3.6 million of lower research contract revenue in the first half
of fiscal 1999. Research contract revenue was $.6 million in the first six
months of fiscal 1999 compared to $4.2 million in the first half of fiscal 1998.
The change was primarily the result of the expiration in January 1999 of the
research and development agreement with Monsanto Company (Monsanto) that had
contributed more than $10 million in research contract revenue to the Company
over its three-year term. Product sales decreased $1.5 million or 30% from $5.1
million to $3.5 million for the six months ended April 30, 1998 and 1999,
respectively. The first half of fiscal 1998 included approximately $2.0 million
in net product sales of pheromone products, a product line that was sold in the
second quarter of fiscal 1998. On a pro forma basis, assuming the pheromone
product line had been sold at the beginning of fiscal 1998, continuing product
sales increased 17% from $3.0 million to $3.5 million for the six months ended
April 30, 1998 and 1999, respectively.
During the first six months of fiscal 1999, the Company realized a reduction in
operating expenses of $1.0 million or 18% from $5.5 million in the year-ago
period to $4.5 million in fiscal 1999. The operating loss was $3.1 million
higher in fiscal 1999 due substantially to the lower research contract revenue
in fiscal 1999. Pro forma operating loss, adjusted for the sale of the pheromone
product line and exclusive of the non-recurring revenue from Monsanto, improved
by $.1 million. The Company reported a net loss available to common shareholders
of ($3.6) million or ($.41) per basic and diluted share in the first six months
of fiscal 1999 compared to net income of $.2 million or $.03 per share in the
comparable period in fiscal 1998. Weighted average shares were 8.8 million and
8.0 million in the first six months of fiscal 1999 and 1998, respectively.
SIX MONTHS ENDED APRIL 30, 1999 AND 1998
REVENUES
On a pro forma basis, assuming the sale of the pheromone product line had taken
place at the beginning of the 1998 fiscal year, net product sales increased 17%
during the six months ended April 30, 1999, principally due to volume increases.
Sales of the Company's Bt product line, representing 87% of total sales,
increased 18% due principally to an increase in sales of Lepinox WDG, a new Bt
bioinsecticide for control of caterpillars in sweet corn, turf and other row
crops and bollworm and budworm in cotton and non-agricultural markets.
Biofungicide sales, representing 7% of total sales, increased 152% due to an
increase in sales of AQ10 in the first six months of fiscal 1999.
Research contract revenues decreased $3.6 million in the current six-month
period, due primarily to higher payments in fiscal 1998 from Monsanto under a
research and development contract which expired in
11
<PAGE> 14
January 1999. As a result of the expiration of the Monsanto research and
development contract, it is anticipated that research contract revenue will be
substantially lower in the second half of fiscal 1999 and beyond.
COSTS AND EXPENSES
Cost of continuing products sold increased 15% in the first six months of fiscal
1999 compared to the same period in fiscal 1998 due primarily to volume
increases. Gross margins on continuing product sales increased to 21% in the
first six months of fiscal 1999 compared to 19% in fiscal 1998. This increase in
gross margins on product sales was due primarily to higher sales of biofungicide
products.
Total operating expenses were $4.5 million in the first six months of fiscal
1999 compared to $5.5 million in 1998, a decrease of $1.0 million or 18%.
Research and development costs decreased $.6 million or 29% due principally to
lower personnel costs. The Company's commitment to provide research services to
Monsanto has expired and the Company's technology continues to approach
commercialization, therefore requiring less activity in basic research and
process development. Research and development costs are expected to continue to
decline in the second half of fiscal 1999 when compared to the second half of
fiscal 1998. Selling, general and administrative expenses were $3.2 million in
the first six months of fiscal 1999 compared to $3.6 million in 1998,
representing a decrease of $.4 million or 12%. Selling and marketing costs
decreased $.2 million or 11%. This decrease can be attributed to $.3 million of
lower costs as a result of the sale of the pheromone product line partially
offset by higher advertising costs resulting from higher continuing product
sales. The Company expects higher selling and marketing expenses in the second
half of 1999 due to recent staff increases and special promotional programs to
support its distributors' efforts in introducing the Company's biopesticides.
General and administrative expenses decreased 13% due to cost containment
efforts implemented for fiscal 1999 including salaries and related costs and
outside services. Pro forma operating expenses, assuming the sale of the
pheromone product line had taken place at the beginning of fiscal 1998,
decreased 11%.
OTHER INCOME (EXPENSE)
In April 1998, the Company sold its pheromone product line to a newly-formed
company for aggregate net proceeds of $2.4 million and recognized a gain on sale
of $.5 million which was recorded as other income (expense), net in the
accompanying consolidated financial statements.
NET INCOME (LOSS)
Net loss available to common shareholders for the six months ended April 30,
1999 was ($3.6) million, compared to net income of $.2 million for the same
period in 1998. Basic and diluted net loss per share for the six months ended
April 30, 1999 was ($.41), compared to net income per share of $.03 on weighted
average shares outstanding of 8.8 million and 8.0 million in the first six
months of 1999 and 1998, respectively. Fiscal 1999 net loss available to common
shareholders included preferred stock dividends of $175,000.
Pro forma net loss and net loss per share in fiscal 1998, adjusted for the sale
of the pheromone product line, was ($.5) million and ($.06) per share,
respectively.
12
<PAGE> 15
THREE MONTHS ENDED APRIL 30, 1999 AND 1998
REVENUES
On a pro forma basis assuming the sale of the pheromone product line had taken
place at the beginning of fiscal 1998, net product sales decreased $.5 million
during the three months ended April 30, 1999 to $1.8 million compared with $2.3
million in the second quarter of 1998 principally due to volume. Sales of the
Company's Bt product line, representing 79% of total sales, decreased $.5
million due to persistent cold weather in the Pacific Northwest and California
which delayed crop maturity and insect populations. Biofungicide sales,
representing 9% of total sales, increased $.1 million.
Research contract revenues decreased $.9 million in the current three-month
period, due to the expiration of the research and development contract with
Monsanto in January 1999.
COSTS AND EXPENSES
Cost of continuing products sold decreased 29% in the second quarter of fiscal
1999 compared to fiscal 1998 due in part to the decrease in product sales.
Aggregate gross margins on continuing product sales increased due to the fact
that gross margins as a percentage of continuing product sales increased to 32%
in the second quarter of fiscal 1999 compared to 24% in the second quarter of
fiscal 1998. This increase was due primarily to higher sales during the second
quarter of fiscal 1999 of the Company's biofungicide products, which are high
margin products.
Total operating expenses were $2.3 million in the second quarter of fiscal 1999
compared to $2.9 million in fiscal 1998, a decrease of 21%. Research and
development costs decreased $.3 million or 32%. Selling, general and
administrative expenses were $1.6 million in the second quarter of fiscal 1999
compared to $1.9 million in fiscal 1998, representing a decrease of $.3 million
or 15%. Selling and marketing decreased 20% and general and administrative
expenses decreased 8%. On a pro forma basis, adjusting for the sale of the
pheromone product line, operating expenses decreased 13% in the second quarter
of fiscal 1999.
OTHER INCOME (EXPENSE)
Net interest expense was $.1 million during the three months ended April 30,
1999 and 1998.
NET INCOME (LOSS)
Net loss for the three months ended April 30, 1999 was ($1.8) million, compared
to a net loss of ($.5) million for the same period in fiscal 1998 due
principally to the $.9 million decline in research contract revenue and the $.5
million gain on the sale of the pheromone product line. Basic and diluted net
loss per share for the three months ended April 30, 1999 was ($.20), compared to
net loss per share of ($.06) on weighted average shares outstanding of 9.1
million and 8.0 million in the second quarter of fiscal 1999 and 1998,
respectively. The fiscal 1999 period included preferred stock dividends of
$73,000.
Pro forma net income and net income per share adjusted for the sale of the
pheromone product line in fiscal 1998 for the three months ended April 30, 1998
were $1.2 million and $.14, respectively.
13
<PAGE> 16
SEASONALITY OF BUSINESS
The bulk of the Company's current products are presently marketed for
agricultural applications in the northern hemisphere, where the growing season
generally runs from spring through fall. Because of the seasonal nature of its
business, the Company's product revenues are likely to be concentrated in the
fiscal quarters prior to and during a particular growing season which 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 pressure in grower areas. In
addition, commercial introduction of the Company's new products is contingent
on, among other factors, completion of field testing and receipt of required
regulatory approvals. Unusual weather conditions during field tests or failure
to receive regulatory approvals prior to the growing season may require
additional field tests in subsequent growing seasons, with resulting delays in
product development and commercialization.
LIQUIDITY AND CAPITAL RESOURCES
At April 30, 1999, cash and liquid investments decreased $2.8 million from
October 31, 1998 and borrowing under the Company's line of credit increased $.7
million. The $3.5 million in cash was used to fund operations. In August 1998,
the Company obtained a secured working capital line of credit for up to $5.0
million from a financial institution, of which $1.8 million was outstanding at
April 30, 1999. Also outstanding under the line of credit was a $.5 million
letter of credit.
Subsequent to April 30, 1999, the Company raised net proceeds of $1.4 million
pursuant to a private placement of convertible preferred stock to an
institutional investor, of which $.6 million was used to pay down the amount
outstanding under the working capital line of credit. In accordance with the
terms of the preferred stock, the Company will be required to recognize a
non-cash, assumed incremental yield of approximately $.8 million, calculated at
the date of issuance based on 95% of the average conversion feature, as defined
in the agreement. This amount will be amortized over a seven-month period. The
impact of the assumed incremental yield from the convertible preferred stock is
expected to increase the net loss per common share by approximately $.09 during
the second half of fiscal 1999.
To date, the Company has not generated positive cash flow from operations. The
Company believes that its existing working capital and amounts available under
its working capital line of credit should be sufficient to meet its capital and
liquidity requirements through fiscal year 1999 based on reduced spending
levels, if necessary. However, the Company's working capital and working capital
requirements are affected by numerous factors and there is no assurance that
such factors will not have a negative impact on the Company's liquidity.
Principal among these are the success of its product commercialization and
marketing efforts and the efforts of its strategic partners in commercializing
and selling products based on the Company's technology, the technological
advantages and pricing of the Company's products, economic and environmental
considerations which impact agricultural crop production and the agricultural
sector generally, competitive conditions in the agricultural pest control
market, and access to capital markets that can provide the Company with the
resources when necessary to fund its strategic priorities. There is no assurance
that access to capital markets 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.
14
<PAGE> 17
YEAR 2000
The Company may be impacted by the inability of computer software and other
business systems to properly identify the Year 2000 due to programming
conventions. The Company has undertaken initiatives to ensure that its systems
are Year 2000 compliant. The Company has completed its Year 2000 assessment of
internal hardware and software including testing such systems and believes that
it is Year 2000 compliant. The cost of Year 2000 modifications has not been
significant. The Company has contacted major customers and vendors to assess
their status as to Year 2000 compliance. Although this process has been
completed, there is no assurance that service interruptions will not occur from
vendors, suppliers or service providers, including financial institutions or
governments which could have a material adverse effect on consolidated results
of operations, financial conditions, and cash flows. Although a formal
contingency plan has not been developed, the Company believes that alternative
suppliers exist if service from our current suppliers is interrupted.
ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts receivable decreased $.4 million when compared to October 31, 1998, the
end of the Company's fiscal year, due to seasonality of the Company's business.
Inventory increased $1.3 million at April 30, 1999 when compared to October 31,
1998 as the Company built inventory for the agricultural growing season in North
America. Accounts payable and accrued expenses increased $.9 million due
principally to the timing of payments to vendors. Deferred contract revenue
decreased $.5 million at April 30, 1999 when compared to October 31, 1998 due to
the expiration of the Monsanto research and development agreement in the first
quarter of fiscal 1999.
FORWARD LOOKING STATEMENTS
The discussion set forth by the Company in this document contains
forward-looking statements. Forward-looking statements include statements
concerning plans, objectives, goals, strategies, future events or performance
and underlying assumptions and other statements which are other than historical
facts. Although the Company believes that its expectations are based on
reasonable assumptions, the Company operates in a high technology, emerging
market environment that involves a number of risks and uncertainties that could
cause actual results to differ materially from expected results. The Company
intends to market and sell a number of new and recently introduced products.
Some of these products utilize new formulations which have not to date been
produced on a commercial scale or produced on a commercial scale that has been
replicated. Certain of the manufacturing processes for such products include
newly developed equipment and techniques which are being incorporated into
commercial scale manufacturing processes. Risks and uncertainties associated
with the successful commercialization of the products include: (i) the
successful scale-up of the Company's manufacturing process in time to meet
targeted sales opportunities; (ii) the market acceptance of the Company's
current and newly introduced products; (iii) the efficacy, pricing, ease of use
and performance of the Company's products; (iv) the successful development,
registration, commercialization and marketing of technologically advanced new
products; (v) the continued and uninterrupted supply of the Company's products
from third-party toll manufacturers and the continued financial viability of
such manufacturers; (vi) economic and environmental considerations which impact
agricultural crop production and agricultural crop protection, including the
number of acres of target crops planted, the cost and efficacy of competitive
products, weather conditions and the level of insect and disease infestation on
target crops, and (vii) the ability of the Company to fund its
15
<PAGE> 18
strategic priorities through operations or access to capital markets, and other
risks detailed from time to time in the Company's filings with the Securities
and Exchange Commission. The Company does not undertake to update the results
discussed herein as a result of changes in risks or operating results.
16
<PAGE> 19
PART II - OTHER INFORMATION
Item 2(c): Changes in Securities
In May 1999, the Company sold 15,000 shares of Series 1999-A
7% Convertible Preferred Stock, stated value $100 per share, to an institutional
investor for net proceeds of $1.4 million for working capital and other
corporate purposes. The holder of the preferred stock was issued five-year
warrants to purchase 120,000 shares of common stock at $3.98 per share.
Dividends on the preferred stock are payable semi-annually in cash or stock at
the option of the Company. The preferred stock has no voting rights except with
respect to certain matters affecting the Company's preferred stock. At the
election of the holder, the preferred stock may be converted at various dates to
shares of the Company's common stock at the lesser of $3.69 per share or 95% of
an average market price, as defined in the agreement, over a twenty-day period
at the time of conversion. The Company, at its option, may redeem the preferred
stock at 125% of the stated value. If the Company is unable to issue sufficient
shares of common stock within a specified period of time after the holder has
requested conversion, the dividend rate may increase and the Company may be
required to issue additional warrants. Further, in certain circumstances, all of
which are in the control of the Company, the Company may be required to redeem
the shares at various premiums over stated value. The holder of the preferred
stock has certain registration rights with respect to the shares of common stock
underlying the warrants and the preferred stock and warrants. The placement
agent for the transaction was Jesup & Lamont Securities Corporation which earned
fees and expenses of $101,000 plus 20,000 shares of Company common stock as a
result of the transaction. The securities were issued by the Company in reliance
upon the exemption from securities registration afforded by Rule 506 under
Regulation D under the Securities Act of 1933, as amended.
Item 6(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
- - ----------- -----------
<S> <C>
3.1 Restated Certificate of Incorporation of Ecogen Inc.
(Form 10-Q for fiscal quarter ended January 31,
1996)*
3.8 By-laws of Ecogen Inc., as amended (Form S-1
Registration Statement filed on May 1, 1991)*
3.10 Corrected Certificate of Designations, Preferences
and Rights of Series 1999-A Convertible Preferred
Stock
10.144 Ecogen Inc. 1999 Stock Option Plan
10.145 Amended and Restated Stock Award Agreement between
Ecogen Inc. and James P. Reilly, Jr. dated as of
April 9, 1999
10.146 Warrant Agreement between Ecogen Inc. and KA
Investments LDC dated May 12, 1999
</TABLE>
17
<PAGE> 20
<TABLE>
<CAPTION>
<S> <C>
10.147 Convertible Preferred Stock Purchase Agreement
between Ecogen Inc. and KA Investments LDC dated May
12, 1999
10.148 Registration Rights Agreement between Ecogen Inc. and
KA Investments LDC dated May 12, 1999
27 Financial Data Schedule
</TABLE>
* These items are hereby incorporated by reference from the exhibits of the
filing or report indicated and are made part of this report.
18
<PAGE> 21
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: June 10, 1999
ECOGEN INC.
By: /s/ JAMES P. REILLY, JR.
------------------------------------------
James P. Reilly, Jr.
Chairman and Chief Executive
Officer
By: /s/ MARY E. PAETZOLD
------------------------------------------
Mary E. Paetzold
Vice President and Chief Financial Officer
19
<PAGE> 22
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
3.10 Corrected Certificate of Designations, Preferences and Rights of
Series 1999-A Convertible Preferred Stock
10.144 Ecogen Inc. 1999 Stock Option Plan
10.145 Amended and Restated Stock Award Agreement between Ecogen
Inc. and James P. Reilly, Jr. dated as of April 9, 1999
10.146 Warrant Agreement between Ecogen Inc. and KA Investments
LDC dated May 12, 1999
10.147 Convertible Preferred Stock Purchase Agreement between Ecogen
Inc. and KA Investments LDC dated May 12, 1999
10.148 Registration Rights Agreement between Ecogen Inc. and KA
Investments LDC dated May 12, 1999
27 Financial Data Schedule
<PAGE> 1
Exhibit 3.10
CORRECTED CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES 1999-A CONVERTIBLE PREFERRED STOCK
OF
ECOGEN INC.
***
Ecogen Inc., a corporation organized and existing under the General
Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY THAT:
1. The name of the corporation is Ecogen Inc.
2. A Certificate of Designations, Preferences and Rights of Series
1999-A Convertible Preferred Stock was filed in the Office of the Secretary of
State of Delaware on May 11, 1999, and that said Certificate requires correction
as permitted by Section 103(f) of the General Corporation Law of the State of
Delaware.
3. The inaccuracies or defects to be corrected are as follows:
(a) Several section and subsection headings contain incorrect
reference numbers and/or letters; and
(b) The date "March 11, 1999" appearing in the definitions of
"Purchase Agreement" and "Registration Rights Agreement" should be
restated to read "Original Issue Date".
4. The Certificate is corrected to read in its entirety as set forth as
Annex I attached hereto.
IN WITNESS WHEREOF, Ecogen Inc. has caused this Certificate to be
signed by James P. Reilly, Jr., its Chairman and Chief Executive Officer, this
12th day of May, 1999.
ECOGEN INC.
By /s/ James P. Reilly, Jr.
-----------------------------------
Name: James P. Reilly, Jr.
Title: Chairman and Chief Executive
Officer
<PAGE> 2
ANNEX I TO
EXHIBIT 3.10
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES 1999-A CONVERTIBLE PREFERRED STOCK
OF
ECOGEN INC.
***
Ecogen Inc., a corporation organized and existing under the General
Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
That, pursuant to authority conferred upon the Board of Directors by
the Certificate of Incorporation (as amended) of said corporation, and pursuant
to the provisions of Section 151 of Title 8 of the Delaware Code of 1953, said
Board of Directors, adopted a resolution, which resolution is as follows:
RESOLVED, that a series of the Company's Preferred Stock
consisting of 30,000 shares of Preferred Stock, be and hereby is,
designated as "7% Series 1999-A Convertible Preferred Stock", par value
$.01 per share (the "Series A Preferred Stock"), and that the Series A
Preferred Stock shall have the designations, powers, preferences,
rights and qualifications, limitations and restrictions as set forth in
the Certificate of Designations, Preferences and Rights of Series
1999-A Convertible Preferred Stock (the "Series A Certificate")
attached as Exhibit A.
That said Series A Certificate states that the Board of Directors does
hereby fix and herein state and express such designations, powers, preferences
and relative and other special rights and qualifications, limitations and
restrictions thereof as follows (all terms used herein which are defined in the
Certificate of Incorporation shall be deemed to have the meanings provided
therein).
Section 1. Designation, Amount and Par Value. The series of
preferred stock shall be designated as 7% Series 1999-A Convertible Preferred
Stock (the "Preferred Stock") and the number of shares so designated shall be
30,000 (which shall not be subject to increase without the consent of the
holders of the Preferred Stock (each,
<PAGE> 3
a "Holder" and collectively, the "Holders")). Each share of Preferred Stock
shall have a par value of $.01 and a stated value of $100.00 (the "Stated
Value"). Of the designated shares of Preferred Stock, 15,000 shares of Preferred
Stock are being issued initially, and up to 15,000 shares of Preferred Stock are
being authorized for payment of dividends in shares of Preferred Stock when, as
and if, declared by the Board of Directors.
Section 2. Dividends.
(a) Holders of Preferred Stock shall be entitled to receive,
when and as declared by the Board of Directors out of funds legally available
therefor, and the Company shall pay, cumulative dividends at the rate per share
(as a percentage of the Stated Value per share) equal to 7% per annum (the
"Dividend Rate"), payable on a semi-annual basis on June 30 and December 31 of
each year during the term hereof (each a "Dividend Payment Date"), commencing on
June 30, 1999, in cash or shares of Preferred Stock (the "Preferred Dividend"),
provided, that in connection with a conversion of the Preferred Stock, the
Company shall be entitled to pay dividends in the form of Common Stock, subject
to the terms and conditions set forth herein, at the option of the Company.
Dividends on the Preferred Stock shall be calculated on the basis of a 360-day
year, shall accrue daily commencing on the Original Issue Date (as defined in
Section 8), and shall be deemed to accrue from such date whether or not earned
or declared and whether or not there are profits, surplus or other funds of the
Company legally available for the payment of dividends. Any dividends not paid
on any Dividend Payment Date shall continue to accrue and shall be due and
payable upon conversion of the Preferred Stock. A party that holds shares of
Preferred Stock on a Dividend Payment Date will be entitled to receive such
dividend payment and any other accrued and unpaid dividends which accrued prior
to such Dividend Payment Date, without regard to any sale or disposition of such
Preferred Stock subsequent to the applicable record date. Except as otherwise
provided herein, if at any time the Company pays less than the total amount of
dividends then accrued on account of Preferred Stock, such payment shall be
distributed ratably among the Holders based upon the number of shares held by
each Holder. The Company shall provide the Holders notice of its intention to
pay dividends in cash or shares of Preferred Stock not less than ten (10)
Business Days prior to any Dividend Payment Date for as long as shares of
Preferred Stock are outstanding. If dividends are paid in the form of Preferred
Stock, the number of shares of Preferred Stock issuable on account of such
dividend shall equal the cash amount of such dividend on such Dividend Payment
Date divided by the Stated Value. If dividends are paid in shares of Common
Stock, the number of shares of Common Stock issuable on account of such dividend
shall equal the cash amount of such dividend on such Dividend Payment Date
divided by the Conversion Price (as defined below) on such date. The Company
shall not be required to issue stock certificates representing fractions of
shares of Preferred Stock and shall make a cash payment in respect of any final
fraction of a share based on the product of such fractional share and the Stated
Value.
-2-
<PAGE> 4
(b) Notwithstanding anything to the contrary contained herein,
the Company may not pay dividends in the form of Preferred Dividends or in
shares of Common Stock and must deliver cash in respect thereof if on the
Dividend Payment Date:
(i) (A) the number of shares of Preferred Stock at
the time authorized for issuance for the payment of Preferred Dividends on such
Dividend Payment Date, together with the number of shares held as treasury
stock, is insufficient to satisfy the Company's then existing obligations to
issue shares of Preferred Stock for the payment of such Preferred Dividends on
such Dividend Payment Date, or (B) the sum of (i) the number of shares of Common
Stock at the time reserved for issuance upon conversion of (x) the shares of
Preferred Stock outstanding on such Dividend Payment Date, and (y) the Preferred
Dividends on such Dividend Payment Date, (ii) the number of authorized but
unissued shares of Common stock not reserved for any purpose, and (iii) the
number of shares held as treasury stock, is insufficient to satisfy the
Company's then existing conversion and other obligations to issue shares of
Common Stock for all purposes;
(ii) the Common Stock is not then listed on the
Nasdaq National Market ("NASDAQ"), the NASDAQ SmallCap Market or other national
securities exchange; or
(iii) the Company has failed to timely satisfy its
conversion obligations hereunder.
(c) So long as any Preferred Stock shall remain outstanding,
neither the Company nor any subsidiary thereof shall redeem, purchase or
otherwise acquire directly or indirectly any Junior Securities (as defined in
Section 8), nor shall the Company directly or indirectly pay or declare any
dividend or make any distribution upon, nor shall any distribution be made in
respect of, any Junior Securities, nor shall any moneys be set aside for or
applied to the purchase or redemption (through a sinking fund or otherwise) of
any Junior Securities, except for repurchases effected by the Company on the
open market, pursuant to a direct stock purchase plan or in connection with the
Company's 401(k) plan.
Section 3. Voting Rights. Except as otherwise provided herein
and as otherwise required by law, the Preferred Stock shall have no voting
rights. However, so long as any shares of Preferred Stock are outstanding, the
Company shall not and shall cause its subsidiaries not to, without the
affirmative vote of the Holders of all of the shares of the Preferred Stock then
outstanding, (a) alter or change adversely the powers, preferences or rights
given to the Preferred Stock, (b) alter or amend this Certificate of
Designations, (c) authorize or create any class of stock ranking as to dividends
or
-3-
<PAGE> 5
distribution of assets upon a Liquidation (as defined in Section 4) senior to
the Preferred Stock, except for any series of Preferred Stock issued and sold in
accordance with the Purchase Agreement, (d) increase the authorized number of
shares of Preferred Stock or (e) enter into any agreement with respect to the
foregoing.
Section 4. Liquidation. Upon any liquidation, dissolution or
winding-up of the Company, whether voluntary or involuntary (a "Liquidation"),
the Holders shall be entitled to receive out of the assets of the Company,
whether such assets are capital or surplus, for each share of Preferred Stock an
amount equal to the Stated Value plus all accrued but unpaid dividends per
share, whether declared or not, before any distribution or payment shall be made
to the holders of any Junior Securities, and if the assets of the Company shall
be insufficient to pay in full such amounts, then the entire assets to be
distributed to the Holders of Preferred Stock shall be distributed among the
Holders of Preferred Stock ratably in accordance with the respective amounts
that would be payable on such shares if all amounts payable thereon were paid in
full. A sale, conveyance or disposition of all or substantially all of the
assets of the Company or the effectuation by the Company of a transaction or
series of related transactions in which more than 50% of the voting power of the
Company is disposed of, or a consolidation or merger of the Company with or into
any other company or companies shall not be treated as a Liquidation, but
instead shall be subject to the provisions of Section 5. The Company shall mail
written notice of any such Liquidation, not less than forty-five (45) days prior
to the payment date stated therein, to each record Holder of Preferred Stock.
Section 5. Conversion.
(a) (i) Each share of Preferred Stock shall be convertible
into shares of Common Stock (subject to limitation or reduction pursuant to
Sections 5(a)(ii) and (a)(iii) hereof) at the Conversion Ratio (as defined in
Section 8) at the option of the Holder, at any time and from time to time, from
and after the date (the "Initial Conversion Date") which is the earlier of (i)
the date the Underlying Securities Registration Statement (as defined in Section
8) is declared effective by the Commission, or (ii) the 120th day following the
Original Issue Date; provided, that, (A) on and after the Initial Conversion
Date, the Holders shall only be entitled to convert up to (i) 25% of the number
of shares of Preferred Stock originally issued on the Original Issue Date, and
(ii) any Preferred Dividends issued on such shares of Preferred Stock, (B) on
and after the first month anniversary of the Initial Conversion Date, the
Holders shall only be entitled to convert up to (i) 50% of the number of shares
of Preferred Stock originally issued on the Original Issue Date, and (ii) any
Preferred Dividends issued on such shares of Preferred Stock, (C) on and after
the second month anniversary of the Initial Conversion Date, the Holders shall
only be entitled to covert up to (i) 75% of the number of shares of Preferred
Stock, originally issued on the Original Issue Date, and (ii) any Preferred
Dividends issued on such shares of Preferred Stock, and (D) on and after the
third month anniversary of the
-4-
<PAGE> 6
Initial Conversion Date, the Holders shall be entitled to convert all of the
shares of Preferred Stock originally issued on the Original Issue Date, together
with all Preferred Dividends issued on such shares of Preferred Stock. Holders
shall effect conversions by surrendering the certificate or certificates
representing the shares of Preferred Stock to be converted to the Company,
together with the form of conversion notice attached hereto as Annex I ( a
"Conversion Notice"). Each Conversion Notice shall specify the number of shares
of Preferred Stock to be converted and the date on which such conversion is to
be effected, which date may not be prior to the date the Holder delivers such
Conversion Notice to the Company by facsimile (the "Conversion Date"). If no
Conversion Date is specified in a Conversion Notice, the Conversion Date shall
be the date that the Conversion Notice is deemed delivered to the Company
hereunder. If the Holder is converting less than all shares of Preferred Stock
represented by the certificate or certificates tendered by the Holder with the
Conversion Notice, or if a conversion hereunder cannot be effected in full for
any reason, the Company shall promptly deliver to such Holder (in the manner and
within the time set forth in Section 5(b)) a certificate for such number of
shares as have not been converted.
(ii)(1) A Holder may not convert shares of Preferred
Stock (including, without limitation, shares of Preferred Stock issued as
payment of dividends hereunder) or receive shares of Common Stock in payment of
dividends hereunder to the extent such conversion or receipt would result in the
Holder, together with any affiliate thereof, beneficially owning (as determined
in accordance with Section 13(d) of the Exchange Act (as hereinafter defined)
and the rules thereunder) in excess of 4.999% of the then issued and outstanding
shares of Common Stock. The Holder shall have the sole authority and obligation
to determine whether the restriction contained in this Section applies and to
the extent that the Holder determines that the limitation contained in this
Section applies, the determination of which shares of Preferred Stock are
convertible shall be in the sole discretion of the Holder, and the Company shall
have no obligation to verify or confirm the accuracy of any such determination.
The provisions of this Section may be waived by a Holder (but only as to itself
and not to any other Holder) 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). Other Holders shall be
unaffected by any such waiver.
(2) A Holder may not convert shares of Preferred
Stock (including, without limitation, shares of Preferred Stock as payment of
dividends hereunder) or receive shares of Common Stock in payment of dividends
hereunder to the extent such conversion or receipt would result in the Holder,
together with any affiliate thereof, beneficially owning (as determined in
accordance with Section 13(d) of the Exchange Act and the rules thereunder) in
excess of 9.999% of the then issued and outstanding shares of Common Stock. The
Holder shall have the sole authority and obligation to determine whether the
restriction contained in this Section applies and to the
-5-
<PAGE> 7
extent that the Holder determines that the limitation contained in this Section
applies, the determination of which shares of Preferred Stock are convertible
shall be in the sole discretion of the Holder and the Company shall have no
obligation to verify or confirm the accuracy of any such determination. The
provisions of this Section may be waived by a Holder (but only as to itself and
not to any other Holder) upon not less than 75 days prior notice to the Company
(or later, if stated in the notice of waiver). Other Holders shall be unaffected
by any such waiver.
(iii) At no time while the Common Stock is listed for
trading on the NASDAQ or the Nasdaq SmallCap Market shall the Company issue on
conversions of Preferred Stock an aggregate number of shares of Common Stock
that, when added to the number of shares underlying the Trigger Warrants (as
hereinafter defined) if the same were to be issued at such time, would equal or
exceed 20% of the number of shares of Common Stock issued and outstanding on the
Original Issue Date unless the Company shall have theretofore (A) obtained the
vote of shareholders ("Shareholder Approval"), if any, as may be required by the
rules and regulations of the Nasdaq Stock Market (or successor thereto)
applicable to approve the issuance of Common Stock in excess of the Issuable
Maximum in a private placement whereby shares of Common Stock are deemed to have
been issued at a price that is less than the greater of book or fair market
value of the Common Stock, or (B) obtained an exemption from the requirement for
Shareholder Approval from The Nasdaq Stock Market (a "Nasdaq Exemption"). The
maximum number of shares of Common Stock that can be issued on conversions of
Preferred Stock under this Section 5(a)(ii) is referred to as the "Issuable
Maximum." At such time as the Company has issued, on conversions of Preferred
Stock, a number of shares of Common Stock equal to the Issuable Maximum and has
not theretofore obtained Shareholder Approval or a Nasdaq Exemption (the
"Trigger Date"), the Company shall either (i) redeem all outstanding shares of
Preferred Stock and Preferred Dividends at a price equal to the Optional
Redemption Price (as defined in Section 6(c) hereof) pursuant to the terms and
conditions of Section 6(c) hereof (the "Initial Optional Redemption"), provided,
that the conditions listed in Section 6(a)(i)-(iii) shall not apply to the
Initial Optional Redemption, or (ii) within a period of 75 days from the Trigger
Date (the "Trigger Period") obtain Shareholder Approval or a Nasdaq Exemption.
On the Trigger Date, if the Company has not exercised its right to effect the
Initial Optional Redemption, the Company shall issue to the Holders (and
distribute pro rata among the Holders based on the relative number of shares of
Preferred Stock held) warrants (the "Trigger Warrants") to purchase a number of
shares of Common Stock equal to 15% of the quotient obtained by dividing (x) the
Stated Value of the Excess Preferred Stock (as defined below) by (y) the lower
of the Per Share Market Value on the Trigger Date or on the date such warrants
are actually distributed to the Holders (the Trigger Date or such other date, as
applicable, is referred to as the "Measurement Date"). Such warrants shall be
substantially in the form attached as Exhibit B to the Purchase Agreement and
shall entitle the holders thereof to purchase shares of Common Stock at any time
during the
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<PAGE> 8
five year period following the date on which such warrants are actually
distributed to the Holders at an exercise price per share equal to 101% of the
Per Share Market Value on the Measurement Date. From and after the Trigger Date
until the earlier of (I) the date on which a Shareholder Approval or a Nasdaq
Exemption has been obtained, and (II) the expiration of the Trigger Period, the
Dividend Rate shall be increased to 16% per annum. From and after the expiration
of the Trigger Period, if the Company shall not have theretofore obtained either
the Shareholder Approval or a Nasdaq Exemption, and until such date, if any, as
the Company obtains Shareholder Approval or a Nasdaq Exemption, the Dividend
Rate shall be increased to 20% per annum and the Optional Redemption Price (as
defined in Section 6(c)) with respect to any redemption taking place thereafter
shall be equal to the Redemption Amount (as defined in Section 8). Unless the
Company shall have theretofore obtained Shareholder Approval or a Nasdaq
Exemption, (I) if any Holder delivers a Conversion Notice as a result of which
such Holder would be entitled to a number of shares of Common Stock that would
result in the issuance of a number of shares of Common Stock in excess of the
Issuable Maximum, then the Company shall issue in connection with such
conversion such number of shares of Common Stock as would not result in the
aggregate issuances exceeding the Issuable Maximum; (II) if more than one Holder
has delivered a Conversion Notice at the same time as a result of which such
Holders would be entitled to a number of shares of Common Stock that would
result in the issuance of a number of shares of Common Stock in excess of the
Issuable Maximum, then the Company shall issue the maximum number of shares of
Common Stock permissible to such Holders pro rata in accordance with the number
of shares of Preferred Stock submitted for conversion; and (III) if at any time
the Conversion Price is such that if all then outstanding and unconverted shares
of Preferred Stock were converted into Common Stock the number of shares of
Common Stock that would be issued would equal or exceed 85% of the Issuable
Maximum, the Company shall give prompt notice thereof to all Holders. For
purposes of Shareholder Approval, the Company shall not count any vote of the
Holders with respect to shares of Common Stock issued in connection with a
conversion of the Preferred Stock and held by the Holders.
(iv) Notwithstanding anything herein to the contrary
set forth herein, unless the Company shall have previously either (A) received
the shareholder approval as may be required under Rule 4310(H)(i)(b) of the
NASDAQ Stock Market or (B) obtained an exemption from the requirement from the
NASDAQ Stock Market for such shareholder approval, a Holder shall not convert
shares of Preferred Stock (including, without limitation, shares of Preferred
Stock issued as payment of dividends hereunder) to the extent such conversion
would result in such Holder holding in excess of 25% of the number of shares of
Common Stock outstanding on the Original Issue Date.
(b) (i) Not later than three (3) Business Days after any
Delivery Date (as hereinafter defined), the Company will deliver to the Holder
(i) a certificate or certificates
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<PAGE> 9
which shall be free of restrictive legends and trading restrictions (other than
those required by Section 3.1(b) of the Purchase Agreement) representing the
number of shares of Common Stock being acquired upon the conversion of shares of
Preferred Stock (subject to limitation and reduction pursuant to Sections
5(a)(ii) and (a)(iii)), and (ii) one or more certificates representing the
number of shares of Preferred Stock not converted. The Company shall not be
obligated to issue certificates evidencing the shares of Common Stock issuable
upon conversion of any shares of Preferred Stock until certificates evidencing
such shares of Preferred Stock are either delivered for conversion to the
Company or any transfer agent for the Preferred Stock or Common Stock, or the
Holder of such Preferred Stock notifies the Company that such certificates have
been lost, stolen or destroyed and provides a bond (or other adequate security)
reasonably satisfactory to the Company to indemnify the Company from any loss
incurred by it in connection therewith, and the Company shall not be required to
deliver certificates evidencing the shares of Common Stock to an address outside
the United States. The date such certificates or affidavit are delivered is
referred to as the "Delivery Date." If the Delivery Date has not occurred on or
prior to the tenth (10th) Business Day following the Conversion Date, then the
Company may, on notice to the Holder, rescind the conversion. The Company shall,
upon request of the Holder, if available, use its reasonable best efforts to
deliver any certificate or certificates required to be delivered by the Company
under this Section electronically through the Depository Trust Corporation or
another established clearing corporation performing similar functions. If in the
case of any Conversion Notice such certificate or certificates, including for
purposes hereof, any shares of Common Stock to be issued on the Conversion Date
on account of accrued but unpaid dividends hereunder, are not delivered to or as
directed by the applicable Holder by the fifth (5th) Trading Day after the
Delivery Date, the Holder shall be entitled by written notice to the Company at
any time on or before its receipt of such certificate or certificates
thereafter, to rescind such conversion, in which event the Company shall
immediately return the certificates representing the shares of Preferred Stock
tendered for conversion.
(ii) If the Company fails to deliver to the Holder
such certificate or certificates pursuant to Section 5(b)(i), including for
purposes hereof, any shares of Common Stock to be issued on the Conversion Date
on account of accrued but unpaid dividends hereunder, prior to the fifth (5th)
Trading Day after the Delivery Date, the Company shall pay to such Holder, in
cash, as liquidated damages and not as a penalty, $5,000 for each day after such
fifth (5th) Trading Day until such certificates are delivered. Nothing herein
shall limit a Holder's right to pursue actual damages for the Company's failure
to deliver certificates representing shares of Common Stock upon damages for the
Company's failure to deliver certificates representing shares of Common Stock
upon conversion within the period specified herein and such Holder shall have
the right to pursue all remedies available to it at law or in equity including,
without limitation, a decree of specific performance and/or injunctive relief.
The exercise of any
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<PAGE> 10
such rights shall not prohibit the Holders from seeking to enforce damages
pursuant to any other Section hereof or under applicable law. Further, if the
Company shall not have delivered any cash due in respect of conversions of
Preferred Stock or as payment of dividends thereon by the fifth (5th) Trading
Day after the Conversion Date, the Holder may, subject to Sections 5(a)(ii) and
(a)(iii), by notice to the Company, require the Company to issue Underlying
Shares pursuant to Section 5(c), except that for such purpose the Conversion
Price applicable thereto shall be the lesser of the Conversion Price on the
Conversion Date and the Conversion Price on the date of such Holder demand. Any
such Underlying Shares will be subject to the provision of this Section.
(iii) In addition to any other rights available to
the Holder, if the Company fails to deliver to the Holder such certificate or
certificates pursuant to Section 5(b)(i), including for purposes hereof, any
shares of Common Stock to be issued on the Conversion Date on account of accrued
but unpaid dividends hereunder, prior to the fifth (5th) Trading Day after the
Delivery Date, and if after such fifth (5th) Trading Day the Holder purchases
(in an open market transaction or otherwise) shares of Common Stock to deliver
in satisfaction of a sale by such Holder of the Underlying Shares which the
Holder anticipated receiving upon such conversion (a "Buy-In"), then the Company
(A) shall pay in cash to the Holder (in addition to any remedies available to or
elected by the Holder) the amount by which (x) the Holder's total purchase price
(including brokerage commissions, if any) for the shares of Common Stock so
purchased exceeds (y) the product of (1) the aggregate number of shares of
Common Stock that such Holder was entitled to receive from the conversion at
issue multiplied by (2) the market price of the Common Stock at the time of the
sale giving rise to such purchase obligation and (B) at the option of the
Holder, either return the shares of Preferred Stock for which such conversion
was not honored or deliver to such Holder the number of shares of Common Stock
that would have been issued had the Company timely complied with its conversion
and delivery obligations under Section 5(b)(i). For example, if the Holder
purchases shares of Common Stock having a total purchase price of $11,000 to
cover a Buy-In with respect to which the market price of the Underlying Shares
on the date of conversion totaled $10,000, under clause (A) of the immediately
preceding sentence, the Company shall be required to pay the Holder $1,000. The
Holder shall provide the Company written notice indicating the amounts payable
to the Holder in respect of the Buy-In. Notwithstanding anything contained
herein to the contrary, if a Holder requires the Company to make payment in
respect of a Buy-In for the failure to timely deliver certificates hereunder and
the Company timely pays in full such payment, the Company shall not be required
to pay such Holder liquidated damages under section 5(b)(ii) in respect of the
certificates resulting in such Buy-In.
(iv) The provisions of clauses (ii) and (iii) of this
Section 5(b) shall not apply if the Company is not required to honor a
Conversion Notice other than by
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<PAGE> 11
reason of a breach by the Company of the terms hereof, of the Purchase Agreement
or of the Registration Rights Agreement.
(c) (i) The conversion price for each share of Preferred Stock
(the "Conversion Price") in effect on any Conversion Date shall be the lesser of
(1) 120% of the average of the Per Share Market Values for the ten (10) Trading
Days immediately preceding the Original Issue Date (the "Initial Conversion
Price"), and (b) 95% of the average of the three (3) lowest Per Share Market
Values during the twenty (20) consecutive Trading Day period immediately
preceding the applicable Conversion Date; provided, however, that such twenty
(20) Trading Day period shall be extended for the number of Trading Days during
such period in which (A) trading in the Common Stock was suspended from the
NASDAQ or such other national securities exchange or market on which the Common
Stock is then listed, or (B) after the date of effectiveness, the Underlying
Securities Registration Statement ceases to be effective, or (C) after the date
of effectiveness, the Prospectus included in the Underlying Securities
Registration Statement may not be used by the Holder for the resale of
Underlying Shares. If: (a) the Underlying Securities Registration Statement is
not filed on or prior to the Filing Date (as defined in the Registration Rights
Agreement (if the Company files such Underlying Securities Registration
Statement without affording the Holder the opportunity to review and comment on
the same as required by Section 3(a) of the Registration Rights Agreement, the
Company shall be in violation of this clause (a)), or (b) the Company fails to
file with the Commission a request for acceleration in accordance with Rule
12d1-2 promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), within five (5) days of the date that the Company is notified
(orally or in writing, whichever is earlier) by the Commission that an
Underlying Securities Registration Statement will not be "reviewed," or will not
be subject to further review, or (c) the Underlying Securities Registration
Statement is not declared effective by the Commission on or prior to the 120th
day after the Original Issue Date, or (d) such Underlying Securities
Registration Statement is filed with and declared effective by the Commission
but thereafter ceases to be effective as to all Registrable Securities (as such
term is defined in the Registration Rights Agreement) at any time prior to the
expiration of the "Effectiveness Period" (as such term is defined in the
Registration Rights Agreement), without being succeeded within ten (10) Business
Days by a subsequent Underlying Securities Registration Statement filed with and
declared effective by the Commission, (e) trading in the Common Stock shall be
suspended from the NASDAQ (other than temporary suspensions of less than one day
pending release of material information by the Company), or (f) if the
conversion rights of the Holders are suspended for any reason (any such failure
or breach being referred to as an "Event," and for purpose of clauses (a), (c),
(e) and (f) the date on which such Event occurs, or for purposes of clause (b)
the date on which such five (5) day period is exceeded, or for purposes of
clause (d) the date which such 10 Trading Day-period is exceeded, being referred
to as "Event Date"), the Company shall, on the Event Date and on the first day
of each monthly anniversary of the
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<PAGE> 12
Event Date until such time as the applicable Event is cured, pay to the Holder
2.5% of the aggregate Stated Value of the shares of Preferred Stock then held by
such Holder, in cash, as liquidated damages and not as a penalty. The provisions
of this Section are not exclusive and shall in no way limit the Company's
obligations under the Registration Rights Agreement.
(ii) If the Company, at any time while any shares of
Preferred Stock are outstanding, shall (a) pay a stock dividend or otherwise
make a distribution or distributions on shares of its Junior Securities or pari
passu securities payable in shares of Common Stock, (b) subdivide outstanding
shares of Common Stock into a larger number of shares, (c) combine outstanding
shares of Common Stock into a smaller number of shares, or (d) issue by
reclassification of shares of Common Stock any shares of capital stock of the
Company, the Initial Conversion Price shall be multiplied by a fraction of which
the numerator shall be the number of shares of Common Stock outstanding before
such event and of which the denominator shall be the number of shares of Common
Stock outstanding after such event. Any adjustment made pursuant to this Section
5(c)(ii) 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
subdivision, combination or reclassification.
(iii) If the Company, at any time while any shares of
Preferred Stock are outstanding, shall issue rights, warrants or options to all
holders of Common Stock entitling them to subscribe for or purchase shares of
Common Stock at a price per share less than the Per Share Market Value at the
record date mentioned below, then the Initial Conversion Price shall be
multiplied by a fraction, the numerator of which shall be the number of shares
of Common Stock outstanding immediately prior to the issuance of such rights,
warrants or options, plus the number of shares of Common Stock which the
aggregate offering price of the total number of shares so offered would purchase
at such Per Share Market Value, and the denominator of which shall be the sum of
the number of shares of Common Stock outstanding immediately prior to such
issuance plus the number of shares of Common Stock offered for subscription or
purchase. Such adjustment shall be made whenever such rights or warrants are
issued, and shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights or warrants.
However, upon the expiration of any right, warrant or option to purchase shares
of Common Stock the issuance of which resulted in an adjustment in the
Conversion Price pursuant to this Section 5(c)(iii), if any such right, warrant
or option shall expire and shall not have been exercised, the Conversion Price
shall immediately upon such expiration shall be recomputed and effective
immediately upon such expiration shall be increased to the price which it would
have been (but reflecting any other adjustments in the Conversion Price made
pursuant to the provisions of this Section 5 upon the issuance of other rights
or warrants) had the adjustment of the Conversion Price made upon the issuance
of such rights, warrants, or options been made on the basis of
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<PAGE> 13
offering for subscription or purchase only that number of shares of Common Stock
actually purchased upon the exercise of such rights, warrants or options
actually exercised.
(iv) If the Company or any subsidiary thereof, as
applicable with respect to Common Stock Equivalents (as defined below), at any
time while any shares of Preferred Stock are outstanding, shall issue shares of
Common Stock or rights, warrants, options, or other securities or debt that is
convertible into or exchangeable for shares of Common Stock ("Common Stock
Equivalents") entitling any Person to acquire shares of Common Stock at a price
per share less than the Conversion Price, then the Conversion Price shall be
multiplied by a fraction, the numerator of which shall be the number of shares
of Common Stock outstanding immediately prior to the issuance of shares of
Common Stock or such Common Stock Equivalents plus the number of shares of
Common Stock which the offering price for such shares of Common Stock or Common
Stock Equivalents would purchase at the Conversion Price, and the denominator of
which shall be the sum of the number of shares of Common Stock outstanding
immediately prior to such issuance plus the number of shares of Common Stock so
issued or issuable, provided, that for purposes hereof, all shares of Common
Stock that are issuable upon exercise or exchange of Common Stock Equivalents
shall be deemed outstanding immediately after the issuance of such Common Stock
Equivalents. Such adjustment shall be made whenever such shares of Common Stock
or Common Stock Equivalents are issued.
(v) If the Company, at any time while shares of
Preferred Stock are outstanding, shall distribute to all holders of Common Stock
(and not to Holders of Preferred Stock) evidences of its indebtedness or assets
or rights or warrants to subscribe for or purchase any security (excluding those
referred to in Sections 5(c)(ii)-(iv) above), then in each such case the Initial
Conversion Price at which each share of Preferred Stock shall thereafter be
convertible shall be determined by multiplying the Initial Conversion 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 Per Share Market Value of Common Stock determined as of
the record date mentioned above, and of which the numerator shall be such Per
Share Market Value of the Common Stock 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 Board of Directors in good faith; provided, however, that
in the event of a distribution exceeding ten percent (10%) of the net assets of
the Company, if the Holders of a majority in interest of the Preferred Stock
dispute such valuation, such fair market value shall be determined by a
nationally recognized or major regional investment banking firm or firm of
independent certified public accountants of recognized standing (which may be
the firm that regularly examines the financial statements of the Company) (an
"Appraiser") selected in good
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<PAGE> 14
faith by the Holders of a majority in interest of the shares of Preferred Stock
then outstanding; and provided, further, that the Company, after receipt of the
determination by such Appraiser shall have the right to select an additional
Appraiser, in good faith, in which case the fair market value shall be equal to
the average of the determinations by each such Appraiser. In either case the
adjustments shall be described in a statement provided to the Holders of
Preferred Stock of the portion of assets or evidences of indebtedness so
distributed or such subscription rights applicable to one share of Common Stock.
Such adjustment shall be made whenever any such distribution is made and shall
become effective immediately after the record date mentioned above.
(vi) All calculations under this Section 5 shall be
made to the nearest cent or the nearest 1/100th of a share, as the case may be.
(vii) Whenever the Conversion Price is adjusted
pursuant to Section 5(c)(ii), (iii), (iv), or (v) the Company shall promptly
mail to each Holder, a notice setting forth the Conversion Price after such
adjustment and setting forth a brief statement of the facts requiring such
adjustment.
(viii) In case of any reclassification of the Common
Stock, or any compulsory share exchange pursuant to which the Common Stock is
converted into other securities, cash or property (other than compulsory share
exchanges which constitute Change of Control Transactions), the Holders of the
Preferred Stock then outstanding shall have the right thereafter to convert such
shares only into the shares of stock and other securities, cash and property
receivable upon or deemed to be held by holders of Common Stock following such
reclassification or share exchange, and the Holders of the Preferred Stock shall
be entitled upon such event to receive such amount of securities, cash or
property as a holder of the number of shares of the Common Stock of the Company
into which such shares of Preferred Stock could have been converted immediately
prior to such reclassification or share exchange would have been entitled. This
provision shall similarly apply to successive reclassifications or share
exchanges.
(ix) If (a) the Company shall declare a dividend (or
any other distribution) on its Common Stock, (b) the Company shall declare a
special nonrecurring cash dividend on or a redemption of its Common Stock, (c)
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, (d) 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, of
any compulsory share of exchange whereby the Common Stock is converted into
other securities, cash or property, or (e) the Company shall authorize the
voluntary or involuntary dissolution, liquidation or winding up of the affairs
of the Company; then the
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<PAGE> 15
Company shall cause to be filed at each office or agency maintained for the
purpose of conversion of Preferred Stock, and shall cause to be mailed to the
Holders of Preferred Stock at their last addresses as they shall appear upon the
stock books of the Company, at least 20 calendar 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 or
share exchange; 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. Holders are entitled
to convert shares of Preferred Stock during the 20 day period commencing the
date of such notice to the effective date of the event triggering such notice.
(x) No adjustment in the Conversion Price under
Sections 5(c)(ii), (iii), (iv) or (v) shall be required to be made if such
adjustment would result in a change of less than $.10 in the Conversion Price,
but any adjustments not made by reason of this clause (x) 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 Conversion Price then in
effect.
(d) The Company covenants that it will at all times reserve
and keep available out of its authorized and unissued Common Stock solely for
the purpose of issuance upon conversion of Preferred Stock and Preferred
Dividends (assuming payment of all dividends in the form of Preferred Dividends
in accordance with the terms hereof), each as herein provided, free from
preemptive rights or any other actual contingent purchase rights of persons
other than the Holders of Preferred Stock, not less than such number of shares
of Common Stock as shall (subject to any additional requirements of the Company
as to reservation of such shares set forth in the Purchase Agreement) be
issuable (taking into account the adjustments and restrictions of Section 5(a)
and Section 5(c)) upon the conversion of all outstanding shares of Preferred
Stock and payment of dividends hereunder (assuming payment of all dividends in
shares of Preferred Stock in accordance with the terms hereof). The Company
covenants that all shares of Common Stock that shall be so issuable shall, upon
issue, be duly and validly authorized, issued and fully paid, nonassessable and
freely tradeable, subject to the legend requirements of Section 3.1(b) of the
Purchase Agreement.
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<PAGE> 16
(e) Upon a conversion hereunder the Company shall not be
required to issue stock certificates representing fractions of shares of Common
Stock, but may if otherwise permitted, make a cash payment in respect of any
final fraction of a share based on the Per Share Market Value at such time. If
the Company elects not, or is unable, to make such a cash payment, the Holder of
a share of Preferred Stock shall be entitled to receive, in lieu of the final
fraction of a share, one whole share of Common Stock.
(f) The issuance of certificates for shares of Common Stock on
conversion of Preferred Stock shall be made without charge to the Holders
thereof for any documentary stamp or similar taxes that may be payable in
respect of the issue or delivery of such certificate, provided that the Company
shall not be required to pay any tax that may be payable in respect of any
transfer involved in the issuance and delivery of any such certificate upon
conversion in a name other than that of the Holder of such shares of Preferred
Stock so converted and the Company shall not be required to issue or deliver
such certificates 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.
(g) Shares of Preferred Stock converted into Common Stock
shall be canceled. The Company may not reissue any shares of Preferred Stock.
(h) Any and all notices or other communications or deliveries
to be provided by the Holders of the Preferred Stock hereunder, including,
without limitation, any Conversion Notice, shall be in writing and delivered
personally, by facsimile or sent by a nationally recognized overnight courier
service, addressed to the attention of the Chief Executive Officer of the
Company at the facsimile telephone number or address of the principal place of
business of the Company as set forth in the Purchase Agreement. Any and all
notices or other communications or deliveries to be provided by the Company
hereunder shall be in writing and delivered personally, by facsimile or sent by
a nationally recognized overnight courier service, addressed to each Holder of
Preferred Stock at the facsimile telephone number or address of such Holder
appearing on the books of the Company, or if no such facsimile telephone number
or address appears, at the principal place of business of the Holder. Any notice
or other communication or deliveries hereunder shall be deemed given and
effective on the earliest of (i) the date of transmission, if such notice or
communication is delivered via confirmed facsimile at the facsimile telephone
number specified in this Section prior to 8:00 p.m. (Eastern Standard Time),
(ii) the date after the date of transmission, if such notice or communication is
delivered via confirmed facsimile at the facsimile telephone number specified in
this Section later than 8:00 p.m. (Eastern Standard Time) on any date and
earlier than 11:59 p.m. (Eastern Standard Time) on such date, (iii) upon
receipt, if sent by a nationally recognized overnight courier service, or (iv)
upon actual receipt by the party to whom such notice is required to be given.
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<PAGE> 17
Section 6. Optional Redemption.
(a) The Company shall have the right, exercisable at any time
upon not less than ten (10) Trading Days notice (an "Optional Redemption
Notice") to the Holders of the Preferred Stock given at any time after the
Original Issue Date, to redeem all or any portion of the shares of Preferred
Stock which have not previously been converted or redeemed, at a price equal to
the Optional Redemption Price (as defined below), provided, that the Company
shall not be entitled to deliver an Optional Redemption Notice to the Holders
if: (i) the number of shares of Common Stock at the time authorized, unissued
and unreserved for all purposes is insufficient to satisfy the Company's
conversion obligations of all shares of Preferred Stock then outstanding, or
(ii) the shares of Common Stock issuable upon conversion of shares of Preferred
Stock then outstanding (x) are not registered for resale pursuant to an
effective registration statement that names the Holders as selling stockholders
thereunder or (y) may not be sold without volume restrictions pursuant to Rule
144 promulgated under the Securities Act of 1933, as amended, as determined by
counsel to the Company pursuant to a written opinion letter, addressed to the
Company's transfer agent in the form and substance acceptable to the Holders and
such transfer agent, or (iii) the Common Stock is not then listed on the NASDAQ.
The entire Optional Redemption Price shall be paid in cash. Holders of Preferred
Stock may convert (and the Company shall honor such conversions in accordance
with the terms hereof) any shares of Preferred Stock, including shares subject
to an Optional Redemption Notice, during the period from the date thereof
through the 10th Trading Day after the receipt of an Optional Redemption Notice.
(b) If any portion of the Optional Redemption Price shall not
be paid by the Company within seven (7) calendar days after the tenth (10th)
Trading Day after the delivery of an Optional Redemption Notice, interest shall
accrue thereon at the rate of 15% per annum until the Optional Redemption Price
plus all such interest is paid in full. In addition, if any portion of the
Optional Redemption Price remains unpaid for more than seven (7) calendar days
after the date due, the Holder of the Preferred Stock subject to such redemption
may elect, by written notice to the Company given at any time thereafter, to
either (i) demand conversion of all or any portion of the shares of Preferred
Stock for which such Optional Redemption Price, plus accrued liquidated damages,
has not been paid in full (the "Unpaid Redemption Shares"), in which event the
Conversion Price for such shares shall be the lower of the Conversion Price
calculated on the date the Optional Redemption Price was originally due and the
Conversion Price as of the Holder's written demand for conversion, or (ii)
invalidate ab initio such redemption, notwithstanding anything herein contained
to the contrary. If the Holder elects option (i) above, the Company shall within
three (3) Trading Days of its receipt of such election deliver to the Holder the
shares of Common Stock issuable upon conversion of the Unpaid Redemption Shares
subject to such Holder conversion demand and otherwise
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<PAGE> 18
perform its obligations hereunder with respect thereto; or, if the Holder elects
option (ii) above, the Company shall promptly, and in any event not later than
three (3) Trading Days from receipt of Holder's notice of such election, return
to the Holder all of the Unpaid Redemption Shares.
(c) The "Optional Redemption Price" shall, except as provided
in Section 5(a)(ii), equal the sum of (i) 125% of the Stated Value of the shares
of Preferred Stock subject to redemption hereunder and all accrued but unpaid
dividends per share of Preferred Stock subject to redemption hereunder, and (ii)
all other amounts, costs, expenses and liquidated damages due in respect of such
shares of Preferred Stock.
Section 7. Triggering Events.
(a) Upon the occurrence of a Triggering Event, each Holder
shall (in addition to all other rights it may have hereunder or under applicable
law), have the right, exercisable at the sole option of such Holder, to require
the Company to purchase all or a portion of the Preferred Stock then held by
such Holder for a redemption price, in cash, equal to the sum of (i) the Payment
Amount plus (ii) the product of (A) the number of Underlying Shares issued in
respect of conversions hereunder and then held by the Holder and (B) the Per
Share Market Value on the date such purchase is demanded or the date the
redemption price hereunder is paid in full, whichever is greater. If the Company
fails to pay the redemption price hereunder in full pursuant to this Section
within seven (7) days after the date of a demand therefor, the Company will pay
interest thereon at a rate of 15% per annum, accruing daily from such seventh
day until the redemption price, plus all such interest thereon, is paid in full.
For purposes of this Section, a share of Preferred Stock is outstanding until
such date as the Holder shall have received Underlying Shares upon a conversion
(or attempted conversion) thereof.
(b) A "Triggering Event" means any one or more of the
following events (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgement, decree
or order of any court, or any order, rule or regulation of any administrative or
governmental body);
(i) the failure of the Company to use its best
efforts to cause an Underlying Securities Registration Statement to be declared
effective by the Commission on or prior to the 180th day after the Original
Issue Date and such failure is not cured within five (5) days after notice from
a Holder;
(ii) if, during the Effectiveness Period, the
effectiveness of the Underlying Securities Registration Statement lapses for any
reason for more than ten (10) consecutive Business Days or more than fifteen
(15) Business Days in any 12-month period, or the Holder shall have been advised
by the Company that is not permitted to
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<PAGE> 19
resell Registrable Securities under the Underlying Securities Registration
Statement for more than ten (10) consecutive Business Days or more than fifteen
(15) Business Days in any 12-month period, in each case other than (A) as a
result of a stop order or similar order issued by the Commission not at the
request of the Company; or (B) solely as a result of actions taken by the
Holder.
(iii) the Company shall fail for any reason to
deliver certificates representing Underlying Shares issuable upon a conversion
hereunder that comply with the provisions hereof prior to the 20th day after the
Delivery Date or the Company shall provide notice to any Holder, including by
way of public announcement, at any time, of its intention not to comply with
requests for conversion of any Preferred Stock in accordance with the terms
hereof;
(iv) the Company shall be a party to any Change of
Control Transaction which has been approved by the Board of Directors of the
Company, and a Holder shall have given notice to the Company of its intention
that such Change of Control transaction be a Triggering Event;
(v) the Company shall fail to make any payments
required to be made under Sections 5(b)(ii), 5(b)(iii) or 5(c)(i) within thirty
(30) days after the same are due and such failure is not cured within five (5)
days after notice from a Holder;
(vi) the Company shall fail for any reason to pay all
amounts required pursuant to a Buy-In within seven (7) days after notice is
deemed delivered hereunder and such failure is not cured within five (5) days
after notice from a Holder; or
(vii) the Company shall fail to have available a
sufficient number of authorized and unreserved shares of Common Stock to issue
to such Holder upon a conversion hereunder.
Section 8. Definitions. For the purposes hereof, the following
terms shall have the following meanings:
"Business Day" means any day except Saturday, Sunday and any
day which shall be a Federal legal holiday or a day on which banking
institutions in the State of New York are authorized or required by law or other
governmental action to close.
"Change of Control Transaction" 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 sale or other
disposition via a single transaction or series of related transactions by the
Company or any of its subsidiaries of all or
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<PAGE> 20
substantially all of the assets of the Company and its subsidiaries, taken as a
whole, other than a sale to a wholly owned subsidiary of the Company; (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).
"Common Stock" means the Company's common stock, $.01 par
value, and stock of any other class into which such shares may hereafter have
been reclassified or changed.
"Conversion Ratio" means, at any time, a fraction, of which
the numerator is Stated Value plus accrued and unpaid dividends but only to the
extent not theretofore paid in shares of Preferred Stock in accordance with the
terms hereof, and of which the denominator is the Conversion Price at such time.
"Junior Securities" means the Common Stock and all other
equity securities of the Company which are junior in rights to dividends or
liquidation preference to the Preferred Stock.
"Original Issue Date" shall mean the date of the first
issuance of any shares of the Preferred Stock regardless of the number of
transfers of any particular shares of Preferred Stock and regardless of the
number of certificates which may be issued to evidence such Preferred Stock.
"Payment Amount" for each share of Preferred Stock means the
sum of (i) the greater of (A) 130% of the Stated Value and all accrued dividends
with respect to such share, and (B) the product of (a) the Per Share Market
Value on the Trading Day immediately preceding (x) the date of the Triggering
Event or the Conversion Date, as the case may be, or (y) the date of payment in
full by the Company of the applicable redemption price, whichever is greater,
and (b) the Conversion Ratio calculated on the date of the Triggering Event, or
the Conversion Date, as the case may be, and (ii) all other amounts, costs,
expenses and liquidated damages due in the respect of such shares of Preferred
Stock.
"Per Share Market Value" means on any particular date (a) the
closing bid price per share of the Common Stock on such date on the NASDAQ or
the Nasdaq SmallCap Market, as the case may be, or any other stock exchange or
quotation system
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<PAGE> 21
on which the Common Stock is then listed, or if there is no such price on such
date, then the closing bid price on such exchange or quotation system on which
the Common Stock is listed for trading on the date nearest preceding such date,
or (b) if the Common Stock is not listed then on the NASDAQ or the Nasdaq
SmallCap Market or any stock exchange or quotation system, the closing bid price
for a share of Common Stock in the over-the-counter market, as reported by the
National Quotation Bureau Incorporated or similar organization or agency
succeeding to its functions of reporting prices) at the close of business on
such date, or (c) if the Common Stock is not then reported by the National
Quotation Bureau Incorporated (or similar organization or agency succeeding to
its functions of reporting prices), then the average of the "Pink Sheet" quotes
for the relevant conversion period, as determined in good faith by the Holder,
or (d) if the Common Stock is not then publicly traded the fair market value of
a share of Common Stock as determined by an appraiser selected in good faith by
the Holders of a majority in interest of the shares of the Preferred Stock and
approved by the Company.
"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.
"Purchase Agreement" means the Convertible Preferred Stock
Purchase Agreement, dated as of the May 11, 1999, among the Company and the
original Holder of the Preferred Stock, as amended, modified or supplemented
from time to time.
"Redemption Amount" for each share of Preferred Stock means
the greater of (A) the Optional Redemption Amount, or (B) the sum of (i) 116%
(the "Percentage") of the Stated Value and all accrued dividends with respect to
such share, and (ii) all other amounts, costs, expenses and liquidated damages
due in respect of such share of Preferred Stock, provided, that, if any
redemption pursuant to Section 5(a)(ii) occurs after the first anniversary of
the Original Issue Date but prior to the second anniversary of the Original
Issue Date, the Percentage shall increase to 132% for any such redemption
occurring during such period, thereafter, on each subsequent yearly anniversary
of the Original Issue Date, the Percentage shall be increased by an additional
16% for any such redemption occurring during such yearly period (e.g., the
Percentage shall be 148% for such redemption occurring after the second
anniversary of the Original Issue Date and prior to the third anniversary of the
Original Issue Date).
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the May 11, 1999, by and among the Company and the
original Holder of the Preferred Stock, as amended, modified or supplemented
from time to time.
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<PAGE> 22
"Trading Day" means (a) day on which the Common Stock is
traded on the NASDAQ or the Nasdaq SmallCap Market as the case may be, or other
securities market or exchange on which the Common Stock has been listed, or (b)
if the Common Stock is not listed on the NASDAQ or the Nasdaq SmallCap Market or
on any exchange or market, a day on which the Common Stock is traded in the
over-the-counter market, as reported by the OTC Bulletin Board, or (c) if the
Common Stock is not quoted on the OTC Bulletin Board, a day on which the Common
Stock is quoted in the over-the-counter market as reported by the National
Quotation Bureau Incorporated (or any similar organization or agency succeeding
its functions of reporting prices); provided, however, that in the event that
the Common Stock is not listed or quoted as set forth in (a), (b) and (c)
hereof, then Trading Day shall mean 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 are authorized or required by law or other government action
to close.
"Underlying Securities Registration Statement" means a
registration statement that meets the requirement of the Registration Rights
Agreement and registers the resale of all Underlying Shares by the recipient
thereof, who shall be named as a "selling stockholder" thereunder.
"Underlying Shares" means, collectively, the shares of Common
Stock into which the shares of Preferred Stock are convertible in accordance
with the terms hereof.
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<PAGE> 23
IN WITNESS WHEREOF, said Ecogen Inc. has caused this
certificate to be signed by James P. Reilly, Jr., as Chairman and Chief
Executive Officer, and attested by Michael Johnson, as Assistant Secretary, this
11th day of May, 1999.
ECOGEN INC.
By: /s/ James P. Reilly, Jr.
-----------------------------------
Name: James P. Reilly, Jr.
Title: Chairman and Chief Executive
Officer
ATTEST:
/s/ Michael Johnson
- - -----------------------------------
Name: Michael Johnson
Title: Assistant Secretary
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<PAGE> 24
ANNEX I
NOTICE OF CONVERSION
[To be Executed by the Registered Holder in order to
Convert shares of Preferred Stock]
The Holder written below hereby elects to convert the number of shares of 7%
Series 1999-A Convertible Preferred Stock indicated below, into shares of Common
Stock, $.01 par value (the "Common Stock"), of Ecogen Inc. (the "Company")
according to the conditions hereof, as of the date written below. If shares are
to be issued in the name of a person other than the name of the Holder written
below such Holder will pay all transfer taxes payable with respect thereto and
is delivering herewith such certificates and opinions as reasonably requested by
the Company in accordance therewith. No fee will be charged to the Holder for
any conversion, except for such transfer taxes, if any.
Conversion calculations:
-------------------------------------------------------
Date to Effect Conversion
-------------------------------------------------------
Number of shares of Preferred Stock to be Converted
-------------------------------------------------------
Number of shares of Common Stock to be Issued
-------------------------------------------------------
Applicable Conversion Price
-------------------------------------------------------
Name of Holder
-------------------------------------------------------
Address
-------------------------------------------------------
Signature
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<PAGE> 1
EXHIBIT 10.144
Ecogen Inc.
1999 STOCK OPTION PLAN
1. Purpose.
The purpose of this plan (the "Plan") is to secure for Ecogen Inc. (the
"Company") and its stockholders the benefits arising from capital stock
ownership by employees, advisors, consultants, and members of the Board of
Directors of the Company and its parent and subsidiary corporations, if any, who
are expected to contribute to the Company's future growth and success.
2. Types of Options and Administration.
(a) Types of Options. Options granted pursuant to the Plan shall be
authorized by action of the Board of Directors of the Company (or a Committee
designated by the Board of Directors) and may be either incentive stock options
("Incentive Stock Options") meeting the requirements of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), or non-statutory options
which are not intended to meet the requirements of Code Section 422.
(b) Administration. The Plan will be administered by the Board of
Directors of the Company, whose construction and interpretation of the terms and
provisions of the Plan shall be final and conclusive. The Board of Directors may
in its sole discretion grant options to purchase shares of the Company's Common
Stock, par value $.01 per share ("Common Stock"), and authorize the Company to
issue shares upon exercise of such options as provided in the Plan. The Board
shall have authority, subject to the express provisions of the Plan, to construe
the respective option agreements and the Plan, to prescribe, amend and rescind
rules and regulations relating to the Plan, to determine the terms and
provisions of the respective option agreements, which need not be identical, to
advance the lapse of any waiting or installment periods and exercise dates, and
to make all other determinations in the judgment of the Board of Directors
necessary or desirable for the administration of the Plan. The Board of
Directors may correct any defect or supply any omission or reconcile any
inconsistency in the Plan or in any option agreement in the manner and to the
extent it shall deem expedient to carry the Plan into effect and it shall be the
sole and final judge of such expediency. No director shall be liable for any
action or determination taken or made under or with respect to the Plan or to
any option in good faith. The Board of Directors may, to the full extent
permitted by law, delegate any or all of its powers under the Plan to a
committee (the "Committee") of two or more directors each of whom is a
Non-Employee Director (as hereinafter defined), and if the Committee is so
appointed all references to the Board of Directors in the Plan shall mean and
relate to such Committee. For the
<PAGE> 2
purposes of the Plan, a director or member of such Committee shall be deemed to
be a "Non-Employee Director" only if such person qualifies as a "Non-Employee
Director" within the meaning of paragraph (b)(3) of Rule 16b-3 promulgated
under the Securities Exchange Act of 1934, as amended (or any successor rule).
3. Eligibility.
Options shall be granted only to persons who are, at the time of grant,
employees, advisors, consultants, or directors (provided, in the case of
Incentive Stock Options, such directors are then also employees) of the Company
or of any Parent Corporation or Subsidiary (as defined in Section 19 hereof). A
person who has been granted an option may, if he or she is otherwise eligible,
be granted an additional option or options if the Board of Directors shall so
determine.
4. Stock Subject to Plan.
Subject to adjustment as provided in Sections 15 and 16 below, the
maximum number of shares of Common Stock of the Company which may be issued and
sold pursuant to options granted under the Plan is 1,500,000 shares. Such shares
may be authorized and unissued shares or may be shares issued and thereafter
acquired by the Company. If an option granted under the Plan shall expire or
terminate for any reason without having been exercised in full, the unpurchased
shares subject to such option shall again be available for subsequent option
grants under the Plan. Stock issuable upon exercise of an option granted under
the Plan may be subject to transfer restrictions, repurchase rights or other
restrictions as shall be determined by the Board of Directors.
5. Option Agreements.
As a condition to the grant of an option under the Plan, each recipient
of an option shall execute an option agreement not inconsistent with the Plan in
such form as the Board of Directors shall determine at the time such option is
authorized to be granted. Such agreements need not be identical but shall comply
with, and be subject to, the terms and conditions set forth herein.
6. Purchase Price.
(a) The purchase price per share of Common Stock deliverable upon the
exercise of an option shall be not less than the fair market value of the Common
Stock as determined by the Board of Directors on the date such option is
authorized to be granted.
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<PAGE> 3
(b) Payment of the exercise price of an option shall be in cash or, in
the sole discretion of the Board of Directors, in capital stock of the Company,
by the surrender of other options to purchase capital stock of the Company or by
any other lawful means.
7. Option Term.
Each option and all rights thereunder shall expire on such date as the
Board of Directors shall determine on the date such option is authorized to be
granted, but in no event after the expiration of ten years from the day on which
the option is granted (or five years in the case of options described in
paragraph (b) of Section 11), and shall be subject to earlier termination as
provided in the Plan. Notwithstanding the foregoing, except as provided under or
pursuant to the Code with respect to Incentive Stock Options, if at any time
during the last six (6) months of the term of any option granted under the Plan,
the holder thereof is precluded from selling shares of Common Stock underlying
such option solely by reason of the application to such optionee of the
Company's "Material Inside Information and Insider Trading Policy" (or similar
successor policy), the term of such option shall be deemed automatically
extended by a period equal to six (6) months beginning with the first day during
which such optionee shall no longer be so precluded.
8. Exercise of Options.
Each option granted under the Plan shall be exercisable either in full
or in installments at such time or times during such period as shall be set
forth in the agreement evidencing such option; provided, however, that, subject
to Section 7, (i) no option granted under the Plan shall have a term in excess
of ten years from the date of grant (or five years in the case of options
described in paragraph (b) of Section 11) and (ii) the periods of time following
the optionee's cessation of employment with the Company or service as an
advisor, consultant, or Outside Director of the Company, or the optionee's death
or disability, during which an option may be exercised, as provided in
paragraphs (a), (b) and (c) of Section 10, shall not be included for purposes of
determining the number of shares of Common Stock with respect to which an option
granted under the Plan may be exercised.
9. Transfer Restrictions.
Except as otherwise approved by the Board of Directors, no option
granted under the Plan shall be assignable or transferable by the person to whom
it is granted, either voluntarily or by operation of law, except by will or the
laws of descent and distribution. Except as otherwise approved by the Board of
Directors and subject to the preceding sentence, during the life of the
recipient, the option shall be exercisable only by or on behalf of such person.
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<PAGE> 4
10. Effect of Termination of Employment.
Notwithstanding anything contained in this Plan to the contrary, no
option may be exercised unless, at the time of such exercise, the optionee is,
and has been continuously since the date of grant of his or her option, employed
by one or more of the Company, a Parent Corporation or a Subsidiary, except that
if and to the extent the option agreement or instrument so provides:
(a) the option may be exercised within the period of three months after
the date the optionee ceases to be employed by or to serve as an advisor,
consultant, or Outside Director of the Company, a Parent Corporation or a
Subsidiary (or within such lesser period as may be specified in the option
agreement or instrument) for any reason other than death or disability;
(b) if the optionee dies while in the employ of or serving as an
advisor, consultant, or Outside Director of the Company, a Parent Corporation or
a Subsidiary or within three months after the optionee ceases to be such an
employee, advisor, consultant, or director, the option may be exercised by the
person to whom it is transferred by will or the laws of descent and distribution
within the period of one year after the date of death (or within such lesser
period as may be specified in the option agreement or instrument); and
(c) if the optionee becomes disabled (within the meaning of Section
22(e)(3) of the Code) while in the employ of or while serving as an advisor,
consultant, or Outside Director of the Company, a Parent Corporation or a
Subsidiary, the option may be exercised within the period of one year after the
date the optionee ceases to be an employee, advisor, consultant, or director of
any of the foregoing entities because of such disability (or within such lesser
period as may be specified in the option agreement or instrument);
provided, however, that in no event may any option be exercised after
the expiration date of the option. For all purposes of the Plan and any option
granted hereunder, "employment" shall be defined in accordance with the
provisions of Section 1.421-7(h) of the Income Tax Regulations (or any successor
regulations).
11. Incentive Stock Options.
Options granted under the Plan which are intended to be Incentive Stock
Options shall be specifically designated as Incentive Stock Options and shall be
subject to the following additional terms and conditions:
(a) Dollar Limitation. The aggregate fair market value (determined as
of the respective date or dates of the grant) of the Common Stock with respect
to which Incentive Stock Options granted to any employee under the Plan (and
under any other incentive stock option plans of the Company, and any Parent
Corporation and Subsidiary) are exercisable for the first
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<PAGE> 5
time shall not exceed $100,000 in any one calendar year. In the event that
Section 422 of the Code is amended to alter the limitation set forth therein so
that following such amendment such limitation shall differ from the limitation
set forth in this paragraph (a), the limitation of this paragraph (a) shall be
automatically adjusted accordingly.
(b) 10% Stockholder. If any employee to whom an Incentive Stock Option
is to be granted under the Plan is at the time of the grant of such option the
owner of stock possessing more than 10% of the total combined voting power of
all classes of stock of the Company or of any Parent Corporation or any
Subsidiary, then the following special provisions shall be applicable to the
Incentive Stock Option granted to such individual:
(i) The purchase price per share of the Common Stock subject
to such Incentive Stock Option shall not be less than 110% of the fair market
value of one share of Common Stock at the time of grant; and
(ii) The option exercise period shall not exceed five years
from the date of grant.
Except as modified by the preceding provisions of this Section 11, all the
provisions of the Plan shall be applicable to Incentive Stock Options granted
hereunder.
12. Annual Automatic Grants of Options to Outside Directors.
(a) Annual Automatic Grants of Options to Outside Directors. Each
director of the Company who is not an employee of the Company or of any Parent
Corporation or Subsidiary (each, an "Outside Director") shall be granted under
the Plan (i) on the date of his or her first election to the Board of Directors
of the Company, non-statutory options to purchase up to 9,000 shares of Common
Stock and (ii) on the date of each annual meeting of the Company's stockholders
(beginning with the Company's Annual Meeting of Stockholders in 1999) at which
such Outside Director is re-elected to the Board of Directors, non-statutory
options to purchase up to 2,000 shares of Common Stock.
(b) Terms and Conditions of Options. Any option granted to an Outside
Director pursuant to this Section 12 shall be exercisable over a two year
period, one half on each of the first two anniversaries of the date of grant, in
each case at a purchase price equal to the fair market value of such Common
Stock, as defined in Section 6 above, on the date of grant. Each such option
shall expire ten years after the date of grant and shall be subject to earlier
termination as provided in the Plan. Notwithstanding the foregoing, if at any
time during the last six (6) months of the term of any option granted pursuant
to this Section 12, the holder thereof is precluded from selling shares of
Common Stock underlying such option solely by reason of the application to such
Outside Director of the Company's "Material Inside Information and Insider
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<PAGE> 6
Trading Policy" (or any similar successor policy), the term of such option shall
be deemed automatically extended by a period equal to six (6) months beginning
with the first day during which such Outside Director shall no longer be so
precluded.
(c) Plan Applicable. Except as set forth in this Section 12, all the
provisions of the Plan shall be applicable to options granted to Outside
Directors hereunder.
13. General Restrictions.
(a) Investment Representations. The Company may require any person to
whom an option is granted, as a condition of exercising such option, to give
written assurances in substance and form satisfactory to the Company to the
effect that such person is acquiring the Common Stock subject to the option for
his own account for investment and not with any present intention of selling or
otherwise distributing the same, and to such other effects as the Company deems
necessary or appropriate in order to comply with federal and applicable state
securities laws.
(b) Compliance With Securities Laws. Each option shall be subject to
the requirement that, if at any time counsel to the Company shall determine that
the listing, registration or qualification of the shares subject to such option
upon any securities exchange or under any state or federal law, or the consent
or approval of any governmental or regulatory body, is necessary as a condition
of, or in connection with, the issuance or purchase of shares thereunder, such
option may not be accepted or exercised in whole or in part unless such listing,
registration, qualification, consent or approval shall have been effected or
obtained on conditions acceptable to the Board of Directors. Nothing herein
shall be deemed to require the Company to apply for or to obtain such listing,
registration or qualification.
14. Rights as a Stockholder.
The holder of an option shall have no rights as a stockholder with
respect to any shares covered by the option until the date of issue of a stock
certificate to him or her for such shares. Except as otherwise expressly
provided in the Plan, no adjustment shall be made for dividends or other rights
for which the record date is prior to the date such stock certificate is issued.
15. Recapitalization.
In the event that the outstanding shares of Common Stock of the Company
are changed into or exchanged for a different number or kind of shares or other
securities of the Company by reason of any recapitalization, reclassification,
stock split, stock dividend, combination or subdivision, appropriate adjustment
shall be made in the number and kind of
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<PAGE> 7
shares available under the Plan and under any options granted under the Plan.
Such adjustment to outstanding options shall be made without change in the total
price applicable to the unexercised portion of such options, and a corresponding
adjustment in the applicable option price per share shall be made. No such
adjustment shall be made which would, within the meaning of any applicable
provisions of the Code, constitute a modification, extension or renewal of any
option or a grant of additional benefits to the holder of an option.
16. Reorganization of the Company.
In case (i) the Company is merged or consolidated with another
corporation and the Company is not the surviving corporation, (ii) all or
substantially all of the assets or more than 50% of the outstanding voting stock
of the Company is acquired by any other corporation or (iii) of a reorganization
or liquidation of the Company, the Board of Directors of the Company, or the
board of directors of any corporation assuming the obligations of the Company,
shall, as to outstanding options, either (x) make appropriate provision for the
protection of any such outstanding options by the substitution on an equitable
basis of appropriate stock of the Company, or of the merged, consolidated or
otherwise reorganized corporation which will be issuable in respect of the
shares of Common Stock of the Company, provided that no additional benefits
shall be conferred upon optionees as a result of such substitution, and the
excess of the aggregate fair market value of the shares subject to the options
immediately after such substitution over the purchase price thereof is not more
than the excess of the aggregate fair market value of the shares subject to the
option immediately before such substitution over the purchase price thereof, or
(y) upon written notice to the optionees, provide that all unexercised options
must be exercised within a specified number of days of the date of such notice
or they will be terminated. In any such case, the Board of Directors may, in its
discretion, accelerate the exercise dates of outstanding options.
17. No Special Employment Rights.
Nothing contained in the Plan or in any option granted under the Plan
shall confer upon any option holder any right with respect to the continuation
of his or her employment by the Company (or any Parent Corporation or
Subsidiary) or interfere in any way with the right of the Company (or any Parent
Corporation or Subsidiary), subject to the terms of any separate employment
agreement to the contrary, at any time to terminate such employment or to
increase or decrease the compensation of the option holder from the rate in
existence at the time of the grant of an option. Whether an authorized leave of
absence, or absence in military or government service, shall constitute
termination or cessation of employment for purposes of this Plan shall be
determined by the Board of Directors.
-7-
<PAGE> 8
18. Other Employee Benefits.
The amount of any compensation deemed to be received by an employee as
a result of the exercise of an option or the sale of shares received upon such
exercise will not constitute "earnings" with respect to which any other employee
benefits of such employee are determined, including without limitation benefits
under any pension, profit sharing, life insurance or salary continuation plan.
19. Definition of Subsidiary and Parent Corporation.
(a) Subsidiary. The term "Subsidiary" as used in the Plan shall mean
any corporation in an unbroken chain of corporations beginning with the Company
if each of the corporations other than the last corporation in the unbroken
chain owns stock possessing 50% or more of the total combined voting power of
all classes of stock in one of the other corporations in such chain. For
purposes of grants of non-statutory stock options only, the term "Subsidiary"
shall also mean any partnerships or limited partnerships for which the Company
or any Subsidiary controls 50% or more of the voting power of such partnership
or limited partnership, or any corporation in an unbroken chain of Subsidiaries
if each of the Subsidiaries other than the last Subsidiary in the unbroken chain
either owns stock possessing 50% or more of the total combined voting power of
all classes of stock in one of the other corporations or controls 50% or more of
the voting power of any such partnership or limited partnership in such chain.
(b) Parent Corporation. The term "Parent Corporation" as used in the
Plan shall mean any corporation (other than the Company) in an unbroken chain of
corporations ending with the Company if each of the corporations other than the
Company owns stock possessing 50% or more of the combined voting power of all
classes of stock in one of the other corporations in such chain.
20. Amendment of the Plan.
The Board of Directors may at any time and from time to time modify,
amend or terminate the Plan in any respect, except to the extent stockholder
approval is required by law. The termination or any modification or amendment of
the Plan shall not, without the consent of an optionee, affect his or her rights
under an option previously granted to him or her. With the consent of the
optionee affected, the Board of Directors may amend outstanding option
agreements in a manner not inconsistent with the Plan. The Board of Directors
shall have the right to amend or modify the terms and provisions of the Plan and
of any outstanding Incentive Stock Options granted under the Plan to the extent
necessary to qualify any or all such options for such favorable federal income
tax treatment (including deferral of taxation upon exercise) as may be afforded
incentive stock options under Section 422 of the Code.
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<PAGE> 9
21. Withholding.
The Company's obligation to deliver shares upon the exercise of any
option granted under the Plan shall be subject to the optionee's satisfaction of
all applicable federal, state and local income and employment tax withholding
requirements.
22. Effective Date and Duration of the Plan.
(a) Effective Date. The Plan shall become effective when adopted by the
Board of Directors and approved by the Company's stockholders and shall not be
effective unless and until so adopted and approved. Upon the effectiveness of
the Plan, additional grants of options may not be made under the Company's 1998
Stock Option Plan.
(b) Termination. Unless earlier terminated by the Board of Directors,
the Plan shall terminate upon the earlier of (i) the close of business on March
10, 2009 or (ii) the date on which all shares available for issuance under the
Plan shall have been issued pursuant to the exercise or cancellation of options
granted under the Plan. If the date of termination is determined under (i)
above, then options outstanding on such date shall continue to have force and
effect in accordance with the provisions of the instruments evidencing such
options.
Adopted on December 2, 1998
by the Board of Directors
of Ecogen Inc.
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<PAGE> 1
EXHIBIT 10.145
AMENDED AND RESTATED
STOCK AWARD AGREEMENT
This Amended and Restated Stock Award Agreement (as further amended,
supplemented, restated or otherwise modified from time to time, this
"Agreement") is dated as of April 9, 1999 (the "Effective Date") between Ecogen
Inc., a Delaware corporation having its principal place of business at 2000
Cabot Blvd. West, Suite 170, Langhorne, Pennsylvania, 19047 (the "Company"), and
James P. Reilly, Jr., whose principal residence is 16 Inlet Terrace, Belmar, NJ
07719 ("Employee").
WHEREAS, in connection with and in consideration of services rendered
to the Company by Employee, the Company has previously awarded to Employee
shares of the Company's Common Stock, $.01 par value per share (the "Common
Stock") pursuant to that certain Stock Award Agreement (the "Original
Agreement"), dated September 23, 1998 (the "Award Date"); and
WHEREAS, by Unanimous Written Consent of the Board of Directors of the
Company dated as of the Effective Date, the Company has agreed to amend and
restate the Original Agreement to provide that (i) the Award Shares (as defined
below) are fully vested as of the Effective Date, (ii) the Company will make
payments to the extent of any income taxes owed by Employee resulting from the
award of the Award Shares and (iii) Employee will repay to the Company any such
tax payments, plus interest on such amount equal to six percent (6%) per annum,
if Employee voluntarily resigns from the Company or is terminated for Cause (as
defined below) at any time prior to September 23, 2000.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and benefits provided herein, the Original Agreement is amended,
restated and superseded in its entirety as follows:
1. Award of Shares.
(a) The Company hereby re-affirms its award, as of the Award Date and
subject to the terms and conditions set forth herein, to Employee of 100,000
shares of Common Stock (the "Award Shares").
(b) The Award Shares shall fully vest as of the Effective Date.
Employee shall have voting, dividend and all other rights with respect to the
Award Shares as of the Effective Date.
2. Representations of Employee. Employee represents and warrants that
the acquisition of the Award Shares is for his own account, for investment
purposes only and not with a view towards distribution.
<PAGE> 2
3. Tax Consequences.
(a) Subject to the provisions set forth in Section 3(b) below, the
Company shall pay, as additional compensation to Employee, or, on behalf of
Employee, to the Internal Revenue Service or the appropriate state and local
taxing authorities, as the case may be, the sum (the "Tax Amount") of (i) all
federal (including, without limitation, Medicare taxes), state and local taxes
("Taxes") due by Employee as a result of the award to Employee of the Award
Shares, plus (ii) all Taxes paid or required to be paid with respect to the
receipt of the amount set forth in clause (i) above (including, without
limitation, any taxes on such additional amount).
(b) If, prior to September 24, 2000 (the "Tax Re-Payment Period"),
Employee voluntarily resigns his employment with the Company or is terminated
with "Cause" (as hereinafter defined), then Employee shall, not later than
[ninety (90) days] after the date of such resignation or termination (the
"Termination Date"), repay to the Company an amount (the "Tax Re-Payment
Amount") equal to (x) the Tax Amount plus (y) interest on the Tax Amount, which
interest shall be calculated for the period from the date of payment of the Tax
Amount to the Termination Date, at a rate of six percent (6%), compounded
semi-annually. The Company and Employee hereby agree to cooperate with respect
to the determination of the appropriate manner in which to treat any Tax
Re-Payment Amount paid by Employee pursuant to the terms hereof. Other than as a
result of Employee's voluntary resignation or termination for "Cause" (as
hereinafter defined), Employee shall have no obligation to pay the Tax
Re-Payment Amount to the Company, including, without limitation, upon a
"Constructive Termination Without Cause" (as hereinafter defined).
(c) Any payment required to be made by Employee hereunder may be made,
at Employee's election in (x) funds constituting lawful money of the United
States of America or (y) shares of Common Stock. If Employee makes any payment
with shares of Common Stock, the Market Value (as hereinafter defined) of the
Common Stock as of the close of business on the Termination Date, or if such day
is not a business day, then as of the close of business on the last business day
preceding the Termination Date, shall be used to determine the number of shares
of Common Stock which will be necessary to make such payment. Title to all
shares of Common Stock used to make any payment hereunder shall be transferred
free and clear of liens and encumbrances and Employee shall duly execute and
deliver to the Company instruments of transfer containing representations and
warranties to that effect and shall do and cause to be done such further acts as
may be necessary or proper in the reasonable opinion of the Company to properly
transfer such shares.
(d) Employee hereby represents that prior to or on the date hereof,
Employee has generally been advised of the tax consequences to him of entering
into this Agreement, and Employee has obtained appropriate legal or tax advice
with respect to (i) receiving the Award Shares and (ii) the effect of his
voluntarily resigning his employment with the Company or being terminated with
Cause prior to the end of the Tax Re-Payment Period (and the payment of the Tax
Re-Payment Amount in connection therewith to the Company).
2
<PAGE> 3
4. Definitions. The following terms used in this Agreement shall have
the following respective meanings:
(a) "Cause" for purposes of this Agreement shall include, but not be
limited to, any violation by Employee of the employee policies or standards of
the Company, including, but not limited to, fraud, theft, insubordination,
failure or refusal to perform job duties in accordance with the Company's
standards, any violation by Employee of his obligations to the Company of
non-disclosure, non-competition or non-solicitation, any breach by Employee of
any provision of this Agreement, or any act or conduct of Employee having, or
likely to have, a material and adverse effect upon the Company's technical,
scientific or business reputation. All determinations of "Cause" under this
Agreement will be made reasonably by a majority vote of the Board of Directors
of the Company, in the exercise of its sole discretion, and will be final and
binding upon Employee.
(b) "Constructive Termination Without Cause" for purposes of this
Agreement shall mean a termination of Employee's employment at his initiative
within six months following the occurrence, without Employee's prior written
consent, of one or more of the following events (except in consequence of a
prior termination), in each such case after Employee shall have given the
Company (A) prior written notice and (B) an opportunity to cure reasonable in
the circumstances:
(i) a reduction in Employee's then current salary or the
termination or material reduction of any material employee benefit or perquisite
enjoyed by him (other than as part of an across-the-board reduction of such
benefit or perquisite applicable to all executive officers of the Company);
(ii) removal of Employee from any of his current positions
with the Company (including any directorship) other than in connection with or
as a result of the sale of any subsidiary of the Company or the creation of a
position (other than a directorship) in the Company of equal or superior rank to
the highest position then held by Employee in the Company;
(iii) a material diminution in Employee's duties or
responsibilities or the assignment to Employee of duties which are materially
inconsistent with his duties or which materially impair Employee's ability to
function in his position, provided, however that under no circumstances will the
sale of any of the assets or business of the Company be deemed to be a material
diminution of Employee's duties or responsibilities;
(iv) the failure of the Company to obtain the assumption in
writing of its obligation to perform this Agreement by any successor to the
Company or its business within 15 days after the occurrence of the transaction
which results in such person or entity becoming a successor to the Company or
its business; or
3
<PAGE> 4
(v) a Change in Control. For purposes of this Section 4(b)(v),
"Change of Control" shall mean (i) any sale, lease, license, exchange or other
transfer (in one transaction or a series of related transactions) of all, or
substantially all, of the business and/or assets of the Company or (ii) the
possession by any person or entity of beneficial ownership (as such term is
defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of
over 50% of the then outstanding voting securities of the Company; provided,
that no Change in Control shall be deemed to occur unless and until, after the
occurrence of such event, a majority of the members of the Board of Directors of
the Company are removed or replaced within six months following such Change in
Control.
(c) "Market Value" for purposes of this Agreement shall mean, as of any
date (the "Value Date"), the average closing price of the Common Stock as
reported on the National Association of Securities Dealers Automated Quotation
System ("Nasdaq") or, if the Common Stock is then listed on a stock exchange,
the principal stock exchange on which the Common Stock is listed, for the ten
(10) trading days immediately prior to the Value Date for which a closing price
is available. If the Common Stock is not reported on the Nasdaq or listed on any
stock exchange, then "Market Value" shall be determined in good faith by the
Company's Board of Directors.
5. Legends. Stock certificates representing the Award Shares may bear
legends reflecting such restrictions as the Company deems appropriate and in its
best interest in accordance with the terms and conditions of this Agreement,
including a legend to the effect that the Award Shares may not be transferred
unless such Award Shares are registered under the Securities Act of 1933, as
amended, or an exemption from such registration is available. In such event, the
Company may refuse to transfer ownership of the Award Shares on its corporate
record books until Employee has complied with any such restrictions.
6. Non-transferability of Stock Award Agreement. This Agreement is
personal and no rights hereunder may be transferred, assigned, pledged or
hypothecated in any way (whether by operation of law or otherwise) nor shall
such rights be subject to execution, attachment or similar process. Upon any
attempt to transfer, assign, pledge, hypothecate or otherwise dispose of this
Agreement or of such rights contrary to the provision hereof, or upon the levy
of any attachment or similar process upon this Agreement or such rights, any
such rights shall, at the election of the Company, become null and void.
7. Delivery of Award Shares. Employee hereby represents that, as of the
Effective Date, he has received certificates evidencing the Award Shares.
8. No Special Employment Rights. Employee acknowledges that nothing
contained in this Agreement will confer upon Employee any right with respect to
the continuation of his employment by the Company or interfere in any way with
the right of the Company, subject to the terms of any separate employment
agreement to the contrary, at any time to terminate such employment or to
increase or decrease the compensation of Employee from the rate in existence as
of the Award Date.
4
<PAGE> 5
9. Miscellaneous.
(a) This Agreement and any instrument delivered pursuant to this
Agreement will be construed, interpreted and governed by the laws of the
Commonwealth of Pennsylvania without regard to the conflicts of laws rules
thereof.
(b) This Agreement will be binding upon Employee, his legal
representatives, heirs and distributees, and the Company, its successors and
assigns regardless of any change in the business structure of the Company, be it
through spinoff, merger, sale of stock, sale of assets or any other transaction.
(c) This Agreement constitutes the entire agreement of the parties
hereto with respect to the subject matter hereof. No waiver, modification or
change of any provision of this Agreement will be valid unless in writing and
signed by both parties. The headings of the sections of this Agreement are
inserted for convenience of reference only and will not be deemed to constitute
a part hereof or to affect the meaning hereof.
(d) The waiver of any breach of any duty, term or condition of this
Agreement will not be deemed to constitute a waiver of any preceding or
succeeding breach of the same or of any other duty, term or condition of this
Agreement.
(e) All notices pursuant to this Agreement will be in writing and will
be sent by prepaid certified mail, return receipt requested, addressed to the
parties hereto at the addresses set forth in this Agreement or to such other
addresses as may hereafter be specified by like notice in writing by either of
the parties.
(f) This Agreement may be executed in counterparts, each of which will
be deemed an original but all of which will together constitute one and the same
agreement.
[SIGNATURE PAGE FOLLOWS]
5
<PAGE> 6
IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the day and year first above written.
Ecogen Inc.
By: /s/ Mary E. Paetzold
------------------------
Name: Mary E. Paetzold
Title: Vice President and Chief Financial Officer
/s/ James P. Reilly, Jr.
---------------------------
James P. Reilly, Jr.
6
<PAGE> 1
EXHIBIT 10.146
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: May 12, 1999
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 120,000 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 $3.98
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 May 12, 2004 (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
<PAGE> 2
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 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 11 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 five (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.
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<PAGE> 3
(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 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.
(d)(i) The Holder may not exercise this Warrant to the extent
such exercise would result in the Holder, together with any affiliate thereof,
beneficially owning (as determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and the rules
thereunder) in excess of 4.999% of the then issued and outstanding shares of
Common Stock. The Holder shall have the sole authority and obligation to
determine whether the restriction contained in this Section applies and to the
extent that the Holder determines that the limitation contained in this Section
applies, the determination of which portion of this Warrant is exercisable shall
be in the sole discretion of the Holder, and the Company shall have no
obligation to verify or confirm the accuracy of any such determination. The
provisions of this Section may be waived by the Holder 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).
(ii) The Holder may not exercise this Warrant to the extent
such exercise would result in the Holder, together with any affiliate thereof,
beneficially owning (as determined in accordance with Section 13(d) of the
Exchange Act and the rules thereunder) in excess of 9.999% of the then issued
and outstanding shares of Common Stock. The Holder shall have the sole authority
and obligation to determine whether the restriction contained in this Section
applies and to the extent that the Holder determines that the limitation
contained in this Section applies, the determination of which portion of this
Warrant is exercisable shall be in the sole discretion of the Holder, and the
Company shall have no obligation to verify or confirm the accuracy of any such
determination. The provisions of this Section may be waived by the Holder 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).
(iii) Notwithstanding anything herein to the contrary, unless
the Company shall have previously (A) received the shareholder approval as may
be required under Rule 4310(H)(i)(b) of the NASDAQ Stock Market or (B) obtained
an exemption from the requirement from the NASDAQ Stock Market for such
shareholder approval, the Holder shall not exercise this Warrant to the extent
such exercise would result in the Holder holding in excess of 25% of the number
of shares of Common Stock outstanding on the date hereof.
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
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<PAGE> 4
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 May 12, 1999, between the Company and the
Purchaser named therein (as may be amended, modified or supplemented from time
to time, 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.
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.
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
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<PAGE> 5
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 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.
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<PAGE> 6
(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 Convertible
Preferred Stock Purchase Agreement, dated as of May 12, 1999, between the
Company and the original Holder of this Warrant) for the ten (10) 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 exchangeable into shares
of Common Stock, then such record date shall be deemed to be the date
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<PAGE> 7
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 Stock is
converted into other securities, cash or
property; or
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<PAGE> 8
(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 10, 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 confirmed 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
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<PAGE> 9
via confirmed 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 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., 2000 Cabot Boulevard West, Suite 170, 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 11.
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.
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<PAGE> 10
(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 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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<PAGE> 11
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> 12
FORM OF ELECTION TO PURCHASE
(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Warrant)
To Ecogen Inc.
In accordance with the Warrant enclosed with this Form of Election to
Purchase, the undersigned hereby irrevocably elects to purchase _____________
shares of Common Stock ("Common Stock"), $.01 par value per share, of Ecogen
Inc. and, if such Holder is not utilizing the cashless exercise provisions set
forth in this Warrant, encloses herewith $________ in cash, certified or
official bank check or checks or wire transfer of immediately available funds,
which sum represents the aggregate Exercise Price (as defined in the Warrant)
for the number of shares of Common Stock to which this Form of Election to
Purchase relates, together with any applicable taxes payable by the undersigned
pursuant to the Warrant.
The undersigned requests that certificates for the shares of Common
Stock issuable upon this exercise be issued in the name of:
PLEASE INSERT SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER
--------------------------------
- - --------------------------------------------------------------------------------
(Please print name and address)
If the number of shares of Common Stock issuable upon this exercise
shall not be all of the shares of Common Stock which the undersigned is entitled
to purchase in accordance with the enclosed Warrant, the undersigned requests
that a New Warrant (as defined in the Warrant) evidencing the right to purchase
the shares of Common Stock not issuable pursuant to the exercise evidenced
hereby be issued in the name of and delivered to:
- - --------------------------------------------------------------------------------
(Please print name and address)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
Dated: Name of Holder:
------------------, ----
(Print)
---------------------------
(By:)
-----------------------------
(Name:)
(Title:)
(Signature must conform in all
respects to name of holder as
specified on the face of the
Warrant)
<PAGE> 13
FORM OF ASSIGNMENT
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase ____________ shares of Common Stock of Ecogen Inc. to which
the within Warrant relates and appoints ________________ attorney to transfer
said right on the books of [ ] with full power of substitution in the premises.
Dated:
- - ---------------, ----
---------------------------------------
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant)
---------------------------------------
Address of Transferee
---------------------------------------
---------------------------------------
In the presence of:
- - --------------------------
<PAGE> 1
EXHIBIT 10.147
===============================================================================
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
Between
ECOGEN INC.
and
KA INVESTMENTS LDC
Dated as of May 12, 1999
===============================================================================
<PAGE> 2
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (this "Agreement"),
dated as of May 12, 1999, 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 7%
Series 1999-A Convertible Preferred Stock, par value $.01 per share
(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 15,000 shares of the Preferred Stock
(the "Shares").
(b) The Preferred Stock shall have the respective rights,
preferences and privileges set forth in the form of the Certificate of
Designations, Preferences and Rights of 7% Series 1999-A Convertible Preferred
Stock attached hereto as Exhibit A, which shall be approved by the Purchaser and
filed prior to the time of the Closing (as defined below) by the Company with
the Secretary of State of Delaware (the "Certificate of Designations").
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 Certificate of Designations.
1.2 Purchase Price. The purchase price per Share shall be $100.00.
1.3 The Closing. (a) The closing of the purchase and sale of the Shares
(the "Closing") shall take place at the offices of Paul, Hastings, Janofsky &
Walker LLP, 1055 Washington Boulevard, Stamford, CT 06901, immediately following
the execution hereof or such later date or at such other place as the parties
shall agree. The date of the Closing is hereinafter referred to as the "Closing
Date."
(b) At the Closing, the parties shall deliver or shall cause
to be delivered the following: (i) the Company shall deliver to the Purchaser
(1) a stock certificate representing 15,000 Shares registered in the name of the
Purchaser, (2) a five year common
<PAGE> 3
stock purchase warrant in the form of Exhibit B (the "Warrant") entitling the
Purchaser to purchase an aggregate of 120,000 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 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
C, dated the Closing Date, and (4) all other documents, instruments and writings
required to have been delivered at or prior to the 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 D (the "Registration Rights Agreement"), and the Irrevocable Transfer
Agent Instructions, dated the Closing Date, in the form of Exhibit E, delivered
to and acknowledged by the Company's transfer agent (the "Transfer Agent
Instructions"); and (ii) the Purchaser shall deliver to the Company (1)
$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 Closing Date (the "Purchase Price") less the amounts referred to in
Section 4.1, and (2) all documents, instruments and writings required to have
been delivered at or prior to the Closing Date by the Purchaser pursuant to this
Agreement, including an executed Registration Rights Agreement.
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 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 Certificate of Designations, the Warrant 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
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<PAGE> 4
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 Warrant, securities, rights or obligations convertible into or exchangeable
for, or giving any Person any right to 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
-3-
<PAGE> 5
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 Warrant. The Shares and the
Warrant are duly authorized, and, when issued and paid for in accordance with
the terms hereof, will be 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, at all times
while the Shares and the Warrant are outstanding, will maintain an adequate
reserve of duly authorized shares of Common Stock, reserved for issuance to the
holders of the Shares and the Warrant to enable it to perform its conversion,
exercise and other obligations under this Agreement, the Certificate of
Designations and the Warrant. 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 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 Warrant, 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 Warrant are collectively referred to herein as the "Underlying
Shares." The Shares, the Dividend Shares, the Warrant and the Underlying Shares
are collectively referred to herein as the "Securities." When issued in
accordance with the Certificate of Designations and upon exercise of the
Warrant, in accordance with their respective terms, the Underlying Shares will
be 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 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
-4-
<PAGE> 6
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 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 Certificate of Designations with the Secretary of State
of Delaware, (ii) the filing of an initial Registration Statement with the
Securities and Exchange Commission (the "Commission") pursuant to the
Registration Rights Agreement (the "Underlying Securities Registration
Statement"), (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, 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.
(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
-5-
<PAGE> 7
respect to each of (i), (ii) and (iii), 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)-(g), 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 normal, immaterial, year-end
audit adjustments. Since October 31, 1998, except as specifically disclosed in
the SEC Documents, (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
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<PAGE> 8
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 January
15, 1999, 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 eligible to register
securities for resale with the Commission under Form S-3 promulgated under the
Securities Act.
(o) Seniority. 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
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<PAGE> 9
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 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 Underlying Securities 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
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
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<PAGE> 10
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 Warrant, it was, and at the date hereof, it is, and at each
exercise date under the Warrant, 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 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
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<PAGE> 11
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 the
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 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
the Purchaser under this Agreement and the Registration Rights Agreement.
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<PAGE> 12
(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.
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 Warrant or other issuances of Underlying Shares as contemplated hereby or
by the Certificate of Designations 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 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 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 Certificate of Designations, and (ii)
exercise of the Warrant, 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 Certificate of Designations, and (y) exercise of the Warrant, is
unconditional and absolute, subject to the limitations set forth in this
Agreement,
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<PAGE> 13
in the Certificate of Designations or pursuant to the Warrant, 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 l3(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 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.
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<PAGE> 14
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 Warrant 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 thirty (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 Certificate of Designations and the Warrant
(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 Warrant, 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 sixtieth (60th) day after
delivery of the proxy materials relating to such meeting) and (c) within five
(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 tenth (10th) day following the 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
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 Warrant, exceeds 85% of the number of Underlying
Shares previously listed on account thereof with NASDAQ (and other required
exchanges), the
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<PAGE> 15
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 Warrant.
(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 Warrant 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
Warrant.
3.8 [Intentionally omitted.]
3.9 Conversion Procedures. The Transfer Agent Instructions,
Conversion Notice (as defined in Exhibit A) and Notice of Exercise under the
Warrant set forth the totality of the procedures with respect to the conversion
of the Shares and Dividend Shares and exercise of the Warrant, 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 Warrant as contemplated in the Certificate Designations and the
Warrant (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 the 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
Warrant and shall
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deliver Underlying Shares in accordance with the respective terms and
conditions and time periods set forth in the Certificate of Designations and
the Warrant.
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 Placement")
for a period of 180 days after the 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),
(iii) shares of Common Stock issued upon conversion of the Shares and Dividend
Shares in accordance with the Certificate of Designations, 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
effected, 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
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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 for a period of not less than ninety
(90) Trading Days after the later to occur of (1) the date that an Underlying
Securities Registration Statement is declared effective by the Commission and
(2) the ninetieth (90th) Trading Day after the 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 the
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 the 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
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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 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
MISCELLANEOUS
4.1 Fees and Expenses. On the Closing Date, the Purchase Price shall
be reduced by (i) $94,500 to be paid to Jesup & Lamont Securities Corp., and
(ii) $6,000 to be paid to Robinson Silverman Pearce Aronsohn & Berman LLP in
connection with legal fees and expenses relating to the 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.
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4.2 Entire Agreement; Amendments. This Agreement, together with the
Exhibits and Schedules hereto, the Registration Rights Agreement, the
Certificate of Designations and the Warrant 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.
4.3 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 confirmed 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 confirmed
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.
2000 Cabot Boulevard West
Suite 170
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 Deephaven Capital Management LLC
1712 Hopkins Crossroads
Minnetonka, MN 55305
Facsimile No.: (612) 542-4244
Attn: Ivana Bozjak
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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.
4.4 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.
4.5 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.
4.6 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 or
assign rights hereunder or under the Registration Rights Agreement, each in
accordance with the terms of this Agreement.
4.7 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.
4.8 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.
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<PAGE> 21
4.9 Survival. The representations, warranties, agreements and
covenants contained herein shall survive the Closing and the delivery and
conversion or exercise (as the case may be) of the Shares, the Dividend Shares
and the Warrant.
4.10 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.
4.11 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.
4.12 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 affected 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.
4.13 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.
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<PAGE> 22
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.
-------------------------------
Name: James P. Reilly, Jr.
Title: Chairman and CEO
KA INVESTMENTS LDC
By: /s/ Gary Sobcjak
-------------------------------
Name: Gary Sobcjak
Title: Secretary
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<PAGE> 23
SCHEDULE 2.1(a)
SUBSIDIARIES*
State or Other Jurisdiction of
Name of Subsidiary Incorporation or Organization
- - ------------------ ------------------------------
Ecogen-Bio Inc. Delaware
Ecogen Investments Inc. Delaware
Ecogen-Jerusalem Inc. Delaware
Ecogen-Israel Delaware
Ecogen-Technologies I Incorporated Delaware
Ecogen-Bio Germany GmbH Delaware
Ecogen Biotechnologies Israel Ltd. Israel
Ecogen Israel International Inc. Delaware
* All of the subsidiaries listed above are wholly-owned subsidiaries of
Ecogen Inc. with the exception of Ecogen Technologies I Incorporated of
which Ecogen Inc. owns approximately 70% of the outstanding common stock.
The following corporations, all of which were incorporated under the laws
of the state of Delaware, are wholly-owned subsidiaries of Ecogen
Technologies I Incorporated; Ecoresearch Mildew I Inc., Ecoresearch Harvest
Rot II Inc., Ecoresearch Corn Borer III Inc., Ecoresearch Nematodes IV
Inc., Ecoresearch Rootworm V Inc. and Ecoresearch Turf VI Inc.
<PAGE> 24
SCHEDULE 2.1(c)
CAPITALIZATION
1. 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, 20,000 have been designated
Series 1998-B Convertible Preferred Stock and 50,000 have been
designated Series 1998-C Convertible Preferred Stock. As of May 7,
1999, 9,446,901 shares of Common Stock and 32,354 shares of Series
1998-C Convertible Preferred Stock were outstanding.
2. The Convertible Preferred Stock Purchase Agreement, dated as of August
20, 1998, between Ecogen Inc. and United Equities (Commodities)
Company, among other things, provides: (i) United Equities has certain
anti-dilution protections in the event Ecogen issues shares of its
common stock or securities convertible into common stock; and (ii)
United Equities has certain registration rights.
3. As of May 7, 1999, the Company had outstanding options to purchase up
to 422,210 shares of the Company's Common Stock pursuant to the terms
of the Company's 1987 Stock Option Plan (the "1987 Plan"). No grants of
stock options have been made under the 1987 Plan since July 31, 1998.
As of May 7, 1999, the Company had outstanding options to purchase up
to 675,000 shares of the Company's Common Stock pursuant to the terms
of the Company's 1998 Stock Option Plan (the "1998 Plan"). No
additional stock options will be granted under the 1998 Plan. As of May
7, 1999, the Company had outstanding options to purchase up to 650,000
shares of the Company's Common Stock pursuant to the terms of the
Company's 1999 Stock Option Plan (the "1999 Plan"). Up to 850,000
shares of the Company's Common Stock are available for issuance in
connection with options to be granted under the 1999 Plan. As of May 7,
1999, the Company had outstanding warrants and options (exclusive of
options issued under the 1987 Plan, the 1998 Plan and the 1999 Plan) to
purchase up to 316,121 shares of the Company's Common Stock.
4. Convertible securities held by KA Investments.
5. In connection with Ecogen's Amended and Restated Convertible Preferred
Stock Purchase Agreement with KA Investments, Jesup & Lamont Securities
Corp. received 24,000 shares of Common Stock and will be entitled to
receive an additional
<PAGE> 25
20,000 shares of Common Stock on the Closing Date. Jesup & Lamont have
certain registration rights with respect to the additional 20,000
shares of Common Stock.
6. Investment Agreement, dated as of January 24, 1996, between Ecogen Inc.
and Monsanto Company, among other things, provides: (i) Monsanto has a
right of first refusal in the event Ecogen sells shares of its common
stock or other voting securities; and (ii) certain registration rights.
<PAGE> 26
SCHEDULE 2.1(f)
CONSENTS AND APPROVALS
Monsanto Company (which has been obtained)
United Equities (Commodities) Company (which has been obtained)
<PAGE> 27
SCHEDULE 3.12
SUBSEQUENT FINANCINGS
In connection with Ecogen's Amended and Restated Convertible Preferred Stock
Purchase Agreement with KA Investments, Jesup & Lamont Securities Corp. received
24,000 shares of Common Stock and will be entitled to receive an additional
20,000 shares of Common Stock on the Closing Date. Jesup & Lamont have certain
registration rights with respect to the additional 20,000 shares of Common
Stock.
<PAGE> 1
Exhibit 10.148
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made
and entered into as of May 12, 1999, 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 (as amended, modified or supplemented from time to time, 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(m).
"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 Preferred Stock and exercise of the
Warrant, the 120th day following the
<PAGE> 2
Closing Date and (ii) 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(b).
"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 Preferred Stock and exercise of the
Warrant, the 30th day following the Closing Date and (ii) 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 7% Series
1999-A 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 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.
2
<PAGE> 3
"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 Warrant and the Trigger 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 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 Warrant, 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 Warrant, 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.
3
<PAGE> 4
"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.
"Trigger Warrants" means the common stock purchase warrants
issuable to the Purchaser pursuant to Section 5(a)(iii) of the Certificate of
Designations filed in connection with the authorization of the Preferred Stock.
"Warrant" means the 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 Certificate of Designations (as defined in the Purchase
Agreement) and (ii) exercise of the Warrant 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 Warrant) in accordance with the
terms of the Warrant, provided that any Registration Statements covering
Registrable Securities issuable upon exercise of Trigger Warrants will 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
exercise of Trigger 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 Trigger Warrants) in accordance with the terms
of the Trigger Warrants.
4
<PAGE> 5
(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 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.
5
<PAGE> 6
(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 therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
6
<PAGE> 7
(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 financial 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
(2) Business Days prior to any sale of Registrable Securities.
7
<PAGE> 8
(i) Upon the occurrence of any event contemplated by Section
3(c)(v), as promptly as reasonably possible, prepare a supplement or amendment,
including a post-effective 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.
8
<PAGE> 9
(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 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(i) 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(i), 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
9
<PAGE> 10
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 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 Company 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
attorneys' 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
10
<PAGE> 11
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 (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.
11
<PAGE> 12
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 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 ten (10) Business Days of written notice thereof to the
Indemnifying Party (regardless of whether it is ultimately determined that an
Indemnified Party is not entitled to indemnification 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
12
<PAGE> 13
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 Per son who was
not guilty of such fraudulent misrepresentation.
The indemnity and contribution agreements contained in this
Section are in addition 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
compensation 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,
13
<PAGE> 14
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
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.
14
<PAGE> 15
(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 confirmed
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
confirmed 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.
2000 Cabot Boulevard West
Suite 170
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 Deephaven Capital Management LLC
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.
15
<PAGE> 16
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 Trigger
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 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.
16
<PAGE> 17
(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 Agreement 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]
17
<PAGE> 18
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 Sobcjak
-------------------------------
Name: Gary Sobcjak
Title: Secretary
<PAGE> 19
Annex A
-------
Plan of Distribution
--------------------
The Selling Stockholders and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of Common Stock on any stock exchange market or trading facility on which the
shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. The Selling Stockholders may use any one or more of the
following methods when selling shares:
o ordinary brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
o block trades in which the broker-dealer will attempt to sell the shares as
agent but may position and resell a portion of the block as principal to
facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the broker-dealer
for its account;
o an exchange distribution in accordance with the rules of the applicable
exchange;
o privately negotiated transactions;
o short sales;
o broker-dealers may agree with the Selling Stockholders to sell a specified
number of such shares at a stipulated price per share;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
The Selling Stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
The Selling Stockholders may also engage in short sales against the
box, puts and calls and other transactions in securities of the Company or
derivatives of Company securities and may sell or deliver shares in connection
with these trades. The Selling Stockholders may pledge their shares to their
brokers under the margin provisions of customer agreements. If a Selling
Stockholders defaults on a margin loan, the broker may, from time to time, offer
and sell the pledged shares.
<PAGE> 20
Broker-dealers engaged by the Selling Stockholders may arrange for
other brokers-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the Selling Stockholders (or, if any broker-dealer
acts as agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The Selling Stockholders do not expect these commissions and
discounts to exceed what is customary in the types of transactions involved.
The Selling Stockholders and any broker-dealers or agents that are
involved in selling 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 (not to exceed
$5,000) of counsel to the Selling Stockholders. The Company has agreed to
indemnify the Selling Stockholders against certain losses, claims, damages and
liabilities, including liabilities under the Securities Act.
2
<PAGE> 21
SCHEDULE 6(b)
REGISTRATION RIGHTS
-------------------
The following parties have registration rights:
Monsanto Company (with respect to 943,397 shares of Common Stock).
United Equities (Commodities) Company (with respect to shares of Common
Stock underlying 32,354 shares of Ecogen's 8% 1998-C Convertible Preferred
Stock).
The Purchaser pursuant to the Registration Rights Agreement, dated June
5, 1998.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> APR-30-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 3,010,885
<ALLOWANCES> 62,700
<INVENTORY> 5,576,518
<CURRENT-ASSETS> 8,952,919
<PP&E> 8,615,153
<DEPRECIATION> 5,941,093
<TOTAL-ASSETS> 12,341,234
<CURRENT-LIABILITIES> 4,447,880
<BONDS> 0
0
324
<COMMON> 94,469
<OTHER-SE> 3,345,173
<TOTAL-LIABILITY-AND-EQUITY> 12,341,234
<SALES> 3,522,502
<TOTAL-REVENUES> 4,118,779
<CGS> 2,793,408
<TOTAL-COSTS> 4,524,646
<OTHER-EXPENSES> (16,246)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 245,348
<INCOME-PRETAX> (3,428,377)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,428,377)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,428,377)
<EPS-BASIC> (.41)
<EPS-DILUTED> (.41)
</TABLE>
